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Cryptocurrency: Advantages and Threats

Question: Is the information asymmetry one of the key factors and are there apprehensions that the government currently has? Is there a need to educate policy markers more about this?

Agri Commodities is a very sensitive space, that is the reason why regulators tread with caution, which is understandable. But you have to open up the markets a little bit to let it come to its own potential. We have to reduce the artificial interferences. If you impose a price, then there is hardly any price discovery. Then there is no purpose of having a price discovery at all. When I talk about the regulatory regime I divide it into two parts, the first being at the ministry level and second at the SEBI level. Where we are talking about allowing participation of different kinds of stakeholders, it’s important that all stakeholders are allowed to participate because you are replicating the physical markets. There have been efforts regarding this. We have started “eligible foreign entity” but the rules around this are a little cumbersome and it’s not in-

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centivising the foreign exchange to participate on the Indian platform. In fact, the irony is that many of the Indian institutions will hedge their currency risk if there are into exports, but you will rarely see any corporation hedging the commodity price risk. RBI has issued a circular advising bankers lend in order to encourage the corporation to hedge the commodity price risk. Similarly, SEBI has also issued a circular to its listed companies requiring them to disclose their hedge positions in their annual reports. While these are small steps, we need to take large steps. In other countries, it is seen that they use hedging as a form of risk management which is so logical, and it breaks me that corporates in India are not using it. Some corporates in India which hedge, do it on international exchanges because the participation process in Indian exchange is tough and has its limits: you can’t take a position beyond a certain limit because you can impact the price movements. We call it as OI limits or Open Interest limits. These problems need to be addressed, and that is the area which needs to be worked on.

Question: We saw a recent ban on derivatives of certain agricultural commodities such as wheat, chana, mustard seeds, and their derivatives, soya bean, etc amid food inflation. What is your take on this?

With an abrupt disruption of the contracts, the hedged positions were rendered negate and they were fully exposed to the price volatility suddenly. With the loss of the price protection that was ensured to the farmer, they were again at the mercy of the middlemen in the form of traders, money lenders etc and the situation was further aggravated because now they didn’t have an efficient price discovery mechanism, nor did they have a risk reference price. Action price is used as a reference price; so they use it for decisions like crop sowing or pricing of the produce. Even people who do not participate in the exchange will use it as a reference for these purposes. This was completely taken away, and if you look at other market participants - the value chain participants, the institutional participants, the legal participants, the banks - all were adversely impacted. Let’s look at the rationale. We do have any official confirmation behind this, but the media indicated that it was an attempt to control food inflation. The hypothesis that the future market price drives the prices up itself is vexatious, and you don’t have to believe me or take me at the face value when I am saying this. There are reports from multiple notable economists who have conclusively established that price rise cannot be attributed to futures trading. Let’s look at a real-life example. Channa futures were suspended in August 2021. The prices of Channa dal and its related products in the retail markets were ac-

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