Pavaskar, author of a number of books on the subject, is a member of the Expert Group on the commodity exchanges set up by the secretary general of United Nations Conference on Trade and Development (Unctad), based on which the World Bank had prepared its report on Indian oils and oilseed complex. Currently advisor to the East India Cotton Association (EICA) for its renewed efforts to re-start futures in cotton, Pavaskar spoke to The Financial Express on the delay. Excerpts:

On why the futures were banned in India.

The Forward MarketsCommission, formed in 1954, was in favour of futures trading, even metals. And it did revive futures trading in various commodities, howver, many of these were later on banned due to two reasons. One, with its socialistic pattern, the government in the late '50s thought that the futures market was responsible for the rising prices and therefore, banned futures trading time to time. Even in Parliament, the government invariably blamed futures trading for price rises and took shelter saying that futures trading in a particular commodity was banned.

Two, even the industry was partly responsible for the ban. They wanted raw materials at lower prices, and thought that with rising prices it would be difficult. Against the concept of market economy, even the industrialists blamed futures market for rising prices. And opposed futures trading, primarily out of fear that futures trading adversely affected their oligopolistic -- if not monopolistic -- buying positions, and so, the industry wanted a ban on futurestrading. Thus, the government and the industry were jointly responsible for the ban.

On whether futures market are really responsible for higher prices.

No. Futures markets essentially infuse more competition among players and prices are a result of market forces. It provides a forum for competition. Industry in those days was not prepared for competition and therefore, was against futures trading.

On whether the government officials are aware of benefits of futures market.

The government officials at that time neither understood what futures market was, nor bothered to know the benefits that futures trading brought to the economy, because of the socialistic thinking. This was despite the recommendations of the Dantwalla committee report in 1967.

On whether this attitude continues in the government circles.

After the economic reforms, recommendations of the Kabra Committee and Unctad, World Bank reports, at least it appears that the government is seriously considering revivingfutures trading in some commodities. It has decided to permit international futures trading in pepper and castor oil, and domestic futures in cotton, coffee. However, it is not clear if the government understands the benefits of futures trading.

On whether the industry is still against reintroduction of futures as in the past.

For various reasons, there have been many instances of leading industry players against reintroduction of futures trading. As in the past, they are still unprepared to face international competition. Therefore, a large section of the industry is not in favour of futures trading. So, even if the government is willing, the industry is not.

On solutions for this all-round resistance.

Forced international competition and a fully convertible rupee will break the inertia and resistance. The government needs to expose the industry to international competition by opening up the economy completely, introduce full convertibility, deregulate international trade and removequotas for exports. Anyway, under GATT and WTO agreements, sooner than later we will have to open up our economy, even for consumer goods. It is only under forced conditions of free trade the industry will be in favour of futures trading. The world over the industry is in favour of futures primarily because they are forced to bear price and exchange risks with international competition.

On whether there had been opposition to futures in international markets.

It is a common thing. Internationally, industry had earlier opposed futures trading. When the New York Mercantile Exchange started futures trading in crude oil and petroleum products, the industry was initially opposed to futures trading. But over a period of time, the US government has been able to foster competition within the industry. So it is necessary that the government itself needs to be interested in free competition for the benefit of the economy, the industry inevitably comes to terms later on.

On the affairs at the ForwardMarket Commission (FMC).

There appears to be delay tactics being adopted both by the government and the FMC. There are more debates and discussions on the same subject, without any concrete proposals or developmental steps. Then they will wait for a new man to come as FMC chairman, he will once again try to understand the subject afresh, and before he could implement anything concrete he will either be transferred or seek greener pastures within the vast government machinery. The earlier reports, recommendations are too old by the time they can take any serious decisions. In the USA, there is Commodities Futures Trading Commission (FCTC). The chairman and members of this commission are drawn from trade and industry who have experience in commodities trading for several years. The experience is a precondition to be nominated or elected as CFTC chairman or member.

In India, an IAS officer is picked up from anywhere from the government machinery, who is expected to take decisions on a subject to which heis completely unknown. The subject of futures market is highly specialised and complex, and therefore, experts from outside the government machinery must be appointed as members of FMC.

(To be concluded)