THE EXPERT COMMITTEE TO STUDY THE IMPACT OF FUTURES TRADING ON AGRICULTURAL COMMODITY PRICES
Ministry of Consumer Affairs, Food & Public Distribution Government of India
1. Introduction 2. History 3. Growth of the Market 4. Futures Trade and Price Movements 5. Findings of IIMB and Other Studies 6. Steps to Minimise the Potential Risk of Futures Trading 7. Farmers Participation in Commodity Futures Market 8. Apprehensions of Existing Traders of Agricultural Commodities 9. Booming Futures Trade in Stagnant Agri-Economy ? 10. Consultations with Stakeholders 11. Summary of Findings and Recommendations Supplementary Notes Statement Appendices Annexures
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1.1 In the wake of consistent rise of rate of inflation during the first quarter of calendar year 2007 and responding to the concerns expressed at various fora and by various opinions including by Parliamentary Standing Committee of the Ministry of Consumer Affairs, Food and Public Distribution in its 17th Report, an Expert Committee was set up under the Chairmanship of Prof. Abhijit Sen, Member, Planning Commission to examine whether and to what extent futures trading has contributed to price rise in agricultural commodities. The terms of reference of the Committee are as follows: i) ii) iii) To study the extent of impact, if any, of futures trading on wholesale and retail prices of agricultural commodities; Depending on (i), to suggest ways to minimize such an impact; Make such other recommendations as the Committee may consider appropriate regarding increased association of farmers in the futures market/trading so that farmers are able to get the benefit of price discovery through Commodity Exchanges.
1.2 The constitution and terms of reference of the Expert Committee to Study the Impact of Futures Trading on Agricultural Commodity Prices (ECFT) are given in Annexure-I.
1.3 The Expert Committee met ten times and also met various individuals, dignitaries, heads/representatives of various government departments/agencies, commodity exchanges and various corporates and cooperatives. Presentations were also made by various institutions/organizations in response to the invitation of the Expert Committee. The list of Organisations/Institutions whose representatives met the Expert Committee is given in Annexure-II.
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2.1 The history of futures trading in commodities in India dates back to the later part th of 19 century when the first commodity exchange, viz.. the Bombay Cotton Trade Association Ltd was set up for organizing futures trading. The early 20th century saw the mushrooming of a number of commodity Exchanges. The principal commodity markets functioning in pre-independence era were the cotton markets of Bombay, Karachi, Ahmedabad and Indore, the wheat markets of Bombay, Hapur, Karachi, Lyallpur, Amritsar, Okara and Calcutta; the groundnut markets of Madras and Bombay; the linseed markets of Bombay and Calcutta; Jute and Hessian markets of Calcutta; Bullion markets of Bombay, Calcutta, Delhi and Amritsar and sugar markets of Bombay, Calcutta, Kanpur and Muzaffarnagar. There were no uniform guidelines or regulations. These were essentially outcomes of needs of particular trade communities and were based on mutual trust and faith. They were regulated by social control of close-knit groups and whenever such control failed, there would be a crisis. 2.2 In order to provide constant vigil to prevent crisis, rather than combat these after they occurred, a comprehensive legislation was enacted by the Bombay State in 1947 in the form of the Bombay Forward Contracts Control Act. On adoption of the Constitution of the Republic, the subject, “Stock...