Water Trade

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March 11, 2023

Why in news?

India’s per capita water availability has touched the water-stressed benchmark, and is likely to reach the water-scarce scenario by 2050.

What is the issue?

  • India’s water resources are under tremendous pressure.
  • India receives more than 80% of the rainfall during 4 months of the year.
  • Unequal spatial distribution – The Barak and Brahmaputra basins have a per capita water availability that is more than that of the Ganga basin.

What is the water credit system about?

  • Water credits – It deals with the transaction between water deficit and water surplus entities within a basin and represents a fixed quantum of water that is conserved or generated.
  • Carbon credits – It is almost a mirror image of the concept of carbon credits.
  • However, unlike carbon credits, the water credit system is confined to hydrological boundaries, that is, river basin or watershed.
  • Multiplayer approach – Industries can buy water credits from water-rich municipalities, who are fund crunched to finance large-scale floodwater harvesting, & wastewater treatment projects, aiding in conserving water.

What is importance of water credit system?

  • Australia – India should learn from global water trading successes like that of Australia, to lay a roadmap for water trading and also ensure water regulation by setting up related authorities.

The Murray-Darling basin in Australia is a great example of how water credit system works successfully.

  • Chicago Mercantile Exchange – Participation in water credit system is seen from actual users such as farmers and municipalities and financial investors.
  • Improved water quality – With the effective implementation and stringent regulatory standards, water trading also paves way for water quality standards.
  • Recycling – It promotes growth in the recycle and reuse markets through the utilisation of heavy metals organics released in the water from both the industrial and agricultural sectors.
  • Strengthen economic ties – The credit system can be used to highlight the water quality merits and strengthen economic relations both at a global as well as regional level.
  • Reduce government’s burden – The system can reduce the burden of the government that releases funds towards mitigation as well as post-disaster events such as floods and droughts.
  • Insurance – The markets can even insure irrigated and rain dependent agriculture against droughts by locking in water prices.

What are the limitations of the system?

  • Rich institutions dominating – An innate flaw of this water credit system is that the market is dominated by a small number of rich institutions or sellers.
  • Hence, rich sellers can control the market by buying credits from the poor, and continue to misuse the shared water resources.
  • Lack of awareness – The market competition among sellers is further reduced due to the lack of awareness about the water credit concept.

What is the way forward?

  • There has been no strong dialogue on the implementation of a water credit system, so far.
  • India needs to aggressively alter and adopt practices to expand finance opportunities within the water sector.
  • It is anticipated that India could face opposition if water is made a tradable commodity.
  • In such a case, a regulatory body must be in place to facilitate and successfully maintain free market conditions.



  1. The Hindu Business Line │Let water credits flow
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