Indian Commodity Markets Current Status and Future prospects

Indian Commodity Markets Current Status and Future prospects

Introduction to Indian Commodity Markets • • India has had a long history of trading in commodities. Indian traders commenced trading in commodities around last quarter of 19 th century much before many other countries started commodity trading. In India, there has been long history of commodity futures of more than 125 years. In mid-70 s it prompted to ban commodity markets – WHY ? ? – High speculation – Negative sentiments within investors. • • After a long hibernation of the forwards market in commodities, the Khusro committee in 1980 suggested reintroducing the future trading in commodities – mainly in agricultural products. With liberalization coming in and financial market reforms in 1991 onwards, steps to open futures trading has been accelerated.

Introduction to Indian Commodity Markets – contd…. • • • Economic liberalization policies being implemented and GATT being signed in the early nineties, the futures market in commodities gained momentum. The recommendation of Kabra Committee in 1994 and the National Agricultural Policy in 2000, directed the development of commodity markets in India. The government gave notifications for the futures trading in commodities in India in 2003. Why do you think the evolution is significant in Indian markets ? At present, Chennai has become one of the leading markets in the world in commodities trading. In India, there are currently 4 exchanges supporting the commodities trading :

Introduction to Indian Commodity Markets – contd…. • In India, there are currently 4 exchanges supporting the commodities trading : 1. 2. 3. 4. • MCX – Multi Commodity Exchange. NCDEX – National Commodity and Derivative Exchange. NMCE – National Multi Commodity Exchange. ICEX – Indian Commodity Exchange. THERE are three types of regulated commidty markets in India : – SPOT MARKETS – FORWARDS MARKETS – DERIVATIVES MARKET.

Commodity Markets Ecosystem • The commodity markets ecosystem includes the following components : a. b. c. d. e. Buyers / Sellers or Consumers / Producers. Logistics Companies. Markets and Exchanges. Support agencies. Lending agencies.

Physical Commodity Markets in India Introduction: • • Agriculture produce has been one of the most important components of the Indian Economy. Increasing trend of agricultural production has invited new challenges : – Finding market for the marketed surplus. – Respond to need for challenges and opportunities. – Look into the benefit of the farming community from the new global market opportunities. – Internal market system needs to be integrated and strengthened – Government of India trying its best to prepare the Indian Agriculture markets and marketing environment. – Marketing required to be re-oriented to respond to market needs and consumer preferences. • Steps for Agricultural Marketing:

Physical Commodity Markets in India. Introduction Contd…. • Steps for Efficient Agricultural Marketing: – Provide incentive to farmer to produce more. – Convey the changing production needs of the economy to producer to enable production planning. – Foster true competition eliminating exploitation of farmers. • • Agricultural marketing has been in existence in India for several centuries. Steps involved for approaching the current level : – Designated locations. – Post independence – MSP. – Large scale public sector procurement, storage and transportation of commodities was initiated. – In a more market-driven agricultural sector emerged since liberalization of Indian economy in 1991, the physical spot market and derivatives markets have become central. – Strengthening Institutions in SPOT and DERIVATIVES markets for commodities is vital for reducing the commodity price risk.

Framework of Agricultural Commodity (SPOT) Markets : • • Agriculture continues to be the main stay of life for majority of Indian population. It employs 65% of the workforce in the country. Agriculture and Agricultural Marketing is dealt by both State and Central Government. Different FIVE YEAR PLANS aimed at achieving socio-economic development of the country. Beginning from 1951, the different Five Year Plans laid stress on development of physical markets. Development of HORTICULTURE MARKETING attracted attention of policy makers during 3 rd FIVE YEAR PLAN. 1965 welcomed the Central Warehousing Corporation, Food corporation of India, Agricultural Prices Commission.

Framework of Agricultural Commodity (SPOT) Markets : contd… • The prominent among them included – – CCI (Cotton Corporation of India Limited) JCI (Jute Corporation of India Limited) NCDC (National Cooperative Development Corporation Ltd) NAFED (National Agricultural Cooperative Marketing Federation Ltd. ) The list continues…… • There has been a lot of changes in the objectives and forms of intervention in the marketing system in mid sixties when India opted for an alternative to give a GO AHEAD for a package of interventions for protecting and reconciling the interests of consumers / producers as well as the industry. • One most important instruments used by the government–Fixation and administration of prices. And 2 nd the help in implementation of the same.

Framework of Agricultural Commodity (SPOT) Markets : contd… • • By end of 1950, there were 286 regulated markets in the country and was at 7161 by March 2002 end. 2400 % increase…. . With government’s help and support, there were 7293 wholesale markets in the country as on 2001.

APMC (Agricultural Produce Market Commission) and BOARDS • • Agricultural Markets in most parts of the Country are established and regulated under State APMC Acts. The whole geographical area in the State is divided and declared as a market area wherein the markets are managed and regulated by Market Committees constituted by the Market Committees. APMCs are corporate bodies established under the respective State elected or nominated by the Government from amongst representatives, agriculturists, traders and other functionaries and local representatives. DISADVANTAGES OF AMPCs. ? ? ?

Microstructure of Physical CM or MANDIS • • Agricultural Markets in most parts of the Country are established and regulated under State APMC Acts. The whole geographical area in the State is divided and declared as a market area wherein the markets are managed and regulated by Market Committees constituted by the Market Committees. APMCs are corporate bodies established under the respective State elected or nominated by the Government from amongst representatives, agriculturists, traders and other functionaries and local representatives. DISADVANTAGES OF AMPCs. ? ? ?