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Friday, March 12, 2010

Futures trading in commodities won't fuel inflation, says Basu

Allowing futures trading in commodities will not fuel inflation, government's chief economic advisor Kaushik Basu said today.

"The reason why I am personally in favour of allowing futures trade in commodities is because it is not going to make inflation worse," Basu said at a FICCI seminar on de-risking the futures trading in commodities.

He said futures trading is an efficient way of price discovery and extremely important for many stakeholders to take a position against price risk.

However, he said it should not be left unregulated as there are possibilities of people getting cheated.

"To have a regulation, the first thing is to say it (futures trade) is a legitimate activity," Basu said.

Further, to mitigate the impact of high food inflation, which is hovering at 17-18 per cent, on the common man, Basu said the government's storage and release mechanism of foodgrains need to be improved.

"We need to give much more thought on foodgrains management to protect the most vulnerable section of the population...I think this mechanism can be improved by bringing in private sector into play," he said.

"And, we need to tweak our foodgrains release mechanism system to do it better," he added.

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