1.

GENESIS OF THE PROBLEM

Instability of commodity prices has always been a major concern of the producers as well as the consumers in an agriculture dominated country like India. Farmers direct exposure to price fluctuations, for instance, makes it too risky for them to invest in otherwise profitable activities.

1.2

BACKGROUND OF THE STUDY

The organised commodity derivatives started in India in the year 1875 , about a decade after the Chicago exchange was started. With the draughts 1960 , many farmers defaulted on the forward contracts. But since the year of 2002 the commodity market have turned towards the positive side with the increase in the number of modern exchanges allowing for derivative trading as well as the value of futures trading in commodities, that crossed the $ 1 Trillion mark in 2006. Indian exchanges have significant role to play to facilitate price discovery, that is linked to global demand and supply which could assist the producers to decide on what crops they should produce. India is among the top five producers of commodities in addition to be a major consumer of bullion and energy products. Agriculture contributes to nearly 22% of the GDP. This sector employs nearly 57% of the labour force on a total of 163 million hectares of land. The agricultural sector plays a major role in achieving the GDP of 6% . This indicated that India can be promoted as a major center for trading of commodity derivatives Government policy changed with the recommendations of the K.N.Kabra committee report of allowing futures trading in 17 commodity groups. It also recommended strengthening of the Forward Markets Commission, and certain amendments to Forward Contracts (Regulation) Act 1952, particularly allowing options trading in goods and registration of brokers with Forward Markets Commission