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May 5, 2008

FM hints at futures ban on more commodities

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The government of India may ban futures trading of some food items. The Finance Minister P. Chidambaram hints that India might have to suspend trading in food futures. The government is under pressure from its allies including Communists to ban futures trading in cooking oil, sugar and other commodities, saying the trading may result in prices rise in the nation. In futures trading, there is usually a contract, which is essentially an agreement between two parties to buy or sell an underlying asset at a certain time in the future at a certain price. A futures contract usually has a standardized date and month of delivery, quantity and price. There is pressure on the government to check the inflation. A panel was formed by the government to look into the futures trading under the leadership of economist Abhijit Sen. The panel has studied the impact of futures trading on prices of staple foods and suggested to maintain ban on rice and wheat. However the panel did not recommend ban on any other commodities. Let’s see the government role whether will hear to the panel or just act under the pressure from its allies.


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