‘Futures trading key for price risk management’

NEW DELHI: Futures trading key for price risk management, says edible oil industry as SEBI extends ban

Domestic edible oil industry body Solvent Extractors' Association of India (SEA) has appealed to the government to reconsider the extension in the futures trading ban on edible oils, saying it is essential for price risk management.

"A healthy futures market is very important for price risk management as well as orderly development of agri markets and also provides price signals to all stakeholders including Government," the industry body SEA said in a statement on Thursday.

India is the world's second-largest consumer and number one vegetable oil importer, and it meets 55-60 per cent of its need through imports.

Financial markets regulator Securities and Exchange Board of India (SEBI) on Tuesday extended the suspension of trading in derivative contracts for seven commodities -- paddy (non-basmati), wheat, chana, mustard seeds and its derivatives, soyabean and its derivatives, crude palm oil and moong -- for one more year.

In December 2021, SEBI suspended trading in these agricultural derivatives for a year.

In order to curb inflation, the regulator prohibited exchanges from launching new derivative contracts in these agricultural commodities. "We were hopeful that the ban would be lifted and importers can breathe easy.

However, this decision has put a dampener on the Risk Mitigation too," the industry body said in the statement.

Many studies that were conducted in the past have amply clarified that futures trading is not responsible for inflationary pressures, it noted.

Trade and industry were eagerly expecting the government to lift the suspension of at least internationally traded commodities like crude palm oil and soybean along with its derivatives. "Unfortunately, Government in its wisdom decided to continue the suspension for one more year till December 20, 2023. It's a serious setback.

Trade and industry will be deprived of hedging and price discovery mechanism for smooth business operations and will be exposed to price volatility.

Even the Government would be deprived of price signals as the messenger (futures trading) would be dead," it said while appealing to the government to reconsider the decision.