Relevance: GS-3: Water Resources, Agriculture, Economic Model

Key Phrases: Commodification of Water, Privatization of Water, Water Code, Environmental Jurisprudence, Doctrine of Public Trust, Common Good, Economic Good.

Background

• Water is a basic need of life. United Nations has recognized this need as a basic human right.
• The UN World Water Report of 2006 notes that there is enough water for everyone.
• It further said that water insufficiency is often due to mismanagement, corruption, lack of appropriate institutions, bureaucratic inertia, and a shortage of investment in both human capacity and physical infrastructure.
• Currently our planet, also known as the blue planet, is facing an unprecedented global water crisis.
• The addition of water as a commodity on the Wall Street Futures Market and further commodification of water may exacerbate the prevailing water crisis.

With regard to water commodification, what analogy can be drawn from the commodification of food grains?

• The food price bubble in 2008 can be taken as a case study whereby future contracts based on agricultural commodities began to exponentially rise.
• It happened when institutional investors started buying such contracts and rolling them over with significant profits hence as more and more investors joined in order to earn a speculative gain, the prices of such commodities in the spot market rose exponentially.
• It was observed that in 2005, the prices of agricultural commodities began to rise and, in just three years, increased by 83 per cent.
• Although the causes were multiple, the main factor that actually lead to the 2008 food crisis as per Olivier De Schutter, former Special Rapporteur on right to food, was caused majorly due to excessive speculation on the futures market.
• According to the United Nations Conference on Trade and Development, from 2005 to 2008, the price of maize tripled, wheat rose by 127 per cent and rice by 170 per cent.
• Such a rise had catastrophic effects on the poorest of communities.
• Experts believe the same thing could occur in the case of water.

What are the arguments against the commodification of water?

• Commodification can lead to an increase in the vulnerability of impoverished sections of society.
• It may aggregative unsustainable progressive privatization of water by managing it as if it belongs to those who only have the right to use it.
• Ultimately, it could shatter the scales of balance and would contribute to the ever-increasing misappropriate access to resources by the rich and poor.
• Water as a commodity has undergone a significant transformation from being a common good to being an economic good in the recent past.
• Such transition has inadvertently contributed towards privatization strategies for water and sanitation service management and ultimately commodification of water.
• It has led to being perceived and management of it as if it belongs to those who receive only the right to use it.
• Due to the incessant increased risk of water scarcity due to climate change is a major threat to human rights to safe drinking water and sanitation.
• Initially the different water trading markets that emerged were subject to our jurisdiction-specific regulatory conditions, by linking the duration of such water contracts to certain conditions and restrictions i.e. drought cycle, environmental restrictions etc.
• However the present situation is a completely different picture as regulatory measures have either been dispensed of or been relaxed significantly, which have contributed towards excessive privatization of this precious resource.

What are the arguments in favour of water commodification?

• Proponents of the theory of water being an economic good, believe that just like any other good it should be managed and that commodification and privatization of water is the best way of managing this resource.
• Currently across various geographical locations, water market transactions involve a plethora of rights that differ significantly.
• Such transactions involve having ownership to pump or divert water from rivers, streams and groundwater basins up to certain millions of gallons per day.
• Currently Nasdaq's Veles California Water Index ("NQH2O") is the only index linked to water available to trade on Wall Street and in the world.
• NQH20 was launched in October 2018 in partnership with Westwater Research and Velves Water.
• It was launched with an initial focus on the state of California as it has the largest market in terms of consumption and volume of rights traded compared to other states in the United States.
• Just like any other commodity traded, NQH20 also has a direct relationship with factors that affect the availability of the underlying commodity.
• In periods of dry hydrological conditions or limited water supply the index responds with an upward moment and vice versa in periods of wet hydrological conditions or abundant water supply.
• Currently Palmer Drought Severity Index (PDSI) is used to measure the levels of hydrology which uses readily available temperature and precipitation data to estimate relative dryness.
• One of the underpinning reasons for introducing NQH2O was in the background of the agricultural sector, manufacturing sector transitioning in state sponsored water right markets.
• The issue lies in the highly localized and volatility of such market which contributes to an opaque price discovery process.
• Another reason for commodification of water is unlike farmers, banks, insurers and financial market participants also face risk of water in spite of not having any desire to acquire or deal with physical water to hedge their risk.
• The lending institution like banks may face an inherent risk with water availability.
• For example: a bank may lend money to a farmer to cultivate crops which may face the risk of crop failure due to the unavailability of water.
• Trading in water on the lines of water future can have significant advantage on the line of effective price discovery, price indicator for future stored water, risk mitigation.
• Further the price discovered in the future market can also assist in setting priorities within a limited budget.
• Block chain, the most hackneyed word of 2021, has found its way into water trading market.
• Recently Fujitsu has partnered with Botanical Water Technologies to launch its own blockchain water trading platform known as Botanical Water Exchange (BWX) exclusivity dedicated towards trading in recycled water among industrial facilities.
• The goal is to recycle waste water post industrial process to recycle and reuse and trade them which could significantly contribute to reduction in water loss and water pollution.

What are the models adopted in the countries where water has been commodified?

• As per the Nature Conservancy Report 2016, there were 37 countries that were undertaking water trading.
• Out of these countries there are four countries (Australia, Chile, Spain and the United States) that have the most advanced experience in this field of trading.
• Chile for example is one of the most extreme cases of water privatization in the world currently.
• The privatization of water in Chile stems from the "Water Code" which was promoted by the former leader of Chile, Augusto Pinochet, which has led to large scale privatization and commodification of water.
• The law decoupled water rights from land in order to facilitate their commodification. In addition, much of the river flows were assigned to large hydroelectric companies.
• The code also separates water ownership from landownership which means in Chile there are water owners who do not have land and landowners who do not have water.
• Chile auctions rivers in the form of litres per second that run through a river.
• Such commodification has led to a phenomenon whereby allocation of water towards sustainability of aquatic ecosystem is also being influenced by such market which has led to treating the environment as any other user.
• Between 2003- 2011 water purchased for environmental needs accounted for 20 per cent of the total volume traded on water markets.

What is the Indian perspective with regard to privatisation and commodification of water?

• Human right activist believe that such commodification of water on the Wall Street may have a repelling effect specially in agrarian economies like India.
• India currently being under threat of water scarcity and paucity may be an ideal fit to be experimented with the California water model, however there are certain legal and economic hurdles that may prevent it.
• The Doctrine of Public Trust is a juggernaut in the realms of environmental law all around the world including India.

• The doctrine has been followed extensively by various courts including the Supreme Court of India who has contributed in evolving its jurisprudence.
• In India the Supreme Court, in the case of MC Mehta v. Union of India, held that:
  • Our legal system – based on English Common Law – includes the public trust doctrine as part of its jurisprudence.
  • The State is the trustee of all natural resources which are by nature meant for public use and enjoyment.
  • Public at large is the beneficiary of the sea- shore, running waters, air, forests and ecologically fragile lands.
  • The State as a trustee is under a legal duty to protect the natural resources.
  • These resources meant for public use cannot be converted into private ownership.
• Hence it becomes evident that the privatization of natural resources is against the law of land and it is the legal duty of the state to protect such natural resources.
• Therefore, any natural resources including water cannot be converted into a product of private ownership and commercial use as per the Indian environmental jurisprudence.
• Further Article 14,19,21,48 and 51(A)(g) of the Indian Constitution also plays the role of a protector and custodian in regard to protection of natural resources from being privatized in the hands of few to the ill interest of the public at large.
• Therefore, even if it is planned to commodify water, it runs to risk of violating human rights of equality and the right to life.

Source: Live-Law

Mains Question:

Q. Commodification of Water cannot be done in India as it follows the doctrine of public trust. Analyse.