India’s market regulator, the Securities and Exchange Board of India (SEBI), is poised to recommend lifting the long-standing ban on derivatives trading for key agricultural commodities, a move that could significantly reshape the country’s commodity markets and bring back futures trading in farm produce.
A special advisory panel established by SEBI under Chairman Tuhin Kanta Pandey is expected to submit its recommendations early next year, proposing a reversal of restrictions that have been in place since 2021 and broadening participation in agricultural commodity derivatives.
🔍 Background: Why the Ban Was Imposed
SEBI initially imposed a ban on derivatives trading in seven major agricultural commodities — including paddy, wheat, crude palm oil and others — in 2021 amid concerns that speculative trading was contributing to price volatility in essential food items.
Over the years, the suspension has been extended repeatedly, with the latest extension keeping the ban in place until March 31, 2026.
This ban restricted new futures contracts for key crops on major exchanges like the National Commodities and Derivatives Exchange (NCDEX) and the Multi Commodity Exchange (MCX), although existing positions were allowed to be squared off.
📈 What the Proposed Changes Entail
According to sources familiar with SEBI’s internal deliberations:
🚜 Lifting the Ban on Agri Commodities
The panel’s draft recommendations would lift the ban on derivatives trading for agricultural commodities that has dampened market activity for years. This is based on evidence showing that the earlier suspension had little impact on actual commodity price trends
📊 Boosting Institutional Participation
Reforms could also encourage institutional investors, such as banks and pension funds, to participate in commodity derivatives — increasing liquidity and depth in markets that have struggled with low volumes.
📉 Reducing Margin Requirements
The panel is also exploring ways to reduce margin requirements for agricultural commodity trading, making participation more attractive for a broader set of market participants
📜 Clarifying Tax Treatment
Officials may recommend changes to clarify how Goods and Services Tax (GST) applies to commodity derivatives, reducing regulatory ambiguity and improving compliance. The Economic Times
📊 Why This Matters for Indian Markets
🍚 Strengthening Price Discovery
Reintroducing futures trading could improve price discovery mechanisms for agricultural products, giving farmers and buyers clearer signals about future price movements.
📈 Enhanced Risk Management
Farmers, processors, and traders often use derivatives to hedge against price risks. Reopening these markets could offer risk-management tools that are currently unavailable due to the restriction.
👩🌾 Supporting Market Growth
The move could help revive volumes and participation in commodity derivatives, which have remained subdued under the ban. With clearer rules and broader investor access, markets may become more efficient and attractive
⚠️ Still in the Recommendation Stage
It’s important to note that SEBI has not yet officially lifted the ban. The regulator’s panel will first submit its report, after which SEBI will likely seek government and Reserve Bank of India (RBI) support before implementing any major changes.
As of now, trading in the seven suspended agricultural commodity derivatives remains paused through March 31, 2026 — but proposed reforms signal a potential turnaround soon.
