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