Does a Speculative Trade in Food Commodities Influence Food Price Inflation in India?

Inflation, especially the food inflation has become a major economic challenge for the public policy in the contemporary India. Inflation pressure on food products is caused by interplay of multiple factors. The literature has identified various sources of food price inflation that included institutional factors, market conditions and institutional arrangements. The effect of institutional arrangements like speculative trade in commodity on the inflation is studied in many studies. Yet similar studies have not been attempted in the Indian context though the speculative trade is permitted in commodities from 2003 onwards. This paper analyses the relationship between wholesale food price index and trading on agricultural commodities in Multi-Commodity Exchange of India (MCX) using the monthly data between 2004 and 2014 from CSO and MCX respectively. The researchers have used time series analysis to draw conclusions from the study which indicates that there is no influence of trading on food commodity futures on wholesale price indices. However, the trading in MCX is influenced by fluctuations in wholesale price indices which may have implications for the future of food commodities prices in India.