Lok Sabha Question No. 4013 (UNSTARRED), answered on 2018-03-20
Subject: Trading of Agriculture Commodities Market through NCDEX
Ministry: AGRICULTURE AND FARMERS WELFARE
Asked by: RAKSHA NIKHIL KHADSE

## GOVERNMENT OF INDIA MINISTRY OF AGRICULTURE AND FARMERS WELFARE DEPARTMENT OF AGRICULTURE, COOPERATION AND FARMERS WELFARE

## LOK  SABHA UNSTARRED QUESTION NO.4013

TO BE ANSWERED ON THE 20 TH  MARCH, 2018

## TRADING OF AGRICULTURE COMMODITIES MARKET THROUGH NCDEX

4013.      SHRIMATI RAKSHATAIKHADSE:

Will the Minister of AGRICULTURE AND FARMERS WELFARE कृ ष एवं कसान कयाण मंी be pleased to state:

- (a) whether the Government proposes for an instrument in trading of agriculture commodities market through NCDEX to realize better prices for the agriculture produce;
- (b) if so, the details thereof;
- (c) whether the Government also proposes to launch a mobile app for farmers to get familiar with the options and commodity market and to learn through this app; and
- (d) if so, the details thereof?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF AGRICULTURE AND FARMERS WELFARE

कृ ष एवं कसान कयाण मंालय म राय मंी (SHRI  GAJENDRA SINGH SHEKHAWAT)

- (a): National Commodity and Derivatives Exchange Limited, Mumbai (NCDEX) has launched the new instrument i.e. Options on Guar Seed Futures on 14 th January, 2018, as approved by Securities and Exchange Board of India (SEBI), in accordance with its guidelines, specified vide circular dated 13 th June, 2017. This is the first Options product on agricultural commodity futures being traded on the commodity derivatives exchange in India. Additionally, another derivative instrument - Futures - on various agricultural commodities are also being offered by commodity derivatives exchanges as instruments to hedge price risk in underlying commodities.
- (b): Futures  are  derivatives  contracts  that  allow  for  buying  or  selling  of  the  underlying commodity at a predetermined price on pre-specified future date. Here, the buyer/seller has the obligation  to  necessarily  execute  the  transaction  at  the  delivery  date,  but  is  able  to  protect against the price risk.

Options, on the other hand, are derivatives contracts in which buyers of option contracts are granted the right to buy or sell the underlying by paying some premium to option sellers. However, there is no obligation on buyers of an option (option buyers) to exercise the options contracts  at  the  time  of  expiry  of  contracts.  In  the  event,  the  exercise  price  of  option  is  not perceived as favourable by buyers of an option (option buyers) at the time of expiry of option contract, he may choose not to exercise the option contract and thus will lose only the premium amount paid.

Farmers/Farmers Producer  Organizations  (FPOs)  may utilize this  product  by  buying  a put  option,  thereby  hedging  their  sell  price  i.e.  fixing  sell  price  of  their  produce  by  paying  a premium without any downside risk. However, if at the time of expiry, the Farmers/FPO perceive that the exercise price of option is lower than the prevailing market prices or, if they perceive that they may not be able to deliver the corresponding quantity of commodity for the exercise of the option contract they had entered into, they may chose not to exercise the option.

(c) & (d): No, presently the Government has not proposed any such app. However, NCDEX has informed that they have launched a mobile app called NCDEXMandi.com on 14 th January, 2018, coinciding with the launch of their agri option contracts on guar seed futures. The app is a repository  of  educative  and  informational  material  relevant  to  the  market.  The  app  features sections  such  as  Mandi  Khabar,  NCDEX  Paathshaala  and  Agri  commodity  Options  amongst several other informative sections.

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