MUMBAI - In sharp variance to the findings of an expert panel set up by India, a UN agency says futures trading in commodities affects spot prices of physical markets across the world, calling for concerted regulatory action by governments.
Released worldwide Monday, the report by the United Nations Conference on Trade and Development (Unctad) blames large financial investors for influencing commodity prices through futures trading, without regards to the actual demand-supply situation.
Incidentally, a government panel headed by economist Abhijit Sen had said in a report last year that there was no empirical evidence to suggest a link between futures trading and rising prices in India.
Unctad’s annual Trade and Development Report says commodities were being treated as merely an asset class and futures trading in its current form held the power to shift prices, irrespective of the supply-demand situation.
“Individual market participants may take position changes that are so large relative to the size of the market that they move prices, which can be called the weight-of-money effect,” says the report.
The UN agency, accordingly, calls for international collaboration among countries and regulators to bring about a comprehensive framework to deal with excessive speculation that has been blamed by several countries including India for the surge in food prices.
“These last two years, there was no connection between real demand and supply situation and the way commodity prices at exchanges went. This affects us all,” said professor Jayanti Ghosh of the Jawaharlal Nehru University who unveiled the report here.
“The investors can always move out to another country if they find regulations in one country to be detrimental to their interest, what we need is collaborative action,” Ghosh added.
The Abhijit Sen committee had said in its report that negative sentiments had been created in India by the decision to de-list futures trading in some important agricultural commodities.
Accordingly, the Forward Markets Commission, the watchdog, had said suspension of futures trading in commodities would hinder the market’s development, apart from negatively impacting on the confidence of stakeholders.
The government, however, went ahead and banned futures trading in four commodities - rice, wheat, urad dal and tur dal.
Last year, soya oil, rubber and potato were added to the list but the notification was allowed to lapse in December. Presently, futures trading is also banned in sugar till December.
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