Commodity Options: A Game Changer for Indian Farmers?
In a major push to widen the scope of commodity derivatives market in India, Securities and Exchange Board of India (SEBI) has recently allowed options trading on commodity exchanges. This decision has been hailed by commodity exchanges as a game changer for Indian farmers. Tracing the experience of futures trading in the Indian commodity markets, the paper argues that the options trading is not suitable for Indian farmers as they lack the understanding, resources and capacities to trade in commodity derivatives. Since sophisticated traders and financial investors will use commodity options for speculative gains, the Indian derivatives market would move further away from fulfilling the twin objectives of hedging and price discovery. What is good for financial players is not necessarily good for Indian farmers. The paper concludes that this policy move will have significant implications for inclusive growth and development and therefore requires a major rethink.