Amid a debate on whether the government should ban futures trading in farm commodities to check inflation, the Economic Survey on Tuesday recommended dedicated markets for determining prices of agri-products.
"Futures market, as observed from the cross-country experience of active commodity futures markets, helps in efficient price discovery of the respective commodities and does not impair the long-term equilibrium price of commodities," stated the Economic Survey 2006-07 tabled in Parliament by Finance Minister P Chidambaram.
Referring to fears about speculators, it pointed out "at times, price behaviour of a commodity in the futures market might show some aberrations...but it quickly reverts to long-run equilibrium price, as information flows in, reflecting fundamentals of the respective market".
Almost giving a clean chit to speculators, the Survey said they play a role in providing liquidity to markets and may sometimes benefit from price movements, but do not have a "systematic causal influence on prices".
It stressed the need to implement proposed amendments to the Forwards Contracts (Regulation Act), 1952 to ensure orderly conditions in the commodity futures market.
An effective architecture for regulating trading and for ensuring transparency as well as timely flow of information to the market participants will enhance the utility of commodity exchanges in efficient price discovery and minimise price shocks triggered by unanticipated supply-demand mismatches, it added. Economic Survey 2006-07: Complete Coverage
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