The Commodity Participants Association of India (CPAI) has urged the government and markets regulator Sebi to allow exchanges to resume trading in seven agricultural derivatives contracts, including crude palm oil and wheat, which were suspended for one year from December 2021.
To curb inflation, the Securities and Exchange Board of India (Sebi) banned exchanges from launching new derivative contracts of Soyabean, mustard seeds, channa, wheat, paddy, moong and crude palm oil on December 20, 2021. These directions were applicable for one year.
In its letter to the Finance Ministry and Sebi on Monday, the association said the prolonged bans are detrimental to the Indian commodity market ecosystem and severely dent the perception regarding India’s ease of doing business environment.
During the last one year, the price of some of these commodities has been below or around MSP and many studies concluded that the commodity prices are predominantly governed by supply and demand factors, and trading on exchanges has no impact on the price, CPAI mentioned.
The association suggested that easily reversible options, such as increasing margin and lowering open interest limits for commodity derivatives contracts may be resorted to in case significant volatility is observed in agri-commodity contracts.
In its letter, the association urged that “exchanges be allowed by SEBI to resume normal trading in all the commodity contracts as the period of one year elapses on December 19, 2022, and the conditions are amenable for their resumption”.
Highlighting the importance of commodity derivatives, CPAI said that such derivatives contracts give important cues on price discovery and price risk management to entire value chain participants across farmers, processors, millers, agri-traders in physical markets and farmer producers’ organisations.
“With widely available technology, even farmers from remote parts of India are able to access futures prices twice or thrice a day,” it said.
According to CPAI, Farmers Producer Organisation (FPO) loses not only hedging opportunities but even the skill set to hedge because of the ongoing ban.
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