Why are commodity futures markets important?
India’s farmers, and downstream industrial users of agricultural output, are exposed to extremely high risks. The creation of commodity derivatives markets will provide them with the choice of obtaining insurance against price fluctuations. It will improve liquidity and price discovery in the underlying spot markets. Once futures markets exist, the private sector will maintain buffer stocks which will reduce spot price volatility, and the private sector will do this far more efficiently than government-sponsored efforts at maintaining buffer stocks. In addition, the creation of these markets is consistent with the growth of skills in India’s financial industry in the area of derivatives.
