The commodities market consists of both spot and forward markets. Spot trading has been prevalent across the world since the commencement of the system of barter. The futures markets have evolved in different ways in several countries. In India, commodity markets have a long history. Organized trading on Commodity Exchanges in India started with the setting up of the Bombay Cotton Trade Association in 1875. Later on, several futures markets in oilseeds, castor seed, groundnut and cotton were functioning in different parts of the country. However, in view of the widespread speculation in these markets and shortages of commodities, futures and forward trading in commodities was prohibited in the early 1960s. Consequently, many of these Commodity Exchanges became defunct.
The government's liberalization policy and the increasing needs of the producers as well as traders of various commodities for proper risk management and price discovery tools necessitated putting in place a market mechanism to perform these functions. Towards this objective, the Government of India appointed several committees to study the various issues confronting the forward/futures markets. Notable among them were the Shroff Committee (1995),1 the Dantwalla Committee (1996) and the Khusro Committee (1979).2 The Kabra Committee (1993)3 recommended resumption of futures trading in a number of commodities like basmati rice, cotton, raw jute, oilseeds, castor oil and bullion.
Based on the recommendations of the Kabra Committee, the Government took initiatives for the development of commodity markets. The turning point came in 2002 when it was decided to set up national level Multi-Commodity Exchanges (MCX) for performing the two-fold functions of price discovery and price risk management. These exchanges were expected to have a national reach and offer trading platforms for all the commodities permitted under the Forward Contracts (Regulation) Act, 1952. The Government has since given recognition to three Multi-Commodity Exchanges. The Central Government issued notifications on April, 2003 permitting future trading in almost all the commodities (specified commodities). |
