Commodity Markets have existed from over 100 years in India while the official commodity Exchange-traded mechanism opened in India in late 2003 some of the important aspects of commodity market in our country are explained below.
First is to achieve food security through commodity markets, in this line there comes a question in mind that how does government achieve food security through commodity markets? A recent report about grains worth Rs 800 crore were destroyed in Punjab due to bad warehousing. Currently, this is the risk that farmer is forced to take the benefit to these farmers is that they can make use of futures markets in an effective way selling futures on their by locking a price this will ensure that the farmers are nor affected by price fluctuations. One of the big challenges in this sector is the absenteeism of post-harvest infrastructure due to which as a result the substantial amount of food grains are lost in the transmission process in which the price situation is degraded in which farmer is without benefit.
Commodity segment provides long investment classes for Indian Investors that has been limited to the traditional gold, FD's and equities while investors have participated in commodities through the Equity market mechanism those traders do not participate directly in commodity as an asset class in the process they are also able to make choices or have a largely variety of choices for traders. These Investors can participate in agricultural products or even in precious metals like gold and silver.
The final and most important function of the commodity market is helping in the distribution of risk and protection of the origin from where the risk is originated. For Example we take the case of a jewelry manufacturer who wants hedging against gold price volatility in agricultural products and can also use future markets as the hedge position, commodity markets in India are still in a stage in which it has a long way to go and also have an important role in discovering the price and hedging the risk of MCX market in India.