NCDEX launches India’s first exchange-traded parametric weather derivative RAINMUMBAI

The National Commodity and Derivatives Exchange (NCDEX) has now launched India’s first parametric weather derivative product, with the RAINMUMBAI contract expected to help market participants hedge the financial exposure of rainfall extremes and variability in the city of Mumbai and surrounding area.

It’s seen as a significant milestone, as RAINMUMBAI is the first Securities and Exchange Board of India (SEBI) approved exchange-traded weather derivative contract.

It marks the culmination of what has been a particularly long journey for the NCDEX, as the exchange had first begun discussing a plan to launch a weather-index based product back in 2008.

Since then, exchange-traded weather derivatives and futures have been discussed a number of times, as different entities in India explored launching products.

Most recently, the National Commodity and Derivatives Exchange (NCDEX) signed a Memorandum of Understanding (MoU) with the India Meteorological Department (IMD).

That now seems to have come to fruition with the launch of this Mumbai rainfall exchange-traded weather derivative, marking the availability of a new weather hedging tool for India’s market participants and an alternative way to hedge weather risk in the country.

The NCDEX explained the new product by saying, “Monsoon variability would be transformed from an unpredictable challenge into a measurable, manageable, and tradable risk within a regulated, scientific framework. Developed in collaboration with IIT Bombay and anchored in official data from the India Meteorological Department (IMD), the product enables participants to effectively hedge financial exposure arising from fluctuations in rainfall.”

The weather derivative product is designed as a risk management and hedging tool for a wide range of potential users, including in the agriculture, construction, utilities and energy, retail, infrastructure, banking and financial institutions, transport and logistics sectors.

The NCDEX noted that this responsive parametric weather derivative contract, based on surface rainfall and weather station observations, helps those seeking to manage the risk of rainfall go beyond traditional protection such as insurance and from the government.

“This marks the emergence of a new asset class for India’s climate economy and represents a significant step forward in strengthening India’s climate risk management ecosystem,” the NCDEX said.

Dr. Arun Raste, MD & CEO of NCDEX, said, “India has lived with monsoon uncertainty for centuries. RAINMUMBAI provides every stakeholder with a regulated, scientific tool to manage this uncertainty. The contracts are based on a scientifically structured Cumulative Deviation Rainfall (CDR), which measures the deviation of actual rainfall from the Long Period Average (LPA) during the monsoon months (June to September). Built using daily rainfall data from the India Meteorological Department’s (IMD) network of surface observatories and benchmarked against a robust 30-year historical dataset (1991–2020 LPA), the framework ensures transparency, consistency, and reliability.”

Bikram Singh, Director – Regional Meteorological Centre (RMC) Mumbai, IMD added, “Reliable and standardized weather data is critical for the development of such financial instruments. IMD’s observational infrastructure and long-term datasets provide a strong foundation for building credible and transparent rainfall indices. It is science meeting finance in a regulated marketplace.”