DEFINITION of National Commodities And Derivatives Exchange - NCDEX

The National Commodities and Derivatives Exchange (NCDEX) is a commodities exchange dealing primarily in agricultural commodities in India. The National Commodities and Derivatives Exchange was established in 2003. The exchange was founded by some of India's leading financial institutions such as ICICI Bank Limited, the National Stock Exchange of India and the National Bank for Agricultural and Rural Development, among others.

BREAKING DOWN National Commodities And Derivatives Exchange - NCDEX

The National Commodities and Derivatives Exchange (NCDEX) is one of the top commodity exchanges in India based on value and the number of contracts, second only to the Multi Commodity Exchange (MCX) with its focus on energy and precious metals. The National Commodities and Derivatives Exchange is located in Mumbai, but has offices across the country to facilitate trade. Trading is done on 27 commodity contracts as of March, 2018. These include 25 contracts for agricultural products. NCDEX is run by an independent board of directors with no direct interest in agriculture.

NCDEX and Indian Agriculture

India is a world power in terms of agriculture. It is one of the largest producers of wheat, rice, milk and many types of fruits and vegetables. The size of India’s agriculture sector is somewhat hidden internationally because the populous nation consumes a lot of what it makes. However, increasing farm-level productivity is making the strength of India’s agricultural sector more apparent. And, of course, NCDEX plays a critical role in that agriculture sector.

In establishing and maintaining an online futures market for crops, NCDEX has helped increase the market transparency. This has resulted in farmers in India conduct price discovery, helping them price their goods more accurately even if they are not active in the futures market. Middlemen called commission agents previously controlled much of the market information in India, so the introduction of online commodity exchanges like NCDEX has greatly improved the information asymmetry.

Exchanges like NCDEX have also played a key role in improving Indian agricultural practices. By standardizing the quality specifications of various crops through contracts, the NCDEX has raised quality awareness. Farmers in India are increasingly focussed on testing requirements and enacting farming practices that result in consistent, high quality yields.

NCDEX as a Benchmark

Due to its grounding in agricultural products, NCDEX hosts some contracts that are defacto global benchmarks for commodities like coriander, cumin and chickpeas. NCDEX is seen as a major source for information on spices, as India is the leading producer and consumer of spices. Although the NCDEX is still young by some standards and heavily used for delivery, traders and large market participants are using contracts to hedge and speculate. This trend will continue as India’s agricultural sector grows in terms of productivity and exports.