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Comparison of Rainfall and GDP: Feasibility of Introducing Rainfall Derivatives in the Indian Weather Risk Market

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  • Mr. Dileep N

Abstract

Purpose: The goal of this paper is to compare the GDP growth rate with the change in rainfall to demonstrate the opportunity to introduce rainfall index-based futures. The purpose of this paper is to suggest a new kind of versatile tool to overcome the rainfall risk. This study shows the application of rainfall index-based futures contracts for agricultural rainfall risk. Finally, this article examines the feasibility and effectiveness of rainfall index-based futures in the new era of the weather risk market as a rainfall risk management tool. Design/Methodology/Approach: The study used statistical tools like correlation and regression for the period from 1961 to 2020. The market for rainfall risk is comprised of traditional insurance, index insurance, and reinsurance. But these are all failures to manage the rainfall risk effectively. Findings: This study shows the application of rainfall index-based futures contracts for agricultural rainfall risk. Finally, this article examines the feasibility and effectiveness of rainfall index-based futures in the new era of the weather risk market as a rainfall risk management tool. Practical implications: Rainfall derivatives are currently needed for the creation of a full-fledged rainfall risk market and to complete the incomplete weather risk market. Originality value: The present study design the rainfall index based futures contract to hedge the rainfall risk in India.

Suggested Citation

  • Mr. Dileep N, 2023. "Comparison of Rainfall and GDP: Feasibility of Introducing Rainfall Derivatives in the Indian Weather Risk Market," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 149-164.
    • Handle: RePEc:ers:ijebaa:v:xi:y:2023:i:1:p:149-164
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    References listed on IDEAS

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    1. Anil K. Sharma & Ashutosh Vashishtha, 2007. "Weather derivatives: risk‐hedging prospects for agriculture and power sectors in India," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 8(2), pages 112-132, March.
    2. Oliver Musshoff & Martin Odening & Wei Xu, 2009. "Management of climate risks in agriculture-will weather derivatives permeate?," Applied Economics, Taylor & Francis Journals, vol. 43(9), pages 1067-1077.
    3. Ivana STULEC & Kristina PETLJAK & Tomislav BAKOVIC, 2016. "Effectiveness of weather derivatives as a hedge against the weather risk in agriculture," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 62(8), pages 356-362.
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    More about this item

    Keywords

    Rainfall Derivatives; Rainfall Index Based Futures; full-fledged rainfall risk market; GDP growth rate and Chicago Mercantile Exchange (CME).;
    All these keywords.

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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