Sheikh Selim
The relationship between India and Bangladesh concerning shared river waters is among the most consequential and most unresolved bilateral arrangements in South Asia. The relationship is characterized by geographic disparities, political interdependence, and a persistent inability to translate goodwill into legally binding commitments.
When examined through the framework of contract design in economic theory, the current water-sharing framework between the two nations is not merely a diplomatic shortcoming; rather, it is a structurally deficient agreement. This agreement misaligns incentives, lacks credible enforcement mechanisms, and systematically transfers risk onto the weaker party. It is, however, unclear who is the weaker party.
The reform of this framework entails considerations that extend beyond the scope of foreign policy. This approach is dictated by the fundamental institutional design principles that govern the organization.
A History of Imbalanced Agreements
The two nations share 54 transboundary rivers, the overwhelming majority of which originate in or flow through Indian territory before entering Bangladesh. This hydrological reality places Bangladesh in the position of a downstream dependent, a structurally weak contracting party in any negotiation over water flows.
The most significant formal agreement reached between the two countries is the 1996 Ganges Water Treaty, which was signed during a period of relative diplomatic warmth. The treaty stipulated a formula for allocating the Ganges flow at Farakka during the lean dry season, which typically extends from January to May. This formula guaranteed a minimum allocation to Bangladesh.
The Ganges Treaty represents an incomplete contract. It addresses a narrow time window and a single river while leaving the remaining 53 shared rivers entirely ungoverned by any binding arrangement. It contains no meaningful enforcement clause, no third-party arbitration mechanism, and no compensation provisions for breaches. The treaty also contains no provisions whatsoever for the monsoon season, which is precisely when water management decisions made upstream in India translate into catastrophic flooding downstream in Bangladesh. The silence of the contract on this critical point is not a minor omission. It is the central design flaw.
The proposed Teesta River Treaty, under negotiation for well over a decade, remains unsigned. India’s federal structure has enabled a single state government in West Bengal to obstruct a bilateral agreement to which the national government of India had nominally consented, thereby highlighting another design failure: the absence of a domestic ratification mechanism that would obligate subnational actors to international commitments.
For Bangladesh, this has meant years of waiting for a treaty that never arrives, while Teesta flows continue to be managed unilaterally by India, often releasing large volumes of water during the monsoon with insufficient advance warning, contributing directly to flooding in the Rangpur and Rajshahi divisions.
The Monsoon Flooding Problem as a Contract Hazard
In the context of contract design theory, the concept of moral hazard emerges when one party to an agreement is capable of undertaking actions that result in costs being imposed on the other party, while the party responsible for these costs is able to bear a minimal or negligible portion of them themselves. India’s upstream dam and barrage operations during the monsoon season serve as a prime illustration of this hazard.
In instances where reservoirs situated behind infrastructure such as the Farakka Barrage or the Dumbur Dam in Tripura attain their maximum capacity, India expeditiously releases water to safeguard its own infrastructure. The resultant surge flows downstream into Bangladesh within hours, inundating floodplains, destroying crops, and displacing hundreds of thousands of people. It is important to note that India does not incur any of these costs. Bangladesh absorbs the entirety of the remittances.
This is a textbook case of externalized risk in an incomplete contract. The upstream party retains full operational control over decisions that generate enormous negative externalities for the downstream party. No penalty, no compensation, and no prior consent mechanism constrain the upstream party’s behavior. Under these conditions, economic theory predicts exactly what the empirical record confirms: the upstream party will continue to act in its own short-term interest at the downstream party’s expense.
What the Bangladesh Government Must Do
The government of Bangladesh must approach future water negotiations not as diplomatic courtesy calls but as rigorous contract design exercises. The primary imperative for reform is to advocate for the establishment of a comprehensive framework treaty that encompasses all 54 shared rivers. This approach is necessary to replace the current piecemeal, river-by-river strategy that has enabled India to postpone politically contentious agreements indefinitely. A framework treaty, structured around principles of equitable utilization and the obligation not to cause significant harm, would shift the baseline of negotiation from one of favor to one of legal entitlement.
In order to supplement the initial reform, Bangladesh must advocate for the incorporation of mandatory advance notification clauses. These clauses must be included in any agreement pertaining to the release of upstream water volumes that exceed a predetermined threshold during the monsoon season. This is a standard provision in well-designed international watercourse agreements and serves as a minimum information-sharing requirement. In absent of this vital element, Bangladesh is unable to effectively plan flood defenses, issue evacuation orders, or ensure the protection of agricultural land with any degree of reliability. Advance notification does not constrain India’s sovereign operations, but it transfers information that Bangladesh requires to manage downstream consequences.
Furthermore, Bangladesh should initiate and engage in negotiations for a compensation mechanism that is contingent upon flood damage caused by unilateral upstream releases. Compensation clauses serve to establish incentive alignment, which is otherwise lacking.
This is easier written than done. However, from the perspective of opportunity cost, the proposed contract amendment is not unreasonable or impractical. When India shoulders a portion of the economic cost of rapid water releases, it faces an internal pressure to manage its reservoirs more gradually and responsibly. This fundamental logic underlies the design of contracts: the structuring of incentives so that the interests of both parties are aligned with collectively efficient outcomes.
Finally, Bangladesh should actively seek multilateral support by bringing its case to international forums, including the United Nations Watercourses Convention, to which India is not a signatory but to which Bangladesh can appeal for normative pressure. Internationalizing the water governance conversation reduces Bangladesh’s bilateral vulnerability and introduces reputational costs for non-compliance that purely bilateral arrangements cannot generate.
Water is not merely a resource. For Bangladesh, it is a contract waiting to be written correctly. For India, it is about how well they identify the incentives that rest between the lines of that contract.
