MUMBAI, 8 July 2025: In a landmark development for India’s climate risk and agri-finance sectors, the National Commodity & Derivatives Exchange (NCDEX) and the India Meteorological Department (IMD) have signed a Memorandum of Understanding (MoU) to jointly develop the country’s first weather derivative contracts.
The agreement seeks to enable market-based mechanisms for weather risk management, offering new financial instruments tailored to irregular rainfall patterns, heatwaves, and other climate-related disruptions.
NCDEX and IMD will collaborate to design rainfall-based derivatives, utilising IMD’s repository of historical weather data, real-time forecasts, and satellite inputs. The contracts are expected to be region-specific and seasonal, allowing participants to hedge against adverse weather conditions that directly impact agriculture, logistics, tourism, and allied industries.
“This is a long-standing need of India’s rural economy,” Arun Raste, MD & CEO of NCDEX said, adding, “As climate change continues to cause uncertainty in farm productivity and rural incomes, weather derivatives will provide an efficient financial tool for farmers, FPOs, and climate-sensitive sectors to mitigate risk.”
Dr. Mrutyunjay Mohapatra, Director General, IMD, said that the initiative reflects a new direction for the department—translating scientific capabilities into financial instruments for climate resilience. “We have always supported agriculture through data and forecasting. This MoU allows our weather data to serve the economy more broadly—through market innovation and disaster preparedness,” he said.
Risk Mitigation Through Financial Innovation
Globally, weather derivatives are used to protect businesses from non-catastrophic weather risk—such as rainfall deviation or temperature variation—without requiring proof of actual crop loss, unlike traditional insurance.
The NCDEX-IMD initiative will include joint R&D, pilot trials, and user capacity-building. Awareness campaigns and training sessions will be conducted for stakeholders including farmer producer organisations (FPOs), agri-input firms, policymakers, traders, and rural cooperatives.
NCDEX is expected to pilot these instruments on its regulated exchange platform, after consultation with SEBI and relevant regulatory bodies, ensuring a structured and transparent rollout.
The move aligns with India’s broader push toward climate-smart agriculture, financial inclusion, and data-driven rural development. Experts believe that if scaled properly, weather derivatives could complement crop insurance, offer additional hedging options, and pave the way for an entirely new asset class in India’s commodity markets.
