The incentive problem behind groundwater overuse in India

By Nikita KwatraonFeb. 27, 2019in Perspectives

As groundwater levels fall, the structure of electricity tariffs mean that farmers face no additional charge for extracting more water. (Priyanka Parashar/Mint)

  • Generous electricity subsidies and flat monthly power tariff has incentivized over-extraction of groundwater, finds a new study
  • This over-extraction of groundwater is threatening food security and agricultural profits in the country

Over the past decade, India has faced increased variation in rainfall, frequent droughts and rapidly depleting groundwater. A new study by Susan Stratton Sayre and Viz Taraz of Smith College in Northampton suggests that some of these may be self-inflicted.

They reveal that certain government policies may have unintentionally encouraged over-extraction of groundwater in India, threatening food security and agricultural profits.

Based on a study of the arid northern regions of India, including Punjab and Haryana, and parts of Rajasthan and Gujarat, the authors find that generous electricity subsidies combined with a flat monthly electricity tariff, rather than a per unit charge for consumption, has incentivized the over-extraction of groundwater.

They argue that as groundwater levels fall, the structure of electricity tariffs mean that farmers face no additional charge for extracting more water. This allows farmers to invest in deeper wells and stronger pumps, pushing groundwater levels lower. Deeper wells do not just hurt the environment but can also increase the cost borne by farmers. The authors estimate the annualized costs of repeated investment in deepening wells to be as high as 25% of the average annual net income from crops.

The authors point out that over and above these efficiency losses, the over-extraction of groundwater is also associated with equity issues. As investment costs rise, some farmers are driven out of irrigated agriculture. They shift towards dryland agriculture, exit from agriculture, or migrate out of the region.

The authors suggest that proper management of groundwater resources and charging farmers for additional usage can increase the social benefit of irrigation by as much as 66% compared to the current model practised in many parts of India.

While subsidies can help initial investments in groundwater irrigation and enhance farmer profits, they argue that persisting with subsidies even after irrigation takes off creates disincentives. As new regions in eastern India seek to expand groundwater irrigation, they call for caution.

First published by Live Mint on 28 Feb. 2019

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