Niti Aayog draft in the works for water trading on bourses

New Delhi: India could start trading in water on commodity exchanges, much like gold, silver, and crude oil. NITI Aayog will put out draft recommendations for public consultations, pitching all options, including futures and spot trading of water and tradable licenses.

India is studying the global benchmarks and could soon lay out a roadmap for water trading as water is increasingly becoming a scarce commodity, a senior government official told ET. "The Aayog will come up with draft recommendations to promote water trading and setting up of water regulation authority," the official said.

Water is traded on the Chicago Mercantile Exchange in the US. The contracts tied to California water prices see participation from actual users such as farmers and municipalities and financial investors like hedge funds.


The Murray-Darling basin in Australia also allows water trading at the regional level through tradable permits.

The move is expected to address India's severe water woes across agriculture and other water-dependent industries, helping develop a market that will also encourage investment in increasing supply.

"Water trading is a good idea and is happening in some parts of the world. It will help us in price discovery and price hedging as water is becoming a scarce commodity," Narinder Wadhwa, president, Commodity Participants Association of India.

According to Wadhwa, there is, however, a need to create awareness among water users and water suppliers. "India will face a lot of resistance the moment water is made a tradable commodity," he cautioned.

A senior official at the Multi Commodity Exchange concurred that water being a politically sensitive issue, it could take really long to build a consensus between relevant stakeholders if the government decides to go ahead with it.

The general perception is that trading water in the futures markets will help discover prices, leading to efficient use of the resource. Besides, the irrigated and rain-dependent agriculture in India could be insured against droughts by locking in prices in the water futures market which would substantially reduce the government's additional expense on drought relief measures.

According to the World Bank, India has 18% of the world's population but only 4% of its water resources, making it among the most water-stressed regions in the world. A McKinsey report has projected India's water demand to grow to almost 1.5 trillion cubic metres by 2030 as against the current supply of approximately 740 billion cubic metres on the back of a shift in eating habits.

"As a result, most of India's river basins could face severe deficits by 2030 unless concerted action is taken, with some of the most populous, including the Ganga, the Krishna, and the Indian portion of the Indus, facing the biggest absolute gap," it said.