The Indian Economy Blog

February 6, 2007

To Market, To Market

Some interesting commentary in the papers this week:

Anantha Nageswaran’s opening salvo, in the newly launched Mint:

Central bankers in most of the developed world have taken that to heart in dealing with financial markets. Financial markets, in theory, have more participants than those engaged in the economic marketplace. Hence, the outcomes of their buying and selling decisions—as reflected in asset prices— should be more superior to the judgement of a few men sitting around the table in an austere government building, deciding whether financial markets are in a bubble or not…

To reiterate, the reason central bankers hesitate to intervene when asset prices keep climbing is that they find it unreasonable that a few men could overrule the judgement of hundreds and thousands of market participants. Perhaps, the real reason is that it is also politically unpopular to throw sands under the wheels of asset markets. In any case, it is hard to say whether asset prices were in a bubble or were discounting rational optimism (an oxymoron?) until after the fact. Precisely such a debate is under way in India right now. The all-important question is whether the Sensex, at over 14,000 points, is a product of global liquidity or is a rational reflection of the current and prospective high-economic growth in the country.[Mint]

And an editorial in the Business Standard arguing against the call for a ban on futures trading on some agricultural commodities (via Ajay Shah):

The deeper reason why futures trading is extremely important lies in a strategic sense of Indian agriculture. Where is India going on the terrible distortions of the agricultural sector? Is India ever going to move away from the knee-jerk responses of hurting milk farmers one day by banning milk export, and then trying to set up a minimum support price for milk because milk farmers are unhappy? If India is going to make progress towards a well-functioning agricultural sector, then there is no question that futures trading belongs in it. Futures trading is as much a part of modern agriculture as fertilisers, drip irrigation and bio-technology. [Business Standard]

1 Comment »

  1. LOL … LOL.. Great Point made.

    How can a Government try to please producers (Farmers) and consumers (voters) at same time?

    Government is trying to increase subsidies for Farmers and increase MSP and also trying to target inflation of primary articles. Both are mutually opposing objectives.

    This again shows that the way ahead is not fiscal wastage or socialist style price controls, but greater efficiency in farm produce. The productivity of farmlands must be improved so that farmers produce more for the same investment. And Since arable land is finite, the dependance of 70% of population on farming must be gradually reduced.

    Comment by Ramki — February 11, 2007 @ 11:32 pm

  2. http://www.bloomberg.com/apps/news?pid=20601039&sid=apm.ICwxSAuQ&refer=home

    Another well argued article arguing against banning futures.

    Apologies for double posting. I meant to post it here.

    Comment by Deepak Jois — March 6, 2007 @ 1:00 pm

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