Article Preview
TopIntroduction
The futures trading was launched in Indian commodity markets with the essential twin objectives of efficient price discovery and better price risk management, which would bring benefits to farmers, investors, and consumers. The derivatives trading commenced in the securities market in June 2000 and it has been growing at high speed, while the commodity derivatives markets, which has been operational since 48 years and still in a nascent stage. However, subsequent few years have witnessed significant changes in the commodity spectrum despite several institutional constraints. Significant reforms have initiated in commodity futures markets in India since the last few years. The government of India implemented the Commodities Transaction Tax (CTT) of 0.01% on non-agricultural commodity futures contracts like gold, copper, and oil on 1 July 2013. However, the agricultural futures contracts were exempted from CTT. This tax is in line with the earlier tax imposed on transactions in the Securities Market, the Securities Transaction Tax(STT). The difference between the STT and CTT in India is that STT is imposed on both buyers and sellers whereas CTT is levied on non-farm commodity derivatives and the tax is payable by the seller only. However, the STT had no negative impact on the securities markets, which have witnessed tremendous growth in both cash and derivatives segments. Due to the key role of commodities in hedging stock portfolios, most of the studies concentrate on the estimations of the timevarying comovements and the evaluations of hedging effectiveness across several estimation techniques (Arouri et al., 2011; Sadorsky, 2014; Kang, Mclver, & Yoon, 2016; Mensi et al., 2013). However, these studies ignore the transaction costs.
The rationale for introducing CTT was to bring commodity market on par with the securities market where a STT levied. Finance Minister Mr. Chidambaram (2013) stated, that “There is no distinction between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different”. Imposition, of these taxes, aims to reduce the price volatility and increase tax revenue, whether it can achieve the objectives is debatable and questionable since the levy of the tax adversely affected the traded volume of the contracts. Pavaskar, M. &Ghosh, N. (2008) Even as a source of revenue to the exchequer, ctt is a short-sighted move.
The performance of the Indian commodity derivatives market can discern from the movement of the benchmark indices–MCX Comdex and NCDEX Dhaanya. MCX Comdex is 10 Agri commodities represent a composite index of three sub-indices, i.e., MCX Metal, MCX Energy, and MCX Agri indices, NCDEX Dhaanya.
Table 1. Exchange-wise Traded Value in Commodity Futures from 2004 to 15-16 (Rs. lakh crore)
| Year | MCX | NCDEX | Others | Total | Growth (%) |
| 2004-05 | 1.7 (29.0) | 2.7 (46.5) | 1.4 (24.5) | 5.7 | 342 |
| 2005-06 | 9.5 (44.2) | 10.9(50.6) | 1.1 (5.2) | 21.6 | 273.7 |
| 2006-07 | 22.9 (62.4) | 11.6 (31.7) | 2.2 (5.9) | 36.8 | 72.3 |
| 2007-08 | 31.3 (76.9) | 7.7 (19.0) | 1.7 (4.1) | 40.7 | 10.6 |
| 2008-09 | 45.9 (87.4) | 5.3 (10.2) | 1.3 (2.4) | 52.5 | 29.1 |
| 2009-10 | 63.9 (82.3) | 9.2 (11.8) | 4.5 (5.9) | 77.7 | 47.9 |
| 2010-11 | 98.4 (82.4) | 14.1 (11.8) | 7.0 (5.8) | 119.5 | 53.9 |
| 2011-12 | 156.0 (86.0) | 18.1 (10.0) | 7.2 (4.0) | 181.3 | 51.7 |
| 2012-13 | 148.8 (87.3) | 16.0 (9.4) | 5.7 (3.3) | 170.5 | -6 |
| 2013-14 | 86.1 (84.9) | 11.5 (11.3) | 3.9 (3.8) | 101.4 | -40.5 |
| 2014-15 | 51.8 (84.0) | 9.0 (14.7) | 0.8 (1.3) | 61.7 | -39.2 |
| 2015-16* | 56.3(84.1) | 10.2(15.2) | 0.4(0.6) | 66.9 | 8.4 |
| 2016-17* | 58.6(90.2) | 5.9(9.18) | 0.37(0.57) | 64.9 | -2.9 |
Figures in brackets refer to the percentage share in total. Growth % represents Year Over Year growth.
Source: www.sebi.gov.in).