In this paper, the price discovery relationship for ten agricultural commodities has been examined. Price discovery is confirmed for all commodities except Turmeric. Price discovery results are encouraging given the nascent character of commodity market in India. However the market does not seem to be competitive. The findings have implications for policy makers, hedgers and investors and will help in deeply understanding the role of futures market in information dissemination. The commodity exchanges must strengthen their surveillance system for early detection on continuous basis of anomalous trading behaviour. These markets are becoming informationally mature and market regulators have taken adequate steps for market development. Forwards Market Commission (FMC) should be given adequate powers to regulate commodity market and penalise any insider trading and price manipulations. Well-organized spot markets must be developed, ensuring transparency and trading efficiency. Electronically traded spot exchanges must be developed and warehousing; testing labs as well as other eco-system linkages must be established to strengthen the derivative market trading mechanism for efficient price discovery mechanism.

In the context of emerging Indian commodity futures markets, this paper empirically examines the effect of futures trading activity (trading volume ; proxy of futures liquidity) on spot price volatility for seven agricultural commodities (guar seeds, turmeric, soya bean, black pepper, barley, Maize and Castor Seed).We decompose the futures volume into expected and unexpected components using Hodrick-Prescott filter (HP filter) .To clearly understand the destabilization effect, the relationship of the unexpected liquidity of futures market is done with Unexpected volatility of spot market returns which is estimated by taking the residuals of the GARCH model. We find that unexpected futures trading volume is Granger causing spot price volatility and are significant for five out of seven agricultural commodities (Guarseed, Turmeric, Soybean, Maize and Castor Seed), consistent with Bessembinder and Seguin (1992).We find reversed effect for one commodity i.e. Pepper the effect of spot volatility on futures trading and for Barley no causality is revealed either from