, 94 pages

94 Pages·2000·6.44 MB·English

by  World Bank Group

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November2 7, 1996
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PP Documento f the World Bank
CURRENCY
Rs/ US$
Currency Official Unified Market
a
Prior to June 1966 4.76
June 6, 1966 to mid-December 1971 7.50
Mid-December 1971 to end-June 1972 7.28
1971-72 7.44
1972-73 7.71
1973-74 7.79
1974-75 7.98
1975-76 8.65
1976-77 8.94
1977-78 8.56
1978-79 8.21
1979-80 8.08
1980-81 7.89
1981-82 8.93
1982-83 9.63
1983-84 10.31
1984-85 11.89
1985-86 12.24
1986-87 12.79
1987-88 12.97
1988-89 14.48
1989-90 16.66
1990-91 17.95
1991-92 24.52
1992-93 26.41 30.65
1993-94 31.36
1994-95 31.40
1995-96 33.46
April 1996 34.24
May 1996 34.99
June 1996 34.99
July 1996 35.52
Aug 1996 35.69
NVote: The Indian fiscal year runs from April 1 through March 31.
,Source: IMF, International Finance Statistics (IFS), line "rf";R eserve Bank of India.
dual exchanger ate systemw as created in March 1992,w ith a free market for about 60 percent of
aA
foreign exchanget ransactions. The exchanger ate was reunifieda t the beginningo f March 1993 at
the free market rate.
Vice President D. Joseph Wood
Director Robert S. Drysdale
Division Chief/manager: Shawki Barghouti
Staff Member : Benoit Blarel, Senior Economist
Abbrevations & Acronyms
BOOE BombayO ilseedsa nd Oils Exchange Ltd.
EC Act EssentialC ommoditiesA ct, 1955
EICA East India CommodityA ssociation,L td.
ELS Extra-longS taple
FC(R) Act Forward Contracts( Regulation)A ct, 1952
FMC Forward Markets Commission
GOI Govermmenot f India
IPSTA India Pepper and SpiceT rade Association
NTSD Non-transferables pecificd elivery( contracts)
RBI ReserveB ank of India
TSD Transferables pecificd elivery( contracts)
UNCTAD UnitedN ations Conferenceo n Trade And Development

Table of Contents
CURRENCY
ABREVIATIONS & ACRONYMS
ACKNOWLEDGEMENTS
ECONOMIC DEVELOPMENT DATA
EXECUTIVE SUMMARY
Chapter 1: The Role & Contribution of Commodity Futures Exchanges .................. 1
Commodity Futures Markets: A Historical Perspective. ....................................... 2
Economic Benefits from Using Commodity Futures Markets. .............................. 4
Role of Speculation in Futures Markets. ........................................................ ,,,.6
Relationship Between Futures and Physical Markets .......................... .................6
Domestic vs. Foreign Commodity Markets. ......................................................... 7
Summary ......................................................... 7
Chapter 2: Structure and Organization of Indian Commodity Exchanges. ................ 9
History of Commodity Futures Markets in India ................................................. 9
The Regulatory Framework ........................................................ 10
The Structure of Commodity Exchanges ........................................................ 19
A Brief Overview of Selected Commodity Exchanges. ....................................... 19
The Cotton Commodity Exchanges. .......... ........................................... 20
The Gur Commodity Exchanges. ......................... ,2. 0
The Oilseeds Commodity Exchanges ......................... 21
The Pepper Commodity Exchange ............................................ . 21
User Composition of Indian CommnodityE xchanges. 21
Summary .. 23
Chapter 3: The Performance of Commodity Futures Trade 25
Operational Performance of Commodity Exchanges. 25
Market Liquidity. 2............................................... 25
Suitability of Indian Futures Contracts. 26
Trading Practices .27
Clearing Operations. 28
India's Unique Delivery System... 29
Supporting Infrastructure .30
Brokerage Industry .32
Promotional and Development Capacity .33
Impact of Government Interventions. 34
Direct Government Interventions. 34
Indirect Government Interventions. 35
Summary .39
Chapter 4: Opportunities & Options: Policy Implications. 41
Commodity Exchanges in a Changing Policy Environment 41
Creating the Enabling Environment for Commodity Futures Trading .42
General Rules for a Permissive Government Policy. .............................. 42
Improving the Policy Framework of Commodity Exchanges ................... ...........4 4
Legal & Regulatory Framework of Futures Trading .................. ...........4 4
Exchange Regulations & Operations ............................................. 47
Institutional Development Assistance Required ..................................... 49
Potential for Internationalization of Indian Commodity Exchanges .................5..0.
The Pepper ConmmodityF utures Market ............................................. 51
Introducing New Contracts ............................................. 53
General Considerations ............................................. 53
The Potential for New Cotton Contracts ............................................. 55
Potential for Oilseed, Oil and Oilmeal Contracts .......................... ......... 61
Summary ............................................. 65
Annexes
Glossary of Terms Used in Risk Management. ............................................ 67
List of Tables
Table 2.1 Commodities Regulated by the
Forward Contracts (Regulation Act), 1952 ................................... 13
Table 2.2 Recognized Associations for Castorseed, Cotton,
Gur & Potatoes by States, 1995 .................... 14
Table 2.3 Special Margins for
Castorseed, September 1994 .15
Table 2.4 Recognized Cotton Associations in India .19
Table 2.5 Recognized Gur Associations in India .20
Table 2.6 Active Oilseed Commodity Associations. 20
Table 3.1 Bombay Castorseed Hedge Contract 1990-1993:
Amounts Tendered and Settled .................... 30
Table 4.1 Correlation Coefficients Between Week-end Cotton Seed
& Raw Cotton Prices in Bathinda, 1990/91 to 1994/95. ................... 56
Table 4.2 Intra-year Correlation Coefficient Between
Cotton Lint & Cotton Yarn (60s carded) Prices, 1990-1994. 57
Table 4.3 Major Types of Cotton Produced in India, 1992-93. 58
Table 4.4 The Correlation of Monthly Average Spot Prices
Between Main Cotton Varieties, 1984-1995 ............................. 59
Table 4.5 Correlation Coefficient between Oil Prices,
January 1989 -April 1995. ............... 61
Table 4.6 Correlation of Weekly Edible Oil Prices, by Year
1989 -1994 ...... 62
Table 4.7 Correlation Coefficient of Oilseeds & Oils Prices,
1990 -1995 ...... 63
Table 4.8 Correlation Coefficients of Groundnut Prices in
Rajkot, Hyderabad, and Bombay, 1989-1994. ............................. 63
Table 4.9 Correlation Coefficients Between Castorseed &
Groundnut Prices, 1990-1994 .................. 63
List of Figures
Figure 2.1 Indian & International Classification of
Forward & Futures Contracts .12
Figure 2.2 Organizational Structure of Commodity Associations .17
Figure 4.1 Instability in Indian Oilseeds Gross Crushing Margins. 64
List of Boxes
Box 3.1 Is Open Outcry Outmoded?. 27
Box 3.2 A Typical Broker on the Bathinda Gur Exchange. 32
Box 3.3 Contribution of Futures Markets to a Comprehensive
Agricultural Strategy: Potential & Limits of Governnent
Market Interventions -The American & European Experiences. 38
Box 4.1 Lessons From China's Experience. 45
Box 4.2 Should Companies Be Protected From Futures Trade?. 46
Box 4.3 Should Options Be Introduced?. 54

Acknowledgements
This report is based on the findingso f a joint missionb y the UNCTAD and World Bank
which visitedI ndia between April 17 and 28, 1995, and recent UNCTAD studies. The mission
was composedo f Messrs. LamonR utten( UNCTAD)a nd Beno^iBt larel( World Bank). The report
was produced by Lamon Rutten, Dina Umali-Deininge(rW orld Bank), and BenoitB larel (Task
Manager). Contributionsh ave been made to this report by M.L. Debatisse and P. Varangis
(World Bank). Peer reviewersa re R. Henry (IFC), A. Valdes and G. Feder (World Bank).
Arrangementsf or the mission to India were made by Marilyn Chatterji and Padma Gopalan.
Productiona ssistancew as providedb y RokoM orith.
We gratefully acknowledget he cooperation of governmento fficials, in particular the
Ministryo f Civil Supplies,t he Forward Markets Commissiona, nd the Departmento f Economic
Affairs. The documentw as discussedw ith the Indiana uthoritieso n April 27, 1996.
We wish to express our gratitudet o the staff and memberso f the CommodityE xchange
Associations, in particular the Bombay Oilseeds and Oils Exchange, the East India Cotton
Association,t he India Pepper and Spice Association,t he Northern India Cotton Association,t he
Vijay Beopar ChamberL td (Muzzafarnagar)f, or their support and assistancei n the productiono f
this report, and for sharingw ith the missionm emberst heir knowledgea nd expertisea bout Indian
futures markets. We also gratefullya cknowledgeD r. K.N. Kabra for sharing with the mission
membersh is views on Indianf uturesm arkets.