India’s decision this week to ban agricultural trading contracts marks Narendra Modi’s latest effort to ease popular fears about rising inflation ahead of crucial state elections early next year.
The country’s consumer price index, which tracks retail inflation, rose to 4-9 percent in November after bottoming out in September. The wholesale price index, which reflects prices for businesses, has surged to a record of 14 percent and has remained in double digits for most of the year.
The uptick in prices comes as authorities around the world fear a surge in inflation in economies rebounding from early pandemic-induced shocks.
The government this week banned trading for one year in several agricultural futures contracts such as soybeans, wheat and palm oil, in response to concerns about rising food inflation.
While retail food inflation has remained modest in recent months, domestic soybean prices — for example — have nearly doubled this year, according to CNBC-TV18.
The ban was introduced ahead of polls in several agricultural states. Uttar Pradesh, India’s largest state that is controlled by Prime Minister Narendra Modi’s Bharatiya Janata Party, and opposition-ruled Punjab will both hold elections in the early months of 2022.
Some agricultural groups had called for bans, arguing that speculative trading in futures markets had exacerbated inflation. Indian authorities have taken similar steps to outlaw futures trading in the past despite a lack of evidence that it helps control inflation.
“Derivatives are not behind the price rise,” said Kishore Narne, head of commodities at brokerage Motilal Oswal. “It’s more for the optics . . . The government wants to show people that it’s trying to control food inflation.”