Indian Commodity Derivative Market: AnAppraisal of State Intervention

One of the most commonly used justifications for restrictive state intervention in the commodity derivative market is that futures trading promote excessive speculation and subsequent price inflation of essential commodities. Using that rationale the Indian government had subjected this market to repeated restrictions and in an extreme reaction, in 1952, imposed an extensive ban on commodity derivative trading. However evidence at the operational level points out that quite often price behavior of various commodities is influenced by other factors rather than being induced by speculations in the commodity derivative market. Under the circumstances restrictions imposed on their trading in the commodity derivative market as a part of the national anti-inflationary policy is not always justifiable or equitable. Every successful agricultural economy in the world has an intimate role for commodity futures. As India grows into a mature market economy, it has to appreciate how the submarkets function, and on that basis construct appropriate institutional structures to ensure these markets operate efficiently and optimally.