Monday, May 8, 2006

?NEW DELHI: There is no fortune at the bottom of this heap. At a time when the markets are booming, rural India has been virtually barred from participating directly in futures trading.

The reason: you need to open demat accounts which require PAN numbers. As farmers do not have PAN numbers and banks are strictly enforcing new rules, a large swathe of the population has been effectively shut out from trading both in equity and commodity markets. For farmers who had started to believe in the Manmohan Singh government?s dream of prosperity, it has been a rude let-down.

?There has been tremendous interest this year among UP?s wheat farmers about trading on exchanges directly. But as the rules do not take into account the reality of farmers, they are in effect barred from the market,? said Ms Sadhana Umesh, a trader from Kanpur.

According to Ms Umesh, proof of identity is the other major hurdle. ?They are only accepting electricity bills, phone bills, passport, voter cards and driving licences. All these are usually impossible for small farmers to give. So earlier a certificate of residence given by local administration sufficed. Now no bank is willing to accept it,? she said.

The equity boom is also bypassing rural India. ?We have more than 9,000 farmer shareholders. It will be a nightmare to open demat accounts for them when the lock-in period for their shares is over. The bottom of the pyramid, where people genuinely want to do honest business, has got burdened with weighty rules while scamsters are undeterred,? says Narendra Murkumbi, MD of Shree Renuka Sugars, a private company with the largest number of farmer shareholders in India.

When contacted, officials in a leading private bank said they were not aware of the problems with opening demat accounts for farmers. ?It is basically a policy issue of the government. They will have to study it and find a solution. What can banks do individually except follow the rules,? they said.

Officials in the ministry of food and consumer affairs agree the problem of demat accounts certainly needs solving urgently to allow full participation of farmers and prevent exchanges from becoming limited to speculators.

?Till now exchanges have been able to provide price information to farmers. But if their very entry is curbed, then farmers are not fully empowered yet. At best they can prevail upon local traders to buy their harvest at the futures price they see on the ticker. The system has to evolve to take into account such issues,? said a top official.

Source: Economic Times (link opens in a new window)