SEBI Reviewing Proposal to Allow FPIs in Non-Cash, Non-Agri Commodity Derivatives
India’s capital market regulator, the Securities and Exchange Board of India (SEBI), is weighing a significant proposal that could change the way global investors interact with Indian commodity markets. The regulator is reviewing whether to allow Foreign Portfolio Investors (FPIs) to participate in non-cash settled, non-agricultural commodity derivative contracts — a shift that could bring deeper liquidity, attract international expertise, and strengthen the process of price discovery.
Currently, FPIs can only participate in cash-settled commodity contracts, which are designed without the delivery of physical goods. While this system ensures smooth transactions, it has kept global investors somewhat removed from the heart of India’s commodity basket. By opening the door to delivery-based contracts in metals and other non-agricultural commodities, SEBI aims to align Indian markets with international standards and build stronger institutional participation.
Why SEBI Is Considering This Step
There are several reasons behind this review. The first is liquidity. Increased participation from FPIs would mean higher trading volumes and more resilient markets, especially during times of global volatility. It would also encourage the introduction of more advanced risk management and hedging strategies, benefiting Indian corporates, traders, and exporters.
The second reason lies in global positioning. India is a large consumer and importer of metals and minerals, but in the global commodity ecosystem it often remains a price taker rather than a price setter. Allowing FPIs to trade in delivery-based contracts would give India the scale and depth required to move towards influencing global benchmarks.
Finally, the move would help Indian exchanges and market participants tap into new opportunities as the demand for critical resources like copper, nickel, and lithium rises worldwide. These metals are vital for manufacturing, infrastructure, and renewable energy, making them central to India’s long-term growth.
Challenges and SEBI’s Strategy
Despite the promise, the road ahead is not without obstacles. One key challenge is taxation. Under the Goods and Services Tax (GST) framework, the levy on commodity transactions often discourages delivery-based settlement. Many participants prefer cash contracts simply because they avoid complicated logistics and higher costs.
SEBI is in talks with the government to find solutions to these tax bottlenecks. At the same time, it is focusing on strengthening compliance and surveillance systems. By December 2025, the launch of the Samuhik Prativedan Manch, a unified reporting platform, is expected to make compliance smoother for brokers and participants.
Risk management is also being tightened. The regulator has been clear that margin requirements and delivery processes will need to be strengthened to prevent systemic shocks. The goal is to create a robust ecosystem where investors — both foreign and domestic — can trust the system’s stability.
Implications for India’s Commodity Market
If SEBI goes ahead with this reform, the impact could be transformative. Industrial and precious metals may see the launch of new contracts, bringing institutional investors into the fold and boosting volumes significantly. Over time, this could encourage banks, insurance companies, and even pension funds to consider commodities as part of their portfolios.
For exchanges, however, this will mean a period of heavy preparation. Warehousing systems, delivery logistics, and surveillance technology will need upgrades to meet global best practices. Exporters and SMEs stand to benefit as deeper markets will make price discovery more efficient, particularly during times when global trade is disrupted.
Strategic Importance of Critical Minerals
The proposal’s timing is also critical. Global competition is heating up for access to strategic resources like lithium, cobalt, and rare earths. These are central to industries such as electric vehicles and clean energy. By deepening derivatives trading in such commodities, India can strengthen its supply chains while also positioning itself as a serious global player in critical minerals.
SEBI Chairman Tuhin Kanta Pandey underlined this when he said India must “move from being price takers to price setters.” The statement reflects a broader ambition: to build an ecosystem that supports India’s energy transition, industrial growth, and global competitiveness.
Industry Reactions and Market Response
The response from market participants has been largely positive. Brokers and analysts see this as a step toward expanding hedging tools and integrating metals into mainstream portfolio strategies. The immediate impact was visible on the exchanges as shares of the Multi Commodity Exchange of India (MCX), the country’s largest commodity platform, rose more than five percent after SEBI’s announcement.
Institutional players such as mutual funds and Alternative Investment Funds (AIFs) are also eyeing the commodity segment with renewed interest. With commodities offering diversification and risk management benefits, many believe the timing is right to expand this asset class.
Road Ahead: Building a Global Commodity Hub
SEBI’s move is not an isolated step but part of a broader roadmap to strengthen India’s commodity markets. The regulator is simultaneously working on reforms in agricultural commodities, setting up committees to study growth strategies, and focusing on building a delivery infrastructure that is globally competitive.
The long-term goal is clear — to make India a hub for commodity pricing and trading. Achieving this will require continuous collaboration among exchanges, brokers, policymakers, and government agencies. Tax issues, delivery bottlenecks, and regulatory coordination will need to be resolved carefully.
Towards Price Leadership in Global Commodities
India’s commodity derivatives market is at a defining moment. The review of FPI participation in delivery-based contracts signals confidence in the country’s ability to take on a bigger role in global commodity finance. If implemented effectively, the move could bring deeper liquidity, more resilient price discovery, and international credibility.
By aligning regulatory frameworks with national ambitions in manufacturing, infrastructure, and clean energy, SEBI is setting the stage for India to move from the sidelines to the center of global commodity trade.
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