As India opens the door to trade and transactions, it is logical that domestic goods and services would move from a high cost economy to a low cost economy. Comparative advantage in costs would remain the mirror of the efficiency of the economy’s manufacturing and services sectors. Commodity futures trading service offered by the national online exchanges would be no exception to it when it comes to competing within themselves and competing with the global exchanges, as borders disintegrate with a country’s progress in its path towards globalisation. While competing within themselves, national exchanges follow established domestic benchmarks or establish their own benchmarks by way of their own innovative business practices, in all to add value to users of the platform. Upon opening up of the borders to foreign currency transactions, the participants would benchmark even the efficiency of the domestic benchmark exchanges with that of their global counterparts in terms of their ability to deliver value for money.
Value for money on commodity derivative transactions is a composite function of a number of factors that could begin from the design of the contract, healthiness of participation, availability of information, effective management of trading risk, impact cost (a function of volatility and trading cost), efficient price discovery, liquidity, etc. Of these, while some are within the control of the exchanges governing their own rules and regulations besides the exchange practices and trading procedures, the others are beyond the ambit of the exchanges. Hence, it is clear that the exchanges by improving their operations, contract design, stricter surveillance, etc, shall be able to contribute towards an increase in their service delivery efficiency. This would finally contribute not only towards improving their operational procedures and efficiency but would also push themselves towards benchmarks. These benchmarks could be domestic or global, depending on whether the markets for exchange-traded derivatives are close or open both the ways.
Apart from having a larger production capacity by sheer cultivable size of the area in the case of agricultural commodities and larger reserves in the case of certain mineral ores such as iron and aluminium, being a billion plus populous country puts India in the position of an influential player in global primary commodities markets along with China. It necessitates that the primary markets are efficient not only to squeeze the supply chain costs but also to send the right future prices signals to the secondary...
