Improving farmers’ income by futures trading: A case study of chickpea in India

India is largest producer (25per cent), consumer (27 per cent) and importer (14 per cent) of pulses in the world. Gram, tur, moong and urd are major pulses grown in India among which, gram (chana/chickpea) contributes maximum share (43.84 per cent) in the total pulse production in 2015–16. From past few years, volatility in the prices of pulses is most concerning issue in the agricultural scenario of India. Increased price volatility will results into variations in farm income. Futures trading, in this context emerged as a boom as it not only smooth the volatility and mitigate the price risks but also discovers the prices of commodity so that farmers can plan their activities in order to improve their income. Present study is conducted to examine the relationship between spot and futures prices of chickpea in India. The data on spot and futures market prices were collected from the NCDEX website for the period January, 2005 to December, 2015. Johansen cointegration test was employed to assess the long run associationship between two price series. The direction of relationship was examined by using Granger causality test. Vector Error Correction Mechanism (VECM) was employed to model the short run relationship. The cointegration results confirm the existence of long-run relationship between the two price series. The study concluded that there is a causal relationship form futures to spot, thus futures trading fuels the farmer to take the appropriate decisions which in turn will improve their income.