Free flow

New Delhi, Feb. 4: The Forward Markets Commission (FMC) will approach the government to lift the ban on four agricultural commodities — rice, wheat, urad and tur.

It will also push for policy changes to enable investment by banks and mutual funds in the futures markets.

Commission chairman B.C. Khatua told The Telegraph, “From data available, one can say that futures contract prices are correct indicators of the actual price situation ahead. Prices do not go up or down because of the futures contract.”

Futures trading in wheat, rice, urad and tur was banned last year amid fears expressed by political parties that prices were going up because of futures contracts.

Khatua said the higher prices reflected demand-supply positions in the commodities. The prices provide the government a pointer to assess the market, paving the way for appropriate measures to mitigate the situation.

“Lifting the ban will send a positive signal and boost investors’ confidence. Reality is not always the perception…imposition of the ban was bad,” Khatua said.

In the last budget, the government had announced the setting up of the Abhijit Sen Committee to look into the impact of futures trading on farm commodities. The committee is yet to submit its report.

The government has decided to promulgate an ordinance to strengthen the commodity markets regulator, the FMC, by making it fully independent. and arming it with punitive powers. The ordinance will help the FMC to take punitive action against manipulators.

Khatua said the changes would allow the regulator to undertake search and seizure operations and initiate steps to stop illegal futures trading.

The changes would empower the commission to impose fines of up to Rs 25,000 on defaulters against the present limit of Rs 1,000. The ordinance will be placed before Parliament this month.

After the amendments in the Forward Contracts (Regulation) Act, 1952, the regulator will also get the power to decide on its own listing.

Khatua said the FMC was looking to the Reserve Bank of India to facilitate a small amendment in the banking regulation act that would pave the entry of banks in futures trading. “I see these changes coming and funds would flow into the futures contract.”

On the entry of mutual funds, Khatua said, “It has to be decided by the Securities and Exchange Board of India. I think it will decide positively on this matter.”