Causal Nexus between Commodity Derivatives Market Reforms and Economic Growth – Evidence from Indian Agricultural Sector

Abstract

This paper attempts to study the growth in agricultural commodity derivatives market and its impact on economic growth in India. Commodity forward market has witnessed radical changes since independence. Government of India formed many committees to review working of forward trading in the country. Prof. A D Shroff Committee was constituted to propose a bill on forward contracts and finally in December 1952 Forward Contracts (Regulation) Act, was enacted. Dantwalla committee was appointed in 1966 to assess the working of co-operative marketing system. The Khusro Committee in June 1980 gave recommendations to reintroduce commodity futures trading in most of the major commodities. In 1994 Prof K N Kabra committee gave recommendations for reopening of futures trading in major commodities. The committee also suggested the pepper and castor seed trading exchanges to upgrade their operations to the level of international futures markets. The impact of growth in agricultural commodity futures on agricultural GDP is test by taking last ten years quarterly data of aggregate traded agricultural commodity futures across major exchanges and economic growth as measured by the sectoral quarterly GDP has been taken for study. The time series stationarity of commodity trade volume and GDP quarterly data has been tested using Augmented Dickey Fuller (ADF) and Phillip Perron (PP) tests and confirmed that the data is stationary. Linear regression results confirm significant influence of agricultural commodity futures trading on agricultural GDP in India.

Keywords: Forward market, Economic growth, Committees, stationarity test, linear regression

JEL category: G23, G21