Development of Commodity Trading in India

Development of commodity trading in India is not a new phenomenon. It was there even before World War II. However, there were few obstacles, which hindered its development. Nevertheless, if this type of trading flourishes, it is bound to impact the economy in a positive manner too.

History of commodity trading in India:
The system of commodity trading dates back to the year 1875. The first futures commodity to be traded in India was in the same year and was that of cotton under the tutelage of Bombay Cotton Trade Association.

Trading of food grains as well as oil seeds followed cotton trading in India. The FMC or Forward Markets Commission is responsible for regulating commodity trading on India.

Hindrances in the development of commodity trading in India:

Prior to and after the Second World War, commodity trading prospered a lot. However, there were certain hindrances ruling the commodity trading markets in the country, which led to the restricted growth of this kind of markets in India. Nevertheless, it did not disappear altogether.

Reasons for not gaining prominence:
Development of commodity trading in India did not have a strong hold due to various reasons, some of which are enumerated below.
Price varies due to several factors:
Price of commodities being traded differ from one place to another depending on a number of factors like location, quality, characteristics and the manner in which the product would be made use of.
Absence of common price quotation:
Absence of a common price quotation within the country. This is exemplified by the fact that the price of wheat is different in Punjab, Gujarat, Madhya Pradesh and Uttar Pradesh. In majority of the cases, there is rampant manipulation of prices due to the absence of a common price.
Storage facility:
Since the storage facility in the country was not very developed(as of 2006), commodity market suffered a set back. Therefore, physical settlement was a far cry. Every year articles are being added to the list of trading items. It was anticipated that( as of 2006 ) that in the coming years, an increase in growth of as much as 252% would occur. It was reckoned that trade volume of Rs 12 lac would be attained (2006) as compared to Rs 3.4 lac, which was existing during that period(2006).
Advantages of commodity trading in India:
Development of commodity trading in India can be very beneficial, which is evident from the following facts.
Owing to commodity trading the a trader enjoys opportunities like arbitrage, hedging and trading.
It serves as a stepping stone or a platform for “price risk management”.
It conveys anticipations as well as opinions of traders belonging to various sects of the market.

 

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Last Updated on : 27th June 2013

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