Survey for lifting ban on farm futures

The government should lift the ban on futures trading on rice, sugar, tur and urad and decontrol sugar sector, saying the resultant price discovery would help farmers and other stakeholders, the Economic Survey said on Thursday.

"Lift the remaining ban on futures contracts to restore price discovery and price risk management... Its effectiveness depends on the wider participation of all the stakeholders categories," said the Survey for 2008-09.

Expressing concern over declining investment in farm sector and a low growth of 1.6 per cent in 2008-09, the Survey said India's dependence on import of pulses, edible oils and other commodities had also put pressure on the economy by way of rising prices.

As part of measures to control inflation, the Centre had imposed ban on futures trading on rice, tur and urad in early 2007, while the trading in sugar has been suspended from May 26 till December this year.

The Survey, however, emphasised on improving productivity to ease demand-supply situation. "The agriculture sector faces challenges on various front. On the supply side, the yield of most crops has not improved significantly and in some cases fluctuated downwards...There is clearly a need for renewed focus on improving productivity," the Survey said.

It said production during 2008-09 at 229.85 million tonnes was lower than the target of 233 MT and that there was a shortfall in case of non-food cash crop like sugarcane.

The ban on wheat futures, imposed in February 2007, was lifted in May this year. A six months suspension on futures trading in chana, soya oil, rubber and potato was lifted on November 30, 2008.

The Survey said that the Abhijit Sen Committee, set up to study the impact of futures trading on agri-commodity prices, said: "The committee opined that negative sentiments had been created by the decision to delist future trades in some important agri-commodities".

The Committee also found out that there was no clear evidence of either reduced or increased volatility following opening of futures market to trading in some agricultural commodities, the survey said.

The total value of trading in the commodity futures market rose to Rs 52,48,956 crore (Rs 52,489.56 billion) in 2008-09 from Rs 40,65,989 crore (Rs 40,659.89 billion) in 2007-08. The average daily value of trades also improved to Rs 17,042 crore (Rs 170.42 billion) in 2008-09 from Rs 13,287 crore (Rs 132.87 billion) in the review period.

Agriculture commodities accounted for just 11.95 per cent of trade values.

The Survey also suggested that the government extend spot commodity trading in electronic form to agriculture markets by involving Agricultural Produce Marketing Committees.