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Abstract
In any agriculture-dominated economy, like India, farmers face not only yield risk but price risk as
well. Commodity futures and derivatives have a crucial role to play in the price risk management
process, especially in agriculture. The present study is an investigation into the futures markets in
agricultural commodities in India. The statistical analysis of data on price discovery in a sample of
four agricultural commodities traded in futures exchanges have indicated that price discovery does
not occur in agricultural commodity futures market. The econometric analysis of the relationship
between price return, volume, market depth and volatility has shown that the market volume and
depth are not significantly influenced by the return and volatility of futures as well as spot markets.
The Bartlett’s test statistic has been found insignificant in both the exchanges, signifying that the
futures and spot markets are not integrated. The exchange-specific problems like thin volume and
low market depth, infrequent trading, lack of effective participation of trading members, non-awareness
of futures market among farmers, no well-developed spot market in the vicinity of futures market,
poor physical delivery, absence of a well-developed grading and standardization system and market
imperfections have been found as the major deficiencies retarding the growth of futures market. The
future of futures market in respect of agricultural commodities in India, calls for a more focused and
pragmatic approach from the government. The Forward Markets Commission and SEBI have a greater
role in addressing all the institutional and policy level constraints so as to make the agricultural
commodity futures and derivatives a meaningful, purposeful and vibrant segment for price risk
management in the Indian agriculture.