Union Budgets are often judged by headline allocations. Equally important, however, are the signals they send about policy direction and institutional priorities. For India’s agri economy operating amid rising global uncertainty, the forthcoming Union Budget presents an opportunity to reinforce confidence in market-led price risk management.

Agricultural prices today are shaped not only by domestic production cycles but also by global forces. Geopolitical tensions, climate-related disruptions, supply-chain realignments, and conflicts across key commodity-producing regions have heightened volatility in global markets. As an economy integrated with global agri and energy systems, India is inevitably exposed to these movements. Their impact is felt across the value chain from farmers and processors to exporters and consumers.

In such an environment, commodity derivatives play a practical economic role. They enable price discovery and allow participants to hedge against volatility, providing predictability in an otherwise uncertain setting. Internationally, futures and options are routinely used by agri and food companies as a risk management tool against supply-side and geopolitical shocks. Strengthening India’s commodity markets, therefore, is not a narrow market reform; it is integral to improving resilience in the farm economy.

A key challenge, however, remains the cost of participation.

The Commodity Transaction Tax (CTT), introduced with policy objectives in mind, has added to transaction costs for hedgers. For agricultural participants, including farmer producer organisations (FPOs) and processors and exporters operating on thin margins, these costs can influence participation decisions. A review of CTT, particularly for agricultural futures, could help improve liquidity and revive genuine hedging activity.

This needs to be accompanied by greater clarity in GST treatment for commodity derivatives. Ambiguity around brokerage classification, cross-margining, and tax pass-through adds complexity and raises compliance costs. Aligning commodity derivatives more closely with other financial derivatives would signal their importance within India’s financial ecosystem. Such reforms would be especially relevant for priority value chains such as pulses, cotton and horticulture, which are central to food security and farmer incomes.

Market depth also depends on a diverse participant base. Globally, institutional entities like banks, insurers, pension funds and large corporates contribute to stability by hedging real economic exposure. In India, institutional participation in commodity derivatives remains limited. A coordinated policy approach, supported by regulatory alignment across financial sector regulators, could enable wider participation, improve price discovery and strengthen market confidence.

Technology, too, has a role to play. International experience shows that calibrated adoption of trading technologies enhances market efficiency. In the Indian context, a clearly articulated and carefully sequenced framework can balance the need for liquidity with broader stability considerations, particularly in agricultural commodities where sensitivities are higher.

For farmers and FPOs, the challenge is not lack of interest but access.

Price risk management and agricultural credit currently operate in parallel. Greater integration between the two could materially improve outcomes. Linking formal hedging mechanisms on

recognised exchanges with agri-credit instruments such as Kisan Credit Cards, and enabling margin funding against WDRA-compliant warehouse receipts, would help create a more cohesive risk management ecosystem. Targeted support to reduce transaction or margin costs for FPOs and cooperatives can further lower entry barriers and encourage informed participation.

Well-functioning markets also require credible physical infrastructure. Warehousing, assaying facilities, and electronic platforms underpin delivery-based commodity derivatives. Continued investment in WDRA-notified warehouses, modern assaying systems and stronger integration between electronic spot platforms and exchange delivery mechanisms would reinforce trust in market outcomes.

Focussed investment in market-linked storage and cold-chain infrastructure, particularly in low-productivity districts, can reduce distress sales, improve price realisation and strengthen price signals. Physical credibility remains central to the effectiveness of market-based instruments.

Recent policy initiatives have rightly placed cooperatives and FPOs at the centre of agricultural reforms. Ensuring these institutions are market-ready is the next step. Explicit recognition of exchange-based price risk management as an eligible activity for capacity-building support can strengthen institutional capability. Training initiatives that enable informed use of futures, options and warehouse receipt financing help build durable institutions rather than short-term dependence.

Finally, closer alignment between spot and derivatives markets is essential. Fragmentation weakens price signals and increases basis risk. Greater Centre-State coordination on agricultural spot market regulation, along with a shift towards electronic, warehouse-based spot platforms, would allow spot and derivatives markets to function as a unified risk management framework. This convergence strengthens confidence in derivatives as effective hedging tools.

In an increasingly volatile global environment, resilient agri economies are supported by transparent, well-functioning markets. A Budget that addresses structural frictions and supports market-led risk management can play a meaningful role in strengthening India’s agricultural resilience. The policy direction set today will shape how effectively the agri economy navigates uncertainty tomorrow.

(The author is MD & CEO, NCDEX. Views are personal)