Will Water be traded as a commodity in India?
No commodity is more important to human activity than the one that comprises 60% of our bodies. So, why isn’t water as well-known in financial markets as gold, crude oil, copper, and soybeans?
A Brief History: Bombay Cotton trade association was the first commodity market in 1875. Later, in 1900 oilseeds were traded; in 1912, jute and raw jute goods &, in 1920, metals were sold.
Today, commodities are divided into four groups:
– Agriculture Produce – Coffee, Cocoa, Wheat, Corn
– Energy – Crude Oil, Natural Gas, Coal
As per statistics, more than 80% of districts in Karnataka and 70% in Maharashtra have been declared drought-affected. Forecasts suggest that 40% of the Indian population will face a drinking water shortage by 2030. Water can become as precious like gold with such needs emerging around us.
Now the question is: can humanity bet on the future price of H2O?
There can be a lot of advantages while trading water as a commodity:
👉If appropriately implemented and regulated, water futures could yield favorable results for India.
👉Establishing a water futures market could help farming and banking institutes develop future water products specifically curated for farmers with high irrigational requirements.
👉A version of water future-products could relieve the government too from the pressure of free irrigation supplies to farmers.
Above all, to balance the water supply and demand and delay water scarcity, futures water trading seems to be the ultimate solution.
On the contrary, many say that creating a water futures market won’t solve the bigger problem of what’s causing the shortage of water availability in the first place. But indeed, the problem can be delayed.
Global Happenings: We can see various funds and ETFs based on water as the theme on the international front. One of them is “Invesco Global Water Index: Investing In The Most Valuable Commodity.” The Invesco Global Water Index ETF tracks the performance of the S&P Global Water Index. To be eligible for inclusion in the Index, securities must be classified as either the water equipment and materials or water utilities and infrastructure segments. Below is a chart showing the country-wise allocation in this water index fund.
The possibility of India producing water futures cannot be ruled out, especially given the country’s recent turn toward unregulated and market-driven natural resource distribution (e.g., the Environmental Impact Assessment Amendment, the three new farming bills).
If water is traded as a commodity globally, can it still be a Human Right?
Let us know what you think in the comments.
Sources: Business Standard, Seeking Alpha, the swaddle, Discover Magazine, Lowy Institute.