Despite a long history of commodity markets, the Indian commodity markets remained underdeveloped, partially due to intermediate ban on commodity trading and more due to the policy interventions by the government. Being agriculture-based economy, commodity markets play a vital role in the economic development of the country. While the agricultural liberalization has paved way for commodity trading, India has to still go a long way in achieving the benefits of commodity markets. Towards the development of the commodity markets, it is important to understand the growth constraints and address these issues in the right perspective.

Commodity markets play an important role in the development of an economy, especially those economies that are dependent to a large extent on the agriculture sector. Owing to its dependence on agriculture sector, Indian economy to a large extent would benefit from commodity markets. Despite the fact, that Indian economy has witnessed robust growth in the last decade on account of services sector; agricultural sector still remains the backbone of Indian economy. Roughly around 60% of the Indian population is dependent on agriculture. Vibrant commodity markets in India will not only benefit the farmers but also the manufacturing sector that is dependent on it to gain significant price gains.

Though no formal institutional set up for commodity derivatives trading was prevalent, commodity trading is not a new phenomenon in India. References of commodity markets date back to Kautilya's Arthasastra. Since that time, commodity trading has been active in India but limited to very few markets. The first formal commodity futures market came into existence with the establishment of Bombay Cotton Trade association in 1875 to trade in cotton contracts. The association later expanded the trading to oil seeds and food grains. The establishment of Gujarati Vyapari Mandali in 1900 led to futures trading in groundnut, castor seeds etc. similarly, the futures trading in raw jute and jute products began in 1919 with the establishment of Calcutta Hessian Exchange limited. A number of regional exchanges were formed between the First World War and the Second World War at Amritsar, Moga, Ludhiana, Jalandhar, Fazilka, Dhuri, Barnala and Bhatinda in Punjab and Muzaffarnagar, Chandausi, Meerut, Saharanpur, Hathras, Gaziabad, Sikenderabad and Bareilly in Uttar Pradesh and Mumbai, Jamnagar, Delhi, Calcutta and Rajkot to trade in diverse commodities like cotton, groundnut, groundnut oil, raw jute and jute goods, castor seed, wheat, rice, sugar and precious metals like gold and silver. The markets were gaining momentum when they received the first jolt during the Second World War, when futures trading in commodities were prohibited.