In June 1980, The Khusro Committee recommended re-introduction of futures trading in most of the major commodities including cotton, kapas, raw jute and jute goods. The Committee also suggested that steps may be taken for introduction of futures trading in commodities like potato, onion etc. at proper time. Consequently, the Government initiated futures trading in potato in late eighties in few markets of Punjab and Uttar Pradesh.
Following the economic reforms in June 1991 and consequent trade and industry liberalization in domestic and external sector, the Government of India appointed another committee on Forward Markets under the chairmanship of Prof. K.N.Kabra in June 1993. The Committee submitted its report in September 1994 and recommended that futures trading be introduced in:
1) Basmati Rice 2) Cotton and Kapas 3) Raw Jute and Jute Goods4) Groundnut, rapeseed/mustard seed, cotton seed, sesame seed, sunflower seed, safflower seed, copra and soybean, and oils and oilcakes of all of them.5) Rice bran oil 6) Castor oil and its oilcake7) Linseed8) Silver and 9) Onions
The committee also recommended that some of the existing commodity exchanges particularly the exchanges dealing in pepper and castor seed, may be upgraded to the level of international futures market.
The economic liberalization and gradual withdrawal of the procurement and distribution channel necessitated development of a market mechanism for price discovery and risk management.
The Government’s intention towards setting up a mechanism of futures trade and futures market was visualized in the national Agriculture Policy announced in July 2000 and the announcement of Finance Minister in the 20002-03 Budget speech. On 1st April 2003, Government of India issued notifications permitting futures trading in all commodities and setting up National Level Commodity Exchanges. However, option trading in commodity is presently prohibited in India.
