India's National Commodity and Derivatives Exchange (NCDEX) is broadening its weather-linked derivatives business beyond its newly launched Mumbai rainfall contracts, with plans to introduce products tied to eastern monsoons and temperature variations, according to Managing Director and CEO Arun Raste.
The move reflects a broader shift toward climate-linked financial hedging. NCDEX launched India's first rainfall derivative contract based on Mumbai monsoon data, using 30 years of historical information from the India Meteorological Department. The product settles based purely on rainfall levels without requiring users to prove actual losses, distinguishing it from traditional crop insurance.
Temperature and monsoon products in development
NCDEX is now developing weather products tied to eastern monsoons and temperature-linked contracts to help businesses manage risks from climate change and shifting weather patterns. Raste said the exchange is working on "a temperature product which would be possibly used by all the farm sector."
Demand beyond agriculture
The exchange sees demand for weather derivatives extending far beyond farming. According to Raste, sectors including agriculture, FMCG, banking, transport and power could increasingly use weather-linked contracts to manage losses caused by excess or deficient rainfall.
Hydroelectric companies, fast-moving consumer goods firms, transport operators and banks financing monsoon-linked sectors could potentially use rainfall derivatives to manage business risks. Banks in particular could benefit, as poor monsoons often translate into stress for borrowers and higher non-performing assets.
Design protects against both extremes
The contracts are designed to protect against both deficient and excessive rainfall. Weak monsoons can hurt agriculture and power generation, while excessive rains can disrupt transport, urban infrastructure and consumption activity in cities like Mumbai.
NCDEX conducted extensive consultations with brokers, banks, farmers and industry participants before launching the product. With nearly half of India's economy directly or indirectly linked to monsoon activity, the exchange believes weather derivatives could eventually become an important risk-management tool across sectors.