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.