DERIVATIVES AS A RISK HEDGING TOOL IN INDIA: A COMPREHENSIVE LITERATURE REVIEW

Abstract

This literature review explores the role of derivatives as risk hedging tools in India, examining their evolution, usage across sectors, and regulatory impact on financial stability. Derivatives, including currency, interest rate, and commodity-based instruments, have become vital for firms seeking to mitigate risks associated with India’s increasingly volatile economic environment. The review synthesizes empirical studies, highlighting how derivative usage contributes to corporate resilience and financial performance. However, barriers persist, particularly for small and medium-sized enterprises (SMEs) and retail investors, who face high transaction costs and limited access to derivative products. Furthermore, the review identifies several research gaps, such as the need for longitudinal studies on derivatives’ long-term impacts, cross-sectoral analyses, and comparative studies with global markets. It also suggests future directions, including the integration of financial technology, regulatory enhancements, and educational programs to improve derivative adoption. As India’s economy continues to globalize, addressing these gaps could enhance the effectiveness of derivatives, making them more accessible and valuable for broader market participants. This study contributes to the broader understanding of derivatives in India, emphasizing the importance of empirical research to support policy development, market innovation, and financial literacy in risk management.