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What The Heck Is Commodity Market In India?

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By Author: Sachin Pathak
Total Articles: 8
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Commodity trading in India started in ancient times over 100 years ago, but the official market of commodity trading com into existence in the year 2003. Earlier there were many issues of regulatory jurisdictions but at least there is a platform for forming a view and trading in commodities
. The commodity market is a good idea in India if you want to have your own business.

Good Agriculture security with commodity market

Have you questioned how the government of India fulfills all the food and Agriculture needs through the commodity market? In recent, there was a news that the state Punjab has lost its grains worth over Rs.
800 crore due to bad warehousing conditions. This increases the risk of farmers. In this situation, the farmers can use the futures market more effectively by selling futures on their grabs and locking the price. Doing this, ensures that farmers are not susceptible to the fluctuations in the price. Recently the farmers were hit by the Indian market due to oversupply of pulses. This issue can be solved by selling the futures on this pulse at a price that is remunerative for the farmer. The farmers actively use the futures market to hedge their price fluctuation in the case of agricultural products.

Investment in Agriculture Ecosystem

The post-harvest of infrastructure is the biggest challenge to the agriculture sector of India. This results in a substantial loss of food gains in transmission process which worsens the price situation for the end customer without benefiting the farmer. To make profit for the farmer, broker, middleman, and the customer and this will spur greater investment, a viable commodity market mechanism is a good choice which helps to spur greater investments in the agriculture ecosystem offering better warehouse system and improvement transport facilities. The viable commodity market plays a key role in catalyzing the development of the ecosystem.

Aggregation and Financing in India

The farmers in India are very less in quantity and are widely spread. The need of the hour is of the aggregator. In India, the middle man plays the role of aggregator but this is not exactly a transport mechanism. But the organized commodity market can play the role of an aggregating and selling agricultural products more efficiently and more effectively. The market provides an organized and guarantee mechanism for aggregating and selling agricultural products where the small farmers can make a good outcome from it. Doing financing is the second aspect of the commodity market. The commodity market is an organized and institutional mechanism to raise financing against warehouse receipts.

Opting for retail investors can participate in a new asset class

In India, people mostly invest in selected commodities like gold, real estate, bonds, etc. But therein indirect way of participation in the commodity market through equity. The commodity exchange provides a way for the small and middle-class investors to actively participate in a new asset class. This will also help in diversify their concentration risk of the existing asset classes. There is a vast choice for investors either they can invest in Agri products or go with metals like gold or zinc.

Study the speculation excesses of the sport market

You must adsorb some speculative excess of commodity market. For example of gold. A lot of demand for gold is generated for speculative purpose. There is so much gold India have, the investors rely heavily on gold imports to meet the additional demand. Now gold imports is having downside results in using of precious foreign exchange resources without any concomitant productivity benefits. This happens as the traders and speculators preferred to hold gold on spot. This problem can be solved with a robust gold futures market as it will absorb most of the speculative demand for gold in the process. It saves precious forex resource for Indian economy.

Managing price and distribution of risk

It is the one of the important task in commodity market which helps distribute the risk and protect the originator of the risk. For example a Jewell art manufacturer wants to hedge against gold price volatility in agricultural products can also use the futures market to hedge their position. Therefore the overall risk tends to become granular and larger number of traders will be ready share the risk.

Commodity trading in India is at growing stage and have a long way to go. This also have an important role to play in discovering the price and hedging the risk of commodities in India.

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