Moving towards a water pricing regime

It is the only solution to promote efficient and equitable usage of water

A Hindi proverb, paisa paani ki tarah bahaana, warns against wasteful expenditure of money on the scale of water. Local adages are useful not just in enriching the popular discourse but also contain valuable information about the people and society. That India—a country ranking high on water scarcity—spends water so profligately is not just proverbial, but has now also been driven home with two consecutive years of drought. What is the solution? The proverb comes with a solution: tie the usage of paani(water) to payment of paisa (money).

Water pricing is the only long-term, sustainable solution to promote efficient and equitable use of this precious natural resource. But moving towards an elaborate water pricing regime is easier said than done. The first challenge will be to make a case for water pricing at a time when the most vulnerable to water shortage are already reeling under severe economic hardship. But without a price on water usage, it is they who will suffer the worst consequences of a drought.

A 2015 study by the International Monetary Fund concluded that water subsidies provided through public utilities amounted to 0.6% of global gross domestic product in 2012 and are “also inequitable, disproportionately benefiting upper-income groups”. The inequitable consumption also operates along other dimensions. With 18% of the world population, India has only 4% of the world’s renewable water resources. Moreover, the distribution is geographically skewed and the majority of rainfall occurs over just a few months, leading to reckless consumption in well-endowed geographies and during those months.

A data story by Roshan Kishore in Mint showed that inefficient agricultural usage of water and exports of water-intensive crops make India a large virtual exporter of water —not a proud performance for a water-stressed country. Especially not when the domestic scarcity of water has not been priced into the exports. A counter-argument will be that water pricing may erode India’s export advantage. But this argument ignores how the status quo continues to erode the competitiveness of farmers living in water-deficient parts of India—also some of the same regions where the incidence of farmer suicides is high.

The second challenge to introducing water pricing is the entrenched political economy in different parts of India. The severe water crisis in Latur was in stark contrast to flourishing fields of sugarcane, a water-guzzling crop, sustained with the patronage of politicians in the state of Maharashtra. Then the public procurement policies also promote cultivation of water-intensive crops, sometimes in those very states where the usage is most inefficient.

The third challenge is the inherent design problems associated with water pricing. This is because the government does not—as also pointed by Alok Sheel inMint—exercise control over the sources of water as it does over other natural resources . It is important to target irrigation water for pricing purposes because it alone comprises—according to ministry of water resources data—more than 78% of the total water usage in India. Also, irrigation consumption is an area where the scope for increase in efficiency is very high.

Sixty-one per cent of the irrigation uses surface water which will require metering and appropriate pricing. Groundwater has to be priced through proxies—electricity or diesel—used by farmers to pump the water. The strategy for pricing should be such that the cost of migration from one method of irrigation to another—or from electricity to diesel—offsets the difference in cost between the two.

An important part of this effort will also involve the separation of electric feeders for agricultural and non-agricultural purposes—already a focus of the government under the Deen Dayal Upadhyaya Gram Jyoti Yojana.

Additionally, there will be questions regarding whether the pricing should also take into account income distribution of water users and hence be accommodative towards poorer farmers or households.

A relevant research paper by Yacov Tsur, Ariel Dinar, Rachid M. Doukkali and Terry L. Roe concludes that “water prices have rather negligible effects on income distribution within the farming sector” and hence “water pricing should be designed in order to promote efficiency, leaving equity consideration to other policy tools”.

Several countries including rich ones such as Singapore and poor ones such as Burkina Faso have, within their own constraints, benefited from tying paani to paisa. India needs to do the same.

Will Indian farmers benefit from pricing irrigation water?

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