Mumbai: The Government stayed away from any announcements on the commodity futures market in the 2009-10 interim Budget fearing a political backlash as general elections are due in a few months, industry watchers said. |
"It's was necessary for the government to avoid issues like relisting of rice, wheat futures and CTT (commodity transaction tax), to avoid controversies before elections," said Amar Singh, Head of Research, Angel Commodities Broking Pvt Ltd.
Indian commodity market stakeholders have long been waiting for resumption of trade in rice, wheat, urad and tur futures, which were banned in early 2007, for their alleged role in stoking inflation.
Trade and analyst expected some news on lifting of the ban on these commodities after government lifted a seven-month suspension on four other agri commodities on December 1, 2008, as food price inflation declined to comfortable levels.
"Though inflation is very comfortable and food stock looks satisfactory government was mum on the issue," said Singh.
"It could be because of elections. Government does not want to take any kind of chance," said Harish Galipelli, head of research at Karvy Comtrade Ltd.
The government is trying to rein in food prices ahead of nationwide elections that must be held by mid-May.
The ruling United Progressive Alliance (UPA)'s former coalition communist partner and many farmer organisations blame futures trade in commodities for stoking food prices.
Inflation has tumbled to 4.39 per cent at the end of January from a peak near 13 per cent last August, and economists said it will continue to fall for some time.
Acting Finance Minister Pranab Mukherjee acknowledged India's food supply is sufficient and prices have come down, but did not touch upon the issue of resuming trade in four food commodities in his Budget speech.
Mukherjee said India procured a record 22.7 million tonnes of wheat and 28.5 million tonnes of rice in 2008, and its granaries are full. He further said the 2008-09 farm outlook is encouraging as weather was conducive for both rice and wheat.
The Minister also did not elaborate on the progress of implementation of CTT, which was imposed on commodity futures trade in 2008-09 Budget.
"The UPA Government has been very judicious in not announcing any changes in the functioning of commodity markets and other sectors because it's an interim budget," said Madan Sabnavis, chief economist with National Commodity & Derivatives Exchange.
Implementation of CTT is expected to impact volume in commodity trade as it will increase transaction costs.
"I believe any policy directive related to commodity futures market will come only after the new government comes in," Sabnavis said.
India, which allowed futures trading in commodities in 2003, has one of the fastest-growing commodity futures markets with 22 commodity exchanges.
Indian commodity futures trade rose 31.61 per cent to Rs 41.6 trillion during the first 10 months of financial year 2008-09, official data showed.
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