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Rigging at India’s commodity exchanges behind price rise: Assocham

Many consumer rights groups have faulted trading in agricultural commodity price futures for the rapid rise in prices, but now, even the trade bodies are joining in.

Industry body Assocham gave out a strongly-worded statement decrying what it called the Harshad-Mehta-scam-like situation in India’s commodity exchanges, fueling a fantastic rise in prices.

“Turmeric, which was trading at Rs 35 per kg in January 2009, was manipulated to increase beyond Rs 150 per kg within a year. But in a few months, the same was brought down to around Rs 40 per kg.

“Similarly, the price of black pepper was Rs 225 per kg in April 2011 was manipulated to rise beyond Rs 432 per kg in March 2012, marking an increase of 95 per cent,” the trade body, which represents several of India’s top companies said.

It was worse in case of cattle-feed, it added.

“In the case of gaur seed and gaur gum the price manipulation is unbelievable.. The normal price of normal guar bean in the season is Rs 10 per kg, while guar seed is traded at Rs 25 per kg and guar gum at Rs 50 per kg.

“Unfortunately, due to a fraud being played by a few rouge traders, the prices were increased to Rs 291 per kg for guar seed and Rs 959 per kg for guar gum on March 21,” it said.

“It is unbelievable that the fodder for animal is priced at Rs 291 per kg – much more than the price of cereals and pulses being used for human consumption,” said S.K. Jindal, chairman of investments committee at The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

The commodity exchanges are similar to stock exchanges, except for the fact that people bet on the future prices of agricultural commodities.

Many companies use the prices discovered in the exchange to price their commodities, both for sale and for consumption.

“Commodity exchanges were set up in 2003 to support small farmers, traders and exporters to minimise their risk in futures market and for price discovery of their produce…

“However, recent developments indicate that the FMC has not been able to ensure fair and transparent working… There have been manipulations and heavy speculative transactions in agricultural commodities like cereals, sugar and pulses,” the trade body said.

According to Assocham, a group of individuals are rigging the market, making prices go up or down as they want.

“These players – because of their inside knowledge and control over the [exchange] – are able to manipulate prices substantially. In the process, poor agriculturalists, traders and exporters suffer huge losses,” Jindal added.

After government intervention, the focus of traders has shifted to commodities other than primary items like sugar to those like turmeric, black pepper, gaur seed and gaur gum, Assocham said.

“This manipulation in price and fraud is benefitting a few rouge traders and thousands of genuine traders, hedgers, exporters and farmers are losing their money, he added. This artificial price increase is against the interest of farmers who will not be able to buy expensive guar seed for their next crop,” it said.

The Forward Markets Commission, the regulator, should order investigation into accounts of 20 top traders who have benefitted from the receipts of m-to-m payments from small traders and hedgers, the trade body urged.

It also wants new rules to prevent similar situations from arising again.

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