India’s Commodity Market Awaits Crucial Reforms in 2026 Budget

India’s commodity derivatives market stands at a critical juncture. As the government prepares for the Union Budget for the 2026 fiscal year, industry participants are calling for a series of decisive reforms. These changes aim to unlock the market’s vast potential, transforming it from a domestic platform into a global hub for managing commodity price risks.

The Liquidity Challenge and the CTT Question

A primary concern for traders and hedgers is liquidity, which refers to how easily contracts can be bought and sold. Many point to the Commodities Transaction Tax (CTT) as a significant barrier. This tax is levied on every trade, similar to the Securities Transaction Tax (STT) in the stock market. Market participants argue that a lower CTT would reduce trading costs dramatically. This would encourage more participation, increase trading volumes, and create a deeper, more liquid market where prices are more accurate and reflective of global trends.

Clarifying the Tax Landscape

Beyond transaction costs, the overall tax treatment of commodity derivatives needs clarity. Uncertainty around how profits from trading are taxed, especially for different types of participants like foreign investors and domestic institutions, creates hesitation. The 2026 Budget can provide much-needed stability by outlining clear, long-term tax policies. This would give investors the confidence to commit significant capital to the market, knowing the rules will not change unexpectedly.

Bringing In Big Players and Strengthening Links

For the market to mature, it needs a diverse set of participants. Currently, there is limited involvement from large domestic institutions like banks, mutual funds, and pension funds. Regulatory changes in the Budget could permit these entities to participate more freely. Their entry would bring substantial capital and sophisticated hedging strategies. Furthermore, strengthening the link between the derivatives market and the physical commodity market is essential. This ensures that futures prices reliably converge with actual spot prices, making hedging a more effective tool for farmers and businesses.

Modernizing with New Products and Technology

The market also requires modernization in its product offerings and infrastructure. The introduction of new and more flexible options contracts would provide participants with better tools for risk management. Simultaneously, a review of margin requirements—the collateral needed to trade—could make trading more capital-efficient without compromising safety. Investment in robust, low-latency trading technology is equally vital to handle increased volumes and attract algorithmic and international traders.

The Path to a Global Risk-Management Hub

The collective goal of these pre-budget expectations is clear: to enhance the market’s hedging efficiency for Indian farmers and corporations. A liquid, well-regulated, and technologically advanced market allows businesses to protect themselves against volatile price swings in commodities like oil, gold, and agricultural produce. If the 2026 Budget addresses these areas, it will not only benefit domestic stakeholders but also position India as a compelling destination for global commodity risk management. This would attract foreign investment, boost the financial sector, and strengthen India’s voice in the worldwide commodities arena.