|
The article explains the economic functions of the commodity futures market, regulation of the commodity derivatives market and the present scheme of regulation in Indian commodity derivatives market.
India is a commodity-based economy where more than two/third of the population depends on the agriculture. Commodity futures market in India is more than 125-years old. The commodity market was one of the most vibrant markets in the early 1980's. In the present scenario with the removal of the restrictions, there is tremendous growth of this market. This market is an important constituent of the financial markets of the country. This will help a variety of investors to hedge their commodity risk, have speculative position and exploit arbitrage opportunities in the market. The Bombay Cotton Trade Association was set up in 1875. It was the first organized futures market. The Bombay Cotton Exchange Ltd., was set up in 1893. It led to active futures markets in various commodities like bullion, oilseeds, wheat, jute, cotton, etc. The futures trading in oilseeds started in 1990 with the setting up of Gujarat Vyapari Mandali. This Mandali carries on the futures trading in groundnut, castor seed and cotton.
In 1913, the Chamber of Commerce was established in Hapur for futures trading in wheat. The Calcutta Hessian Exchange Ltd., was set up in 1919 for futures trading in raw jute and jute goods. In 1920, futures trading in bullion commenced in Mumbai. It is noticeable that organized futures trading in raw jute commenced in 1927 with the establishment of East Indian Jute Association Ltd. Both the associations were amalgamated in 1945 to form East India Jute and Hessian Ltd. During the World War II, futures trading in most of the commodities was suspended. In 1952, Forward Contracts Regulation Act was passed and the Forward Market Commission was established in 1953 under the Ministry of Consumer Affairs and Public Administration.
Till the late 1990s, futures trading in all the major commodities was prohibited/suspended. Liberalization of economy took place in 1991, following which futures trading was permitted in several commodities: for example, coffee, jute, sugar and edible oilseed complexes. The National Agricultural Policy was announced in July 2000. It emphasized the need for allowing futures trading in agricultural commodities for risk management and price discovery. Futures trading was permitted in all the commodities from April 2003. Accordingly, three multi-commodity national exchanges were established. |
