The Solvent Extractors’ Association of India (SEA) has once again appealed to the Indian government to revisit its decision to suspend futures trading in key internationally traded commodities, such as crude palm oil and crude soybean oil.
In December 2021, the Securities and Exchange Board of India (SEBI) halted futures and options trading in seven agricultural commodities, including the two edible oils, in a move that continues to impact the sector.
India, the world’s second-largest consumer and leading importer of vegetable oils, relies on imports for 55-60% of its oil needs. SEA has now formally requested the government to reverse this decision and allow futures trading to resume, either across all agricultural commodities or, at the very least, for globally traded oils like palm and soybean oil.
The absence of futures trading has created significant challenges for industry stakeholders, according to SEA, including financial losses and increased market volatility. In its recent memorandum to the central government, the industry body stressed that the suspension has limited the sector’s ability to hedge risks effectively, thereby weakening a vital tool for managing price fluctuations.
“A robust futures market is crucial for managing price risks, facilitating the orderly development of agricultural markets, and offering reliable price signals to all stakeholders, including the government,” the SEA stated.
Since the suspension in 2021, the government has extended the ban on futures trading in agricultural commodities multiple times, with the latest extension lasting until December 2024.
SEA further argued that futures trading does not significantly contribute to inflation, citing unnamed studies. The association also highlighted that the lack of futures markets deprives the industry of crucial hedging mechanisms and hinders price discovery, which in turn disrupts business operations. Furthermore, the absence of futures trading leaves the government without important price signals, creating a gap in essential market information.
The commodities affected by the December 2021 suspension include chana, mustard seed, crude palm oil, moong, paddy (basmati), wheat, and soybean and its derivatives.
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