This chapter provides a comprehensive overview of India’s commodity derivatives markets, emphasising their critical role in economic planning, price discovery, and risk management. While commodity spot markets in India are fragmented and regionally dispersed, exchange-traded derivatives markets are centralised and standardised, offering futures and options contracts across agricultural and non-agricultural commodities. India has a long history of commodity trading, dating back to the 19th century. However, post-independence policies imposed several restrictions, with meaningful reforms re-emerging only in the early 2000s. The establishment of national-level electronic exchanges like MCX and NCDEX marked a turning point. Since 2015, regulatory oversight has been transferred from the Forward Markets Commission (FMC) to SEBI, which has initiated several reforms, including the introduction of options contracts, extended trading hours, and participation from mutual funds and foreign investors. Despite these advances, the market faces recurring suspensions in agricultural derivatives trading—typically during inflationary periods—which, along with inconsistent regulations and high trading frictions like the Commodity Transaction Tax, limit liquidity and participation. Most trading volume remains concentrated in non-agricultural commodities such as crude oil and gold, with MCX accounting for over 85 per cent of the turnover. The derivative markets have improved price discovery and risk-transfer functions for several commodities. However, structural weaknesses persist, including poor integration between spot and derivatives markets, limited participation by hedgers and institutions, and inadequate warehousing, grading, and logistics infrastructure. These frictions have prevented efficient convergence between spot and futures markets. Drawing on global lessons, especially from China and the US, the chapter underscores the need for harmonised standards, regulatory clarity, and institutional engagement. A phased, integrated approach involving spot and derivative market development is essential for unlocking the full potential of India’s commodity markets and enhancing their contribution to economic resilience and price stability.
Citation:
Commodity Markets, Nidhi Aggarwal, Anjali Sharma, Chapter 11 in The Routledge Handbook of Indian Banking and Finance, Edited By Partha Ray, Ashok Banerjee, Sankarshan Basu, May 2026. DOI https://doi.org/10.4324/9781003771883
