First you ban it, then you want it. That seems to be the government's policy on futures trading.
Otherwise, how can one explain the paradox in the Central government's decision to ban futures trading in certain commodities like wheat, rice, tur etc to make the 'aam aadmi' inflation-proof and then want to use the same mechanism to protect small growers of tea, coffee, rubber and spices from price volatility.
The irony came to light recently when a task force - set up by the Union Commerce Ministry to evolve a mechanism to rescue the tea, coffee, rubber and spices producers - called for enabling small farmers, processors and exporters to hedge their risks in futures trading.
The task force, headed by N Rangachari, former chairman of the Insurance Regulatory and Development Authority, in its report submitted to the government, said growers with holdings less than 10 hectares should be able to utilise the derivatives trade available in various multi-commodity exchanges in the country.
The Centre is yet to permit options trading in commodities and the proposal is pending amendment to the Forward Contracts Regulation Act, 1952.
Commodity exchanges have been urging the Centre to permit options trading as they see it as a tool for greater participation by growers, who need to pay only a small margin to take a position and hedge their risks.
The report was submitted in January, the same time when the demand, especially from political parties, for banning forward trading gathered momentum. Subsequently, the Centre de-listed forward contracts in urad and tur and froze them for wheat and rice.
According to the task force, at present only large growers were hedging their risks and the Centre could encourage small farmers to form co-operatives to trade in forward contracts.
The panel said though commodity futures had been active since the 1990s, there had been no major effort to put in place a proactive policy support for promoting participation of agricultural producers and financial institutions to participate in it.
"There is a need to attend to this issue in far greater detail. This is because the conventional instruments for price intervention are fiscally unsustainable, particularly when it is applied to commodities that have long durations of price shocks as is in the case of rubber, pepper and coffee," the task force said.
On the other hand, it said there was no credible facility available to growers to meet the risks of price movements and the art of price risk management was unknown to small growers. To provide this, it has recommended provision of an insurance cover to small growers.
The task force said there was an urgent need to provide the personal accident cover to small growers and it could be extended to workers solely dependant on the plantations.
It said the Centre should come up with an insurance cover in which the subsidy for the growers would be paid upfront by the government as premium. The insurance should be cheap so that it is affordable for small growers; it should provide significant and substantive risk cover; and it should involve a cap on the liability of the government.
The task force also recommended the setting up of a public limited company to be promoted by commodity boards to facilitate participation of farmers and self-help groups in fair trade systems through direct selling of small grower plantation products, both in India and abroad.
