Harshad Mehta-like scam at NCDEX, charges Assocham; demands probe
April 9, 2012
Assocham, a lobby of multinationals has alleged the manipulation in price and fraud in guar gum is benefiting a few rouge traders while thousands of genuine traders, hedgers, exporters and farmers are losing their money at the commodity exchange
Moneylife Digital Team
Associated Chambers of Commerce and Industry of India (Assocham), traditionally the lobby for multinational interests in India, has urged the government to investigate manipulations by some traders at the National Commodity Exchange of India (NCDEX) that show huge price distortions and weak regulatory provisions.
“Commodity exchanges were set up for true price discovery but have unfortunately become centre of price distortions. The situation is akin to the Harshad Mehta scam in securities whereby a few manipulators have hijacked the NCDEX,” said SK Jindal, chairman of investments committee at Assocham.
In a release, the industry body said that commodity exchanges were set up in 2003 to support small farmers, traders and exporters to minimise their risk in futures market and for price discovery of their produce. To ensure smooth and transparent working of these exchanges, the Forward Market Commission (FMC) under the ministry of consumer affairs and food & public distribution was appointed as regulator on the lines of Securities Exchange Board of India (SEBI).
However, according to Assocham, recent developments indicate that the FMC has not been able to ensure fair and transparent working of the NCDEX. There have been manipulations and heavy speculative transactions in agricultural commodities like cereals, sugar and pulses.
After the intervention from the government, the focus of traders who are in the management and control of NCDEX has shifted to other commodities like turmeric, black pepper, gaur seed and gaur gum. “These players—because of their inside knowledge and control over the NCDEX—are able to manipulate prices substantially. In the process, poor agriculturalists, traders and exporters suffer huge losses,” said Mr Jindal.
Turmeric, which was trading at Rs35 per kg in January 2009, was manipulated to increase beyond Rs150 per kg within a year. But in a few months, the same was brought down to around Rs40 per kg. Similarly, the price of black pepper was Rs225 per kg in April 2011 and was manipulated to rise above Rs432 per kg in March 2012, an increase of 95%.
In the case of gaur seed and gaur gum the price manipulation is unbelievable, said Mr Jindal. The normal price of normal guar bean in the season is Rs10 per kg, while guar seed is traded at Rs25 per kg and guar gum at Rs50 per kg. Unfortunately, due to a fraud being played by a few rouge traders, the prices were increased to Rs291 per kg for guar seed and Rs959 per kg for guar gum on 21st March.
“It is unbelievable that the fodder for animals is priced at Rs291 per kg—much more than the price of cereals and pulses used for human consumption,” said Mr Jindal. “The prices for guar have gone up by 120% in the past one month, 700% in the past four months, 875% in the past 12 months and 1,300% in the past 18 months.”
This manipulation in price and fraud is benefitting a few rouge traders while thousands of genuine traders, hedgers, exporters and farmers are losing their money, he added. This artificial price increase is against the interest of farmers who will not be able to buy expensive guar seed for their next crop.
What is most surprising is that last month the FMC suddenly banned futures trading of guar gum and guar seed on NCDEX. “The step is totally against small traders, hedgers and farmers and is in fact a reward to manipulators and rouge traders,” said Mr Jindal.
These manipulations also show a weakness in exchange regulations at the FMC and the government needs to re-visit the provisions and bring stringent regulations to avoid such scams, said Mr Jindal adding that Assocham has written to prime minister Manmohan Singh as well.
Assocham has suggested to the FMC to amend this circular and allow trading in futures contracts till 20th April—the normal terminal date for trading on NCDEX. The FMC should order an investigation into the accounts of the 20 top traders who have benefitted from the receipts of month-to-month payments from small traders and hedgers.