Financial Risk Management

Feasibility of Creation of Rainfall Risk Market in India: A Perception Analysis

Article Details

Pub. Date	: Sep, 2021
Product Name	: The IUP Journal of Financial Risk Management
Product Type	: Article
Product Code	: IJFRM20921
Author Name	: Bharath V, Jyothi Shivakumar N M and G Kotreshwar
Availability	: YES
Subject/Domain	: Finance Management
Download Format	: PDF Format
No. of Pages	: 16

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Abstract

This paper studies the feasibility of rainfall risk market in India. Perceptional studies on feasibility of creation of rainfall risk market are essential to understand the ecosystem of our capital markets to design, develop and trade rainfall-risk products like rainfall futures and options. The study is exploratory in nature because no research has been done on the feasibility of rainfall risk market based on stakeholders'/experts' perceptions. It is based on the primary data collected through a structured questionnaire and circulated among the selected sample of 208 respondents.

The respondents are academicians, executives working in insurance/reinsurance companies, professionals working in commodity/stock exchange, stockbroking, and practicing CA/CMA/CS/CFA professionals. The findings indicate that there exists scope for creating rainfall risk markets in India. However, creating awareness amongst the stakeholders is a prerequisite for creation of such markets. The results of the study are likely to chart a road map that lays down a clear path for design and development of rainfall risk markets.

Introduction

The contemporary financial system is characterized by high pace of innovation, resulting in new instruments, mechanism and markets. Today, capital market policies and instruments are designed to promote more sustainable investment practices to address the challenges posed by climate change, and to support achievement of the sustainable development goals.

India has always been a land of extreme diversity-be it culture, landscape or weather. Of these, the weather factor presents formidable challenges since it is not possible to control. The report of a recent study on climate change covering the period between 1961 and 2012 by Indian Meteorological Department (IMD) noted that "spatially coherent decrease in monsoon season is a cause for worry". Ambivalent monsoons are the major source of risk not only for agriculture which sustains over 60% of Indian workforce, but also for other segments of the economy, including hydropower generation, agro-processing, agri-insurance and finance, construction and tourism industry.