California ‘Futures Contracts’: Is it Possible to Commodify Water in India?

Recently, the US derivatives market embraced ‘water’ as the newest addition to their traded commodities. With this, the Wall Street on December 7, 2020 started trading ‘futures contracts’ on the California state’s water supply, linked to its $1.1 billion spot water market. This move has been made in anticipation of water scarcity problems and future drought-like conditions. These ‘futures’ contracts shall obligate the holder to buy or sell a commodity at a predetermined price on a delivery date in the future.

Trading water as a commodity was a measure towards ensuring a steady supply of affordable water and forestalling calamities in the water-erratic California. However, it lays down a troubling milestone for other water-stressed economies in the world and may motivate other countries to even replicate the same; and is likely to spark the global water commodities market into life. Considering the example of a developing and predominantly agrarian economy like India, water commoditisation is an imminent option. However, its viability is still a nightmare due to the huge population in India falling in below the poverty line.

Indian water market

Commodification of water can be a glowing aspect however, in the Indian context, water has always held a higher ground, as a sacrosanct resource. While no particular provision in the Indian constitution categorically recognises water as positive human right, the judiciary has interpreted right to water as a fundamental right, a facet of right to life and dignity – well-protected under the ambit of Article 21. The General Comment 15 of 2002 on the right to water by the U.N. Committee on Economic, Social and Cultural Rights also recognises water as a human right and has entitled everyone to sufficient, accessible and affordable water.

In this context, the Indian judiciary has time and again acknowledged the applicability of ‘public trust doctrine’, one that has a profound effect and not subject to political reversal.  This Roman doctrine denotes that the ownership of natural resources, including water should be vested with the government for public enjoyment and the same cannot be converted into private ownership.

Treating water as a commodity as the likes of oil and gold; eroding it for private and commercial purposes should be viewed as a direct attack to the pristine glory of this doctrine. Vital resources, such as water and air, are destined to be protected for the common good of the public at large. A gradual attempt towards their commercialisation is likely to result in an acute situation of intense spatial inequality.  Hence, ascertaining water as a commodity and putting into competitive space shall result in discriminatory practices making survival of the less-privileged difficult in a country that fundamentally guarantees social and economic equality.

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Further, the Indian water frameworks and marketplaces are starkly different to that of California’s sophisticated regime. While the latter is dominated and adequately represented by the stakeholders involved – from investors, farmers, banks and other beneficiaries, India at its state level lacks clear and transparent pricing regulations. The water markets therein are largely unorganised, driven by informal arrangements among farmers – the principle stakeholders in this space. There is a clear absence of supply-side rules or sanctions, since the informal arrangements have devised rules only on the demand side of the market. The trading system at present is still ill-suited due to a lack of flexible pricing mechanisms in place, for water rights. There is a fair chance that the primary stakeholders (the farmers) might suffer because in India investors manipulate and water prices inflate whenever unregulated bets are placed in an open market.

On a practical note, most of the freshwater in India is required for irrigation purposes, bearing a direct impact on the farmer community. Commoditising water will inevitably invite the participation of corporate water cartels into this sector. The fierce protests against the new farm laws in the country are clearly an episode to demonstrate their apprehensions against the penetration of big corporations into the sector.

Modern problems indeed require modern solutions. The 1992 Dublin Principles  declared water an “economic good” for the first time and stated that trading water as a commodity is the most efficient means of managing scarce water resources. However, the reality remains that water will have to play the Janus: both as a vital resource and an economic asset – and while Indian markets are not half as ready for this change, a few years down the lane, it would have to welcome a well-regulated water market.

Efficient regulations

The primary challenge would be to prevent its concentration in the hands of a few. For this, the baseline for calculating water available for water futures should be set only after fulfilling the domestic supply of water – as demonstrated and adopted by our Chinese counterparts conceptualising the ‘China Water Exchange’. Water markets and frameworks in Australia have erected well-defined legislations in place- which also sought to address the principle prerequisites like that of separation of water property rights from land title and clear specification of ownership.

Further, the risk transfer in the private sector could also significantly reduce the burden of drought relief, currently borne by banks and governments. With efficient regulation, water commodification could go a long way in benefitting and insuring the entire agricultural value chain, fair distribution and pricing; and a sustainable move towards its conservation and preservation- both as an economic good and a human right.

Sahajveer Baweja and Anushka Ganguli are fourth year B.A.LL.B. students at Rajiv Gandhi National University of Law, Patiala (India).  

Featured image credit: Anandan Anandan/Unsplash