Sebi extends futures trading ban on seven farm commodities for another year

India's markets regulator, the Securities and Exchange Board of India (Sebi) on Friday extended the ban on futures trading in agricultural commodities for another year (until 20 December 2024), an official notification said. The move came despite opposition from the cabinet secretariat and the National Commodity & Derivatives Exchange (NCDEX).

The finance ministry first imposed the ban through Sebi in 2021, halting futures trading in seven commodities — non-basmati paddy, wheat, chana, mustard seed and its derivatives, soybean and its derivatives, crude palm oil and moong (green gram) — for a year to combat rising inflation.

The ban was extended for another year in 2022 despite protests by industry players and the exchange, which claimed it would hurt farmers.

Mint first reported on 19 October that futures trading in seven agricultural commodities on the NCDEX may be extended for another year due to the political inconvenience of rising food prices ahead of state and general elections.

The departments concerned recently reviewed the matter, government officials said. They said the food and public distribution department received representations from the NCDEX and the cabinet secretariat to review “the partial revocation of suspension in derivatives trading in edible oils and mustard seed".

In their representations, they said that continuing the suspension would shut down the exchange and destroy an ecosystem created over 20 years, sending the wrong signal globally.

The issue goes to the heart of a delicate matter of political economy— whether or not widely consumed agricultural commodities such as pulses and rice should be allowed to be traded on the exchange, given their likely impact on food security. Trading aids price discovery and the ban on it will only help middlemen fleece farmers, they argued.

The government received many letters and representations not only from NCDEX, but also from edible-oil associations such as the Solvent Extractors’ Association of India (SEA), the Indian Vegetable Oil Producers’ Association, the Mustard Oil Producers Association of India, and the Central Organisation for Oil Industry and Trade (COOIT), which called for the removal of the ban amid deflation in edible oils.

The prices of wheat, non-basmati paddy, chana and moong in particular have been shooting up in the run-up to five assembly elections scheduled for later this year.

On Friday the all-India average retail price of soya oil was ₹124 a litre, a 1.5% drop on-month and a 18.5% drop on-year, while mustard oil was quoted at ₹138.2 a litre, down 0.7% month-on-month and nearly 18.3% year-on-year. 

However, in the case of food commodities, retail prices of wheat have risen 3.6% since October last year, and on Friday the all-India average price was ₹30.45 a kg. Similarly, chana daal and moong daal retail prices shot up 11.4% and nearly 11% on-year, respectively. The all-India average price was ₹82.71 per kg for chana daal and ₹115.7 a kg for moong daal, according to the consumer affairs ministry. 

An official in the ministry earlier told Mint that the government’s priority was “food security and to keep prices in check" as crucial state and national elections were around the corner.