A war of words has broken out between the National Commodities and Derivatives Exchange (NCDEX) and an industry body over the stoppage of futures trading in the guar complex.
The controversy has been sparked off by a statement issued by the Associated Chambers of Commerce and Industry (Assocham) on Wednesday after the Forward Markets Commission (FMC) stopped trading in guarseed and guar gum.
The Chairman of Assocham's investments committee, Mr S.K. Jindal, said the Centre should investigate manipulations by some traders on the NCDEX leading to huge price distortions and weak regulatory provisions.
“These players, because of their inside knowledge and control over the NCDEX, are able to manipulate prices substantially. In the process, poor agriculturists, traders and exporters suffer huge losses,” said Mr Jindal.
He also compared the situation to the Harshad Mehta scam in securities “whereby a few manipulators hijacked the NCDEX”.
VESTED INTEREST
The NCDEX hit back, saying that Mr Jindal's statement cannot be taken as representative of the guar industry or value chain.
“His statement seems to be out of vested interest as he is the director of the company which had trading interest in guar contracts,” a senior NCDEX official said.
Mr Jindal said the FMC should amend its circular on trade ban and allow it in futures contracts until April 20, the normal date when contracts end. “The FMC should order probe into accounts of 20 top traders who have benefitted from the receipts of marked-to-market payments from small traders and hedgers,” he said.
The sudden stoppage of trading by the FMC “is, in fact, a reward to manipulators and rogue traders”, said Mr Jindal.
The NCDEX official said that Mr Jindal has disregarded the export data put out by the Agricultural and Processed Food Products Export Development Authority, based on inputs provided by the Directorate General of Foreign Trade.
Guarseed output during 2011-12 season is estimated at 12.10 lakh tonnes (lt) compared with 15.46 lt in 2010-11. Export demand, on the other hand, far exceeded supply.
According to APEDA, exports of guar gum from April to October 2011 were 3.48 lakh tonnes and by end of November 2011 they had increased to 6.71 lakh tonnes compared with 2.28 lakh tonnes during the same period a year ago.
Price manipulations
Recent developments indicate that the FMC has not been able to ensure fair and transparent working of the NCDEX. There have been manipulations and heavy speculative transactions in agricultural commodities such as cereals, sugar and pulses, said Mr Jindal.
The NCDEX official refuted it and said that the Exchange provided a trading platform to buyers and sellers, under the regulatory supervision of the Forward Markets Commission. The contracts traded in the exchange are anchored to the physical market and therefore, prices are determined by forces of demand and supply.
“Wherever any exuberance is witnessed in the trading of the contracts in the exchange, timely and appropriate action has been taken by the FMC and the exchange. A series of such measures have been taken for guar contracts,” the official said.
Mr Jindal said, “Prices of guar have gone up by 120 per cent in the past one month, 700 per cent in the past four months, 875 per cent in the past 12 months and 1,300 per cent in the past 18 months.”
artificial rise
This artificial price increase is against the interest of farmers who will not be able to buy expensive guarseed for their next crop, he said.
Meanwhile, spot price of guarseed and guar gum ruled unchanged in Jodhpur, Rajasthan. Guarseed was quoted at Rs 26,999 a quintal and guar gum at Rs 88,740 a quintal.
Guar, a leguminous crop, is primarily grown in Rajasthan, besides Haryana, Punjab, Gujarat and Madhya Pradesh. Rajasthan accounts for 70 per cent of the crop in the country. Guarseed is a raw material for producing guar gum. Guar gum is used as a thickening agent and additive in food products such as instant soups, sauces, processed meat products, baked goods, milk and cheese products, yoghurt and ice-creams. It has industrial applications in the paper and textile sectors, ore flotation, explosives manufacture and fracturing of oil and gas formations. India is the major producer of guarseed and gum, accounting for 80-85 per cent of the global supply.