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The shallow commodity markets in India are being blatantly manipulated by industry cartels and big brokers who through hoarding and circular trading are jacking up the prices of crucial agricultural commodities. Note last prices of guar gum and guar seed had gone up by an astounding 10x as some powerful agri-trading firms in collusion with some brokers had cornered the market. While some of the price rise could be attributed to the fundamentals such as increasing demand from the shale gas industry, a large part of the price increase was due to price manipulation.
The Forward Markets Regulator (FMC) which is the industry regulator has remained behind the curve most of the time and has failed to rein in the cartel of brokers and companies. It has fined some brokers pitiful amounts for allowing their members to trade without posting adequate margins. The main culprits in the guar seed scam of more than Rs 1,000 crores like Ruchi Soya have totally escaped any punishment. The industry body Assocham has come out with a report indicating possible price manipulation in five agricultural commodities:
a) Guar Seeds
b) Turmeric
c) Pepper
d) Soyabeans
e) Barley
Also Read on how to invest in the Indian Stock Market where Manipulation is rampant.
Note despite being one of the world’s top agri producers, the futures market in India is very shallow and allows big players to easily corner the commodities traded. The Government instead of outright banning the futures market, should allow greater participation and depth which will stop the price rigging and break the agricultural cartels.
The Forward Markets Commission (FMC) has found 4,490 entities were involved in guar gum price manipulation. In a report submitted to the ministry of consumer affairs (MCA) on Friday, the commodity market regulator has said these entities made profits of Rs 1,291 crore by way of price manipulation.
The report also names listed entities Ruchi Soya and Betul Oil. The report is significant as many traders had earlier said the price of guar gum had risen abnormally because of a shortage.
However, the commodity was cornered through other channels, including margin funding and booking of huge stocks under various fake names, as was divulged by the FMC earlier.
Industry body Assocham has suggested a thorough examination of trading in five key agri commodities — guar seeds, turmeric, black pepper, soya beans and barley — to check for their possible insider trading on the NCDEX terminals.
“The trade positions for each of the five agricultural commodities must be thoroughly examined to check for possible insider trading on the NCDEX terminals. The data analysis points towards price determination by a cartel, which might be hoarding and influencing the markets,” Assocham said in a study released today.
It lay emphasis on passage of FCRA Bill for better regulation of “Futures Market”.