Allowing futures trading in commodities will not fuel inflation, government’s chief economic advisor Kaushik Basu said on Friday.

“The reason why I am personally in favour of allowing futures trade in commodities is because it is not going to make inflation worse,” Basu said at a FICCI seminar on de-risking the futures trading in commodities held in New Delhi.

He said futures trading is an efficient way of price discovery and extremely important for many stakeholders to take a position against price risk.
However, he said it should not be left unregulated as there are possibilities of people getting cheated.
“To have a regulation, the first thing is to say it (futures trade) is a legitimate activity,” Basu said.
Further, to mitigate the impact of high food inflation, which is hovering at 17-18 per cent, on the common man, Basu said the government’s storage and release mechanism of foodgrains need to be improved.
“We need to give much more thought on foodgrains management to protect the most vulnerable section of the population…I think this mechanism can be improved by bringing in private sector into play,” he said.
“And, we need to tweak our foodgrains release mechanism system to do it better,” he added.

Basu called for revamping the government’s storage and release mechanism for foodgrains with more players sharing the responsibility and the associated risk.
“The government should not be the only agent that is trying to take this risk on its shoulders,” he said.
Elaborating on foodgrain management, Basu said the government shifted to releasing smaller quantity of foodgrains in the open market after it found that bulk releases did not yield desired impact on food prices.

Though, this mechanism too is not up to the mark, he said.
“From January, the government has been releasing foodgrains in smaller stocks and some of the downward pressure you see on food prices is probably due to this fact and this mechanism is managed better but not good enough,” Basu said.

FOR MORE READING. .

  1. PRICE RISE – HOW AND WHY?
  2. FORWARD AND FUTURE TRADING CAUSING PRICE RISE
  3. FOOD PRICES, SPECULATION AND FUTURES’ TRADING – Sunanda Sen
  4. TRADING OF ESSENTIAL COMMODITIES NOT RESPONSIBLE FOR PRICE RISE
  5. DROUGHT AND PRICE RISE
  6. ACCELERATING INFLATION IN FOOD ARTICLES
  7. REVERSE POLICIES TO CONTROL PRICE-RISE
  8. STATES AS SCAPEGOATS FOR FOOD PRICE INFLATION – C.P.Chandrasekhar
  9. PRICE RISE-THE OPPOSITION VIEW POINT: LAME EXCUSES AND FAKE ALIBIS – Brinda Karat