Title: Efficiency of Guar Seed Futures Market in India: An Empirical Study
Abstract: (ProQuest: ... denotes formulae omitted.)IntroductionIn India, commodity futures markets have been in existence for more than a century. Their ability to meet the price risk management needs of producers and traders has created a compelling need for transforming them to highly sophisticated markets, where cutting-edge technology, wide variety of contracts, increasing awareness and participation of users together with tight regulatory framework, all work towards the ultimate aim of improving the market efficiency. Price discovery and price risk management are the twin functions which are used to measure the efficiency of futures market. The mechanism of price discovery aids in ascertaining the true price of an asset in the marketplace where a large number of buyers and sellers are interacting. Working (1948) refers to price discovery as the use of futures prices for pricing cash market transactions. In futures market, price discovery is facilitated with the participation of hedgers and speculators who provide the much-needed liquidity and information value to the market.Commodity markets are very crucial for the sustenance and growth of any economy. In India, the demand for commodities is increasing very fast, putting a constraint on the available resources. Prior to the launch of economic reforms in the 1990s, governments' intervention, particularly in food and agriculture markets, to artificially stabilize prices was promoting inefficiencies and was expensive on the state exchequer. But the wave of liberalization which began in the early 1990s necessitated greater reliance on market-based price risk management instruments. With support from government, commodity markets were liberalized and development of commodity derivatives was taken up on priority. Derivatives in the form of commodity futures were introduced in commodities like bullion, metals, energy, weather, food and non-food agricultural items. Agriculture has been one of the strongholds of Indian economy, and it supports about two-thirds of the country's population, contributing 17.28% to the GDP at current prices.1 To make the trade in farm commodities competitive in the world markets, the Indian government signed General Agreement on Trade and Tariff(GATT) with WTO, thus opening the agriculture sector to world trade. The need to strengthen the farm sector has led to the revival of interest in commodities futures markets in India with the ultimate objective of facilitating price discovery and to serve risk mitigation needs of farmers.The response to futures trading in agriculture commodities has not been without criticism. Nevertheless, it has maintained its growth trajectory, and the volume of commodity futures trading in agriculture increased from 3.87 lakh crore in 2004-05 to 14.56 lakh crore in 2010-11.2 Rigorous efforts are being made to boost the trading volume by reaching the farmers, traders and exporters through awareness programs and training, and by increasing the number of commodities eligible for futures trading to cater to a wide variety of users. As of March 31, 2012, a total of 113 commodities have been permitted for trading at commodity futures exchanges, and in terms of value of trade, the prominent among them are gold, silver, copper, zinc, soya oil, pepper, jeera, chana and guar seed. After soya oil, guar seed had the second highest trading volume of 2,46,283 cr as on March 31, 2011 on the NCDEX and it is also dominating the international trade (see Figure 1). Hitherto an obscure commodity, it is currently being tagged as Black Gold because of itsGuar seed is a leguminous crop which grows in sandy soil and needs moderate rainfall. It is sown in the end of July after the first shower of monsoon and is harvested in October-November. Not simply a vegetable, it has commercial application in food processing, pharmaceutical and personal care industry. The US Food and Drug Administration department has approved Guar as a substitute to fats in foods. …
Publication Year: 2013
Publication Date: 2013-04-01
Language: en
Type: article
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Cited By Count: 8
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