Common man (Aam aadmi) is crushed by inflation and has shown his anger by turning UPA out of power in Punjab and Uttaranchal. Government concedes that in the current year that is 2006-2007 inflation rate is estimated at between 5.2 to 5.4 per cent, which is higher than last year.
But if we take a look at the prices of essential commodities, prices have soared by 50 to 100 per cent. Finance Minister says that he is concerned over inflation and has taken various steps in the past and has promised various other measures in the present budget. But, there is big gap between what the government says and what it does.
It is beyond doubt that one of the major reasons for prices of essential agricultural commodities to rise is forward (future) trading system introduced in 2004. Making a beginning with only a few commodities, today forward trading is allowed in 92 commodities. Experts have given ample proofs that prices of pulses and food grains have been rising in leaps and bounds due to forward trading in these commodities. Sometime back government had withdrawn two pulses namely tur and urad from forward trading list and now in this budget Finance Minister has proposed to withdraw rice and wheat from the list of forward trading. While the system of forward trading is causing havoc for the common man, the Finance Minister instead of imposing a blanket ban on forward trading has only promised that commission will look into this whole issue. This clearly shows government'sunwillingness to bid farewell to this anti-people forward trading system.
In normal market, price of a product is determined on the basis of its demand and supply in the market and generally the limit of total business is determined by the total production. It is observed that on any single day the quantum of business in different commodities is 5 to 10 times more than its annual production. Once future market starts working, money plays its role. Big dealers and companies may keep on purchasing future deliveries and in absence of supplies prices continue to rise and an artificial scarcity is created in the market. This happens in other countries of the world as well.
Recently, companies have started making purchase of agricultural produce from the farmers directly or through mandis. Supported by deep pockets, these companies are even purchasing the future deliveries of these commodities, which mean these companies have purchased the present and are purchasing the future also. Anybody who dares to sell any commodity in future without really possessing the same, these companies take the price to a much higher level using their financial muscles, and thereby such people incur heavy losses. In this way stocks with these companies keeps on rising and also their power to enhance the prices of these commodities.
Price rise, especially in essential products, has been there in this country, but future trading in commodity market have made the problem of inflation even more acute. If we have a look at the data of future commodity market its worth noting that due to the future markets the prices of essential commodities have increased significantly and the same has affected the consumer badly. The more distressing is that the benefit of higher prices does not reach the farmers.
In the last season farmers could get price of wheat in the range of Rs. 700 to Rs. 800 per quintal whereas the same wheat attracted much higher prices in the future market. As such future market benefit hoarders, agents and various companies, both domestic and foreign, engaged in agricultural marketing. Sometime back an alarming case came to light where the government had made an agreement with Australian company regarding import of wheat, which made huge purchases from Indian farmers at a much lower price than what it was paid by our government.
In fact, future market in commodities on the line of share market is an alarm bell for the people of this country. This kind of system will make the life difficult for the common man. We have to put limits on speculative activities. We cannot put the majority population'slife at stake for speculators who are not even 0.1 per cent of the total population.
(The writer is the Reader, Department of Economics, PGDAV College, University of Delhi.)