Tur, Urad dal futures 10 year old ban set to be lifted? Sebi faces changed reality

The Securities & Exchange Board of India (Sebi) is considering lifting a decade-old ban on the futures trading of two pulse varieties – tur and urad, sources told FE. With fears of inflationary pressure in pulses having been abated due to a bumper harvest in 2016-17 and the government inventory brimming with around two million tonne of pulses stocks, the regulator is weighing the possibility of lifting the ban, sources said. The review of the ban has started but a final decision on allowing such futures could be taken after factoring in production estimates as areas under pulses are down by almost 4% from a year earlier, the sources said.

Prices of tur started plunging late last year as farmers, encouraged by record prices in 2015-16, stepped up sowing of the key pulse variety, leading to an all-time-high production level of 4.78 million tonne in 2016-17. This was 87% higher than the production in the previous year and far exceeded the target of 3.62 million tonne for 2016-17.

Such an annual jump was rare in tur production, which had remained stagnant in the range of 2-3.2 million tonne since the turn of the century. The crop year runs from July through June.

In the case of urad too, production surged to 2.8 million tonne in 2016-17, against the actual output of 1.95 million tonne in the previous year and the target of 2.15 million tonne for the previous year.

The bumper harvests of pulses drove down prices sharply and prompted the government to undertake procurement operations at the benchmark prices to prevent distress sales by farmers.

Wholesale price inflation in pulses dropped to -32.56% in July 2017 from 18.18% in October last year when the harvesting of the 2016-17 kharif crops, including tur, picked up pace. Such a situation has also prompted the regulator to review the ban on futures trading in these pulse varieties.

Following pressure from the Left parties, the UPA government had impressed upon the Forward Markets Commission (FMC) to ban futures trading of tur and urad, apart from rice and wheat, in 2007 on the ground that such trading was contributing to high inflation, even though the then commodity markets regulator (which was under the administrative control of the consumer affairs ministry) had reservations about any such assumptions.

The FMC then commissioned a study by IIM-Bangalore, which found no correlation between furtures trading and inflation.

Later, the Abhijit Sen committee, set up by the government to study the matter, made it clear that there was no conclusive evidence of futures trading stoking price pressure.

Still, curbs on farm commodities, including rubber, soyabean, sugar and chana (gram), had also been periodically imposed on the similar pretext and later withdrawn.

While the ban on rice and wheat futures was lifted, that on tur and urad still remains. Earlier this year, Sebi had lifted a one-year-old ban on chana. The policy flip-flops have dented investor confidence in the futures market of agri commodities and stunted its growth over the years far below potential, analysts have often said.