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India futures ban mere 'posturing'

May 08, 2008 11:23 IST

India 's threat to impose a blanket ban on agricultural commodities futures trading would not ease food prices, analysts, traders and food executives warned, describing the measure as political posturing.

Analysts pointed out that the ban New Delhi imposed last year on the trade of pulses, wheat and rice fu­tures had not halted a rise in the wholesale and retail prices of those commodities.

Traders said the fact that prices continued to surge last year was a clear indication that fundamental forces, such as strong demand and shortages in supply because of adverse weather, were behind the price jumps.

After last year's ban, the government asked a panel chaired by economist Abhijit Sen to assess the impact of the measure. Mr Sen re­ported: "The panel did not find any firm evidence of futures prices of commodities influencing spot prices."

Sudakshina Unnikrishnan, an agricultural commodities analyst at Barclays Capital in London, said the notion that financial speculators were behind the increase in food prices was wrong. "The price of agricultural commodities that are barely traded in exchanges, such as rice, has also increased strongly," she said.

Nirmal Jain, the chairman of Mumbai-based brokerage house India Infoline, said any move to ban food commodity futures trading would be a "retrograde" step. "The government wants to show it is doing something about inflation but the present food price rises are a global phenomenon that is beyond the government's control," he said.

India 's government has justified the threat of the ban on popular pressure. Palaniappan Chidambaram, finance minister, told Bloom­berg: "If, rightly or wrongly, people perceive that commodities futures trading is contributing to a speculation-driven rise in prices, then in a democracy you will have to heed that voice."

Agricultural commodities futures are particularly disliked by India 's leftist politicians, who are important allies of the country's Congress party-led coalition government. The group was behind last year's ban on some futures trading.

Javier Blas in London, Joe Leahy in Mumbai
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