Sunday, March 7, 2010

By Sreekumar Raghavan
How old is commodities futures trading? According to some it goes back to ancient times as clay tablets of the Mespotamia dated to 1750 BC was reported to have contained derivatives contracts. Aristotle mentioned an option type of derivative and how it was used for market manipulation in 4th Century BC. Perhaps, the intensive speculation in tulips that rocked commodity futures in Holland in 1630’s is more recent, so is the growth of the world’s largest exchange, CME Group.

Back home, did Kautilya refer to futures trading in Arthashasthra. A new book, Back to the Future: Roots of Commodity Trade in India jointly written by Jignesh Shah and Biswajeet Rath revisits the argument whether Kautilya was indeed referring to futures trade. “Several writings on commodity derivatives trading begin almost predictably with the state that futures trading is referred to in Kautilya’s Arthasasthra. Kautilya says that ‘prices shall be fixed taking into account the investment, the quantity to be delivered, duty, interest, rent and other expenses. The key phrase in Arthasasthra that referes to futures is ‘desakalantaritanam’. The authors conclude that Kautilya may have been referring to goods that are manufactured in far off places and naturally takes a long time to travel to the central location for inspection by the Director of Trade Because of this distance in time and plance, the commodities are subject to ancillary expenses such as duty, interest and rent. Arthasasthra directs the Director of Trade to take these expenses into account before fixing the price of such commodities.

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This writer had the fortune of going through a couple of historical works when doing cover or special features on coffee, spices, textiles and rubber. Indeed, historical works are replete with either descriptions of war between provinces and nations or trade, cultural progress of the times they refer to. Therefore, to a reader well-versed in Indian history, the Jignesh Shah-Biswajeet work may not come up with information or data to which they already may have access, so also those who keenly read school and college level history books.

But what distinguishes the work is the pains taken to stress the point that global commodity trade was well developed with shipping-logistics support and a system to regulate trade in ancient times. “But consider the recorded past of more than 2500 years ago, when the first dockyard was built at Lothal (Gujarat) to transport good; consider also the remains of the huge granary discovered at Harappa where grains was stored during the Indian subcontinents first civilization,” the book notes.

The historical work provides several references to clay and metal inscriptions, epics and historical works that point to commodity trade in ancient times. It gives the barter value of goods which are clearly given in Tamil inscriptions of 1100 period. It talks about the great demand for Indian commodities that foreign traders were ready to procure them in exchange for precious gold coins. The outflow of Roman gold coins to India virtually led to a crisis for the Roman Empire and contemporary chronicles make a note of the this imbalance in the Indo-Roman trade during the first 3 centuries of Christian Era, the book notes.

The Roots of Commodity Trade in India is neither an exhaustive coverage of India’s commodity history, nor is it a coffee table book meant to just glance through. It combines the design and elements of a coffee table book but with several footnotes it does get the feel of a research work. It covers the period from 7000 BCE to 1800 CE The 143-page book does create interest in the reader to learn more about history of commodity trade and there-in lies the merit of the book co-authored by renowned historian Biswajeet Rath. As promoter of the leading commodity bourse through his firm Financial Technologies, co-author Jignesh Shah is in a vantage position to correlate the past with the present and this attempt has been made in a few of the chapters in the book. All the photographs and inscriptions in the book have been carefully chosen and sourced from Wikepedia, the free resource on the Net.

The book assumes added relevance after the science boom and the IT, biotechnology, nanotech boom that shifted world attention away from a sector which has roots in antiquity and still serves to provide employment, investment opportunities and money to several millions of people directly and indirectly all over the globe. As Jignesh Shah notes in the Preamble to the Book: “Clearly, history has much to teach those who blame the markets for the present financial turmoil. For all its occasional failings, Back to the Future clearly evidences that there is no better system for rapid and sustainable economic growth and development than properly regulated market capitalism”


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