Declining food production, rising food grain prices (agflation), absence of parity price across different markets, excessive dependency on import of food grains, inability of government to ensure minimum buffer stock, inactive minimum support price for farmers, and futures trading ban are major concerns in the primary commodity markets of India. In this connection, it can be stressed that policy regimes play a very significant role in the management of primary commodities and the impact of the Agricultural Policy of India. Food production is governed by the efforts of the farmers at an individual level and by the policies of the state regulating the inputs, subsidies and price of the commodity. Specifically, the more active minimum support price and procurement policies of the Government of India might have significantly reduced the role and the activities of private traders, and in turn inhibited private investment in improving grain marketing infrastructure. The uncertainty regarding the price and volume of sales from large Government of India's held food/grains stocks often makes it difficult for private traders to play their role in the market in a significant way. Some also argue that the inefficiency of the Food Corporation of India in baggage handling, transporting, grading, storing and standards and inspections of government-held grain provide a basis for inefficient grain marketing in India. In the absence of commodity futures market, particularly for major cereals (i.e., wheat and rice) and pulses (black gram and tur dal), and the failure of the government to regulate prices, if the prices of these primary commodities soar up continuously, it may cause impending burden on the food budget of the households.
Commodity futures trading in India started some hundred years ago. Then, because of the shift in economic policies, almost the entire commodity futures trading got banned. In the last decade, this has gradually come back to life, which could not last long as the Government imposed a temporary ban on futures trading of agricultural commodities in two phases; from the beginning of the year 2007 where January ban on Urad and Tur dal gave disappointments to the government and the later ban at the end of February on wheat and rice so as to curb inflation. However, prices have not fallen, only risen in some cases. It continues to hover at levels that prevailed prior to the delisting. While the average ruling prices of urad (black gram) were around Rs. 3,000 per quintal mid-January 2007, the February prices continued to remain at the same heights, sometimes crossing Rs. 3,500. |
