Economic Survey Advises Caution on Sensitive Food Commodities in Futures Trading

The Economic Survey 2023-24 advises against including sensitive food commodities in futures trading until markets mature. It recommends focusing on less sensitive commodities and highlights recent policy changes. The survey also suggests promoting Farmer Producer Organisations (FPOs) and calls for stable policies and close regulatory monitoring.

The Economic Survey 2023-24 issued a warning against incorporating sensitive food commodities like common rice, wheat, and most pulses into futures trading until market conditions improve. This caution comes as the government extends the list of commodities eligible for derivatives trading.

The pre-budget survey, presented in Parliament, emphasized that sensitive commodities should remain outside futures markets until greater market stability and regulatory comfort are achieved. Instead, it proposed focusing on less sensitive commodities such as oilseeds, cotton, basmati rice, and spices.

Continuing with policy initiatives to expand the commodity derivatives market, the government increased the list of eligible commodities from 91 to 104 as of March 1, 2024. New additions include apples, cashews, garlic, and various processed products.

The survey stressed the importance of maintaining stable policies with minimal interventions once regulators provide definitive guidance on commodity selections.

It also underlined the potential benefits of Farmer Producer Organisations (FPOs) in connecting small farmers to commodity markets. The survey urged the government, Sebi, and commodity exchanges to encourage FPOs across different agri-commodity segments.

The survey highlighted that equipping FPOs with financial literacy can help farmers capitalize on Agri-derivative markets. Long-term suggestions included eliminating futures trading bans as market liquidity improves, provided there is no evidence linking futures trading to price volatility.

Finally, the survey recommended close monitoring and regular reviews of futures markets by regulators, considering shifts in domestic production, consumption, and global trade.