Indian Commodity Market To Grow By 30% & Reach Rs.74,156,13 Cr. By 2010

Indian commodity market which expanded by 50 times in a span of 5 years from Rs.66530 crore in 2002 to Rs.3,3753,36 crore in 2007, is now expected to grow at a steady speed of about 30% by 2010 and touch a volume of Rs.74,156,13 crore since people’s participation in such trade would continue, according to findings of the ASSOCHAM.

In 2003, the size of commodities trade stood at Rs.129364 crore which thereby went to Rs.571759 crore in 2004, recording an increase of 341%. In 2005, the growth in commodities trade was by 276% as it went up at Rs.2,155,122 crore. However, in 2006, though the commodities trade increased to Rs.2,739,340 crore, it could register year on year growth of 27% over the last year. For 2007, the trade in commodity reached at Rs.33,753,36 crore and registered a growth of 23%, say the ASSOCHAM findings.

Growth in commodities derivatives trading which was at massive level in the last five years would now grow by about 30% to reach projected level of Rs.7415613 crore in next 2 years.

The turnover as proportion to GDP of commodity trade increased from 4.7% in 2004 to 20% in 2007 and is expected to go up many folds since commodity markets would remain friendly to its subscribers.

The daily average volume of trade in commodities exchanges by December 2007 was over Rs.12,000 crore, said Mr. Jindal. Gold, silver and crude recorded the highest turnover in MCX while in NCDEX, soya oil, guar seed and soyabean and in NMCE pepper, rubber and raw jute were the most actively traded commodities on an average. This trend is likely to continue.

The study points out that futures trading in commodities results in transparent and fair price discovery on account of large-scale participation of entities associated with different value chains. This reflects upon the views and expectations of a wide section of investors related to that commodity. It provides an effective platform for price-risk management for all segments of players ranging from producers, traders, processors, exporters/importers and the end-users of a commodity.

The delivery and settlement procedure differs for each commodity in terms of quality implications, place of delivery, options, penalties and margins, and are defined comprehensively by the exchanges. Members of an exchange can perform and clear transactions in only those contracts which are exchange specified and approved by the Forward Market Commission (FMC).

On constraints, major challenges and policy options of commodities futures, the study points out that Commodity futures markets are the strength of an agricultural surplus country like India. Commodity exchanges play a pivotal role in ensuring stronger growth, transparency and efficiency of the commodity futures markets. This role is defined by their functions, infrastructure capabilities, trading procedures, settlement and risk management practices. However, Indian commodity exchanges are still at a nascent stage of development as there are numerous bottlenecks hampering their growth.

The institutional and policy-level issues associated with commodity exchanges have to be addressed by the government in coordination with the FMC in order to take necessary measures to pave the way for a significant expansion and further development of the commodity futures markets. Some of the major problems associated with commodity markets in India include infrastructure, trading system, broking community, controlled market, integration of regional and national exchanges as also integration of spot and futures markets.

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