Expert bats for regulating derivatives to insulate govt

 Along with equities and bonds, derivative products like futures, options and swaps are all getting traded in the country.

There is volatility, though, in the pricing of these securities and, therefore, a need for regulation is crucial, says T V Somanthan, IAS, presently a director with the World Bank, Washington, DC, in his new book, The Economics of Derivatives.

Speaking to Deccan Herald on the sidelines of the release of the book, Somanathan, who holds a PhD in Economics from Calcutta University, said: “There is a need to handle securities in such a way as to keep the government safe even while it makes money on their trade. Analysis should be undertaken to show what the risk paths are and how to overcome them.”

He said there is no need to ape everything the West does in the financial markets. “India should and must do its own thing to see how securities can be beneficial. Sometimes, decisions taken by the West do not end up well and it is this part that we don’t see often. I am looking at the contribution of securities to the Indian market and how efforts should be made to increase benefits and reduce harm to the Indian economy.”

Somanathan says India should be extra careful as derivatives had grown to a large extent, especially after the liberalisation of the Indian economy, in 1991. “As derivatives grow, if things are positive, then more will be the generation of money in a section of the Indian economy. My effort is to offer an overview of the derivatives market to which the Indian market reacts in different ways.”Somanathan has written extensively on land reforms  and public institutions in India.