July 12: The cabinet today deferred a move to introduce options trading in commodities after the Trinamul Congress leadership wrote to the Prime Minister’s Office seeking more consultations.
The cabinet was slated to discuss the Forward Contract Regulation Act (Amendment) Bill, which seeks to give more powers to the forward market regulator and do away with Section 19 of the current act that bars options trading.
In an options trade, the holder of the option has the choice of buying or selling a particular commodity within a specified period at a price agreed with the other party to the deal. The second party has the obligation to buy or sell, according to the option exercised by its holder.
On Mamata’s instruction, railway minister Mukul Roy sent a letter to the Prime Minister voicing the party’s opposition on the ground that it will encourage speculation leading to price rise. Trinamul sources said Roy, who is travelling with the chief minister in north Bengal, also called up the Prime Minister later in the day with the request that the bill be kept out of the agenda.
Mamata said: “I will be happy the day forward trading is stopped. We are totally against this because this allows stockists and middlemen to prosper. The farmers and the common people suffer.”
Forward trading is of two kinds — futures, which is allowed in about 100 commodities now — and options. In a futures contract, the buyer or seller is committed to buy or sell a commodity at a fixed date at a fixed price.
Mamata believes the recent bout of price rise in vegetables in Bengal was caused by futures trading but only about 40 items with a long shelf life are transacted now. “We cannot take any decision that goes against the interest of the farmers and the common people. We are fighting against this in our state,” she said.
The PMO deferring a decision on the bill is being seen both as a concession ahead of the presidential election where Trinamul has yet to announce which way it would vote, as well as a tactical move to thwart a blame game if the delayed monsoon fuels further price rise.
Food inflation is already reigning at over 10 per cent and delay in the monsoon hitting northern India has led to forecasts of a food-price rise.
Forward and even normal spot trading on commodity exchanges have in the past been blamed for speculative price spirals but the cause-and-effect link has never been clearly established.
Even industry body Assocham denounced what it considered price rigging on commodity exchanges in March this year. S.K. Jindal, the chairman of the investments committee at Assocham, went so far as to claim: “The situation is akin to the Harshad Mehta scam in securities whereby a few manipulators have hijacked the NCDEX (commodity exchange).”
Assocham listed as examples huge changes in the prices of several spices.
A previous version of the bill could not be passed by the first UPA government because of opposition by a large number of MPs, including those from the Left.
A panel set up by the government and headed by economist Abhijit Sen, however, gave the opinion that there was no evidence that forward trading caused price rise. Consequently, a parliamentary panel led by Congress leader Vilas Rao Muttemwar recommended that options be allowed “to benefit farmers”.