Would provide price stability and enable the government deal with inflation more effectively
Expressing satisfaction over the moderation in inflation, Finance Secretary Arvind Mayaram believes the price situation would ease further with recent measures taken by the government as well as growth impulses. Much of the rise in prices has been in food items, he said last week, adding that there is a need to develop the commodity futures market with an aim to provide price stability and enable the government deal with inflation more 'effectively'. He was speaking to reporters on the sidelines of an event on commodity markets on Saturday.
Asked if the falling trend in inflation is positive for the economy, Mayaram said: "Of course, this is the trend for a while now, and this (inflation) will continues to go south." "I am very confident that with the measures that the government is now taking and growth impulses that we are seeing in the economy, inflation must come down," he told reporters on the sidelines of an event on commodity markets.
Retail inflation touched a three-month low of 8.28 per cent in May from 8.59 per cent in April due to subdued prices of vegetables, cereals and dairy products. Highlighting the key role that commodity futures market could play in controlling inflation, Mayaram said: "The country has gone through the phase of an almost entrenched inflation for over 2-3 years. And much of it is driven by food prices. So it is important that we develop this market."
The commodity futures market should be developed in "a manner that it is able to provide some price stability over a longer period of time and to enable the government deal with inflation more effectively and efficiently," he added. Besides, there is a need to boost the food processing industry despite the country being the world's largest producer of vegetables and fruits, he said. There is also a need to develop long-term export market in the agriculture sector, he added.
Emphasising on the requirement to develop depth in commodities market for better price discovery and checking price manipulation, Mayaram said the government is determined to address all issues, including commodity transaction tax, strengthening sector regulator FMC, among others. He said setting up of "a more integrated market" will give a strong base for commodities market and the government has also announced its intention to establish a 'National Common Market' to ensure free movement of goods within the country.
On concerns over falling volumes in commodity exchanges due to commodity transaction tax, Mayaram said the market participants should focus more on addressing other weaknesses of the market than just on the tax issue.
Talking about the pending amendment bill to the Forward Contract Regulation Act, he said, "The new law must come in place. We are working towards that. We are hopeful that very soon we should have a new statute in place which will provide greater regulatory authority to FMC." An autonomous independent regulator is absolutely critical to providing strength and depth to the commodities market, he added.
Monsoon forecast not alarming but govt keeping watch
Finance Secretary Arvind Mayaram beleives the forecast of below normal monsoon is not "alarming" as of now but the government is keeping a watch. He said the country has strong foodgrains reserves to tackle any shortfall in production due to erratic rains."The Met Department prediction shows a little less rain than average. It is not alarming at this point of time but we have to watch. We believe that we have a very strong reserves position," Mayaram told reporters on the sidelines of an event here.
According to official data, state-run Food Corporation of India (FCI) held a stock of 41.6 million tonnes of wheat and 11.4 million tonnes of paddy till June. There are growing expectation of below normal monsoon due to the El Nino effect this year, affecting agriculture production and is also likely to impact food prices.
On June 9, the Met Department in its revised forecast, has predicted monsoon to be below normal at 93 per cent from 95 per cent of the long-term average. Monsoon is expected to be deficit in north-western parts of the country. On Friday, Prime Minister Narendra Modi discussed a contingency plan for 500 districts to mitigate the possibility of poor rains with his Cabinet colleagues.
Last week, the Cabinet Secretary Ajit Kumar Seth had called a meeting of a group of bureaucrats to discuss food prices situation in the backdrop of Met Department's forecast on monsoon. Meanwhile, the Agriculture Ministry is working on relief measures such as providing subsidy on seeds for sowing and giving incentive to buy diesel for irrigation to protect crops.
The country has gone through the phase of an almost entrenched inflation for over 2-3 years. And much of it is driven by food prices. So it is important that we develop this market..
—Finance Secretary Arvind Mayaram