Commodity Future Market in india

Are commodity derivatives new in India

India has always been a country of market imperfections and prices fluctuations. Though India has an agricultural economy, it never had a national common market for agricultural products. There were lways shortages and surpluses – with wide discrepancy in the prices at various levels. 

There was lways price heterogeneity because of information asymmetry in the markets. In rural India, mandis were the traditional market places for food and agri-commodities. In different parts of India, mandis developed as wholesale trading hubs for vegetables, grains, pulses, spices, condiments, fruits, timber, gems, diamonds and livestock.

Despite such a long history, commodity futures trading (particularly in agricultural goods) has always remained controversial in India where more than 65 percent of the population is dependent on agriculture for livelihoods. In the late 1960s, severe droughts forced many farmers to default on forward contracts. 

This, coupled with abusive market practices by some traders, led to increase in commodity prices, and the Indian government suspended forward trading in several commodities such as jute, edible oil seeds and cotton. For almost three decades, the futures trading was at a standstill, till India began liberalizing its economy in 1991.

In 1875, the first organized futures market for cotton contracts was established by the Bombay Cotton Trade Association.
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