India, the world's second largest producer of wheat and rice, banned futures trading in the two commodities to curb the fastest inflation in two years.
Trading will stop once existing contracts expire on the nation's three exchanges including the National Commodities & Derivatives Exchange Ltd., 7 percent owned by Goldman Sachs Group Inc.
``Exchanges have been told not to launch new contracts in rice and wheat,'' said Anupam Mishra, director at the Forward markets Commission, the commodities market regulator, by phone in Mumbai today. ``Trading can continue in existing contracts.''
The ruling Congress party-led coalition faces an opposition that's attacking Prime Minister Manmohan Singh's government for spiraling prices of farm products. The Communists parties, which support the federal government, have said futures trading in staples have contributed to the rising inflation.
``Mounting political pressure to combat inflation seems to have promoted the government to take this drastic step,'' said Kishore Narne, head of research at Anand Rathi Commodities Ltd., a brokerage in Mumbai. ``Trading volumes in other agriculture commodities will also dry up.''
Wheat for immediately delivery has risen 26 percent in the past 10 months on the National Commodities Exchange. The bourse accounts for 95 percent of all wheat futures traded in India.
`Succumb to Demand'
The Congress party yesterday lost elections in two of the three states that elected deputies to local legislature. Singh's government wants to curb inflation ahead of polls in April in Uttar Pradesh state, India's biggest, which elects a seventh of all federal house deputies.
``If all constituents demand a ban in futures trading, we will have to succumb to their demand,'' Agriculture Minister Sharad Pawar said in New Delhi on Feb. 21. ``Trading in futures is not responsible for the increase in farm commodity prices.''
India's inflation rate has climbed to a two-year high as record economic expansion boosts demand for farm and factory products. Gains in consumer prices paid by farmers are at an eight-year high of 8.94 percent, while price increases for urban dwellers are the most in six years.
Wheat, used in local flat breads such as naan and chapatis, and rice are among staples in a nation of 1.1 billion people. Wheat is also India's biggest winter-sown crop and accounts for one-third of the South Asian nation's total grain production.
Wheat prices on the Chicago Board of Trade reached a 10- year high in October in part because India began importing the grain in February 2006 after a six-year gap to meet a production shortfall. Output this year may exceed 72.5 million metric tons, Agriculture Minister Sharad Pawar said Feb. 20.
`More Steps'
The government has in the past month reduced import duties on cooking oils, steel, aluminum, copper, cement and chemicals such as sulphur, and cut prices of auto-fuels. Last week, the government said it will sell 365,000 tons of wheat at below market prices to cushion consumers from rising food prices.
``We will continue to take more steps'' to curb inflation, Finance Minister Palaniappan Chidambaram said yesterday. He will present the budget for the year starting April 1 today.
Domestic traders and producing and consuming companies are the main participants in India's commodity exchanges, compared with the 13 million individual investors -- three times the population of Singapore -- who invest in stocks. India opened up its stock markets to overseas investors in 1993. Overseas funds aren't allowed to trade in India's commodity futures market.
source:www.bloomberg.com
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