The institution of formal commodity futures market in India is almost as old as in the USA and UK. The Indian experience, however, is much older as references to such markets in India appear in Kautialya’s “Arthasastra”.

The first organized futures market in India was evolved through the “Bombay Cotton Trade Association Ltd.” in 1875. In 1893, a separate association namely “Bombay Cotton Exchange Ltd.” was constituted following disputes over the functioning of the Bombay Cotton trade Association Ltd.

In the year 1900, Gujrati Vyapari Mandali was set up to undertake futures trading in oilseeds particularly, futures trading in groundnut, castor seed and cotton.

Futures trading in Raw Jute and Jute Goods started in 1919 in Calcutta with the establishment of Calcutta Hessian Exchange Ltd. In 1927, East Indian Jute Association Ltd. was established for undertaking futures trading in Raw Jute.  Later in 1945, these two associations were amalgamated to form East India Jute and Hessian Ltd., to conduct organized trading in both Raw Jute and Jute Goods.

Futures market of wheat was in existence at several locations in Punjab and Uttar Pradesh. In 1913, the Chamber of Commerce was established at Hapur.

The futures trading in Bullion was started in 1920 in Mumbai and several such markets were established in Rajkot, Jaipur, Jamnagar, Kanpur, Delhi and Calcutta.

With the passage of time, many more exchanges came in existence in the country to undertake futures trading in various other commodities ranging from Pepper, Turmeric, and Potato to Sugar, Gur (Jaggery).

After independence, the Constitution of India brought the subject of “Stock Exchanges and Futures Markets” in the Union list. Consequently, the responsibility for regulation of commodity futures market entrusted on Government of India. In December 1952, Forward Contracts (Regulation) Act, 1952 was enacted. The Act provided for 3-tier regulatory system:

(A) An association recognized by the Government of India on the recommendation of Forward markets Commission,
(B) The Forward Markets Commission (FMC), which was established in September 1953, and
(C) The Central Government.

In July 1954, Forward Contracts (Regulation) Rules were notified by the Central Government. The Act divides the commodities into 3 categories with reference to extent of regulation, viz:

1) The commodities in which futures trading can be organized under the auspices of  recognized association,
2) Commodities in which futures trading is prohibited, and
3) Those commodities which have neither been regulated for being traded under the recognized association nor prohibited are referred as Free Commodities and the association organized in such free commodities is required to obtain the Certificate of Registration from the Forward Markets Commission.

In the seventies, most of the registered associations became inactive, as futures as well as forward trading in the commodities for which they were registered came to be either suspended or prohibited altogether.