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Water Markets in India: Extent and Impact

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Water Markets for the 21st Century

Part of the book series: Global Issues in Water Policy ((GLOB,volume 11))

Abstract

Local level water scarcity does motivate farmers not only to improve on-farm water use efficiency but also to evolve new and informal institutional arrangements for inter-farm water sharing. An eminent case here is the spontaneous emergence and growth of water markets (WMs) in many parts of India. Even though Indian WMs are localized, fragmented, and uneven across regions, they are growing in magnitude and gaining in significance. This chapter evaluates the major economic and institutional aspects of Indian WMs based on a critical review and synthesis of available empirical evidence on the subject. Specifically, this chapter attempts to (a) provide an idea about the magnitude and value of water trade, especially at the national level, (b) outline the technical and institutional environment within which Indian WMs are operating, (c) describe their major economic and institutional features, (d) evaluate their efficiency, equity, and sustainability implications, and, (e) suggest the legal and institutional changes needed to make WMs an efficient option for water management in India.

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Notes

  1. 1.

    Water scarcity is defined here in terms of relative physical scarcity of water, i.e., the inadequacy of water supply in relation to water demand in a particular context.

  2. 2.

    These markets involve essentially groundwater and, to some extent, lift-based surface water, especially in the eastern parts of India. As of now, there are no water markets for flow-based canal or tank water in India.

  3. 3.

    For instance, Kautilya’s Arthashastra, dating back 400 BC, specifies the royalty to be paid for water, while south Indian inscriptions dating back 1202 AD notes the practice of selling surface water (see Maloney and Raju 1994: 46).

  4. 4.

    The five major crops are in terms of the value and they are not fixed but vary across households and regions (NSSO 2000: S-20).

  5. 5.

    There is some evidence for such pure rentals. For instance, in Nadia district, West Bengal, farmers rent diesel pump sets to pump water from their own sources on payment of Rs. 1,200–1,500/crop season to pump set owners (Kolavalli and Atheeq 1990: 26). The diesel and maintenance costs are borne by the farmers renting the pumps.

  6. 6.

    On the surface of it, the de facto system appears to resemble the appropriative rights system used in the western US. But, unlike the latter, the former is not subject to the ‘beneficial use’ doctrine nor does it guarantee any legal recognition (see Saleth 1996: 196).

  7. 7.

    The exchange rate applicable during this period was US$ = Rs. 32.

  8. 8.

    Apparently, these rates are used in the context of a pipeline system where ‘full-flow’ involves the sale of the whole flow to a single buyer whereas ‘half-flow’ involves sale to two buyers each with an outlet open at the same time.

  9. 9.

    Since the monthly interest rate charged by private money lenders in the area varies from 2 to 10 %, water payment amounts to Rs. 5,928–29,640/ha/year. The higher amount is not a serious problem as buyers mostly grow a high-value crop such as banana and grapes.

  10. 10.

    For instance, in Nadia district, West Bengal, the area-based rates are used for paddy but hourly rates for other crops since it is easy to monitor water supply for paddy. Likewise, high monitoring cost and low demand for night irrigation also make area-based rates more appealing in the case of water sales for night time irrigation (Kolavalli and Atheeq 1990: 37–38).

  11. 11.

    As noted earlier, most of the prices were from studies conducted during the 1990s and for the detailed reference for these studies, see Saleth (1998).

  12. 12.

    This component is not to be treated as sunk costs as LIS are often installed with borrowed funds and repair and maintenance require frequent out-of pocket expenses.

  13. 13.

    It is calculated as the difference between the average per hectare productivity levels of irrigated and unirrigated lands. The estimated water productivity levels are: Rs. 3,639 for Gujarat, Rs. 3,370 for Punjab, Rs. 1,555 for Uttar Pradesh, Rs. 4,407 for Andhra Pradesh, Rs. 4,364 for Tamil Nadu, and Rs. 2,457 for West Bengal (see GOI 1992b).

  14. 14.

    But, when water withdrawals are restricted, for example, by a water quota system, the estimated value for water will become a large and major component of water payment since the opportunity cost of water will be higher because the sellers can sell only if they save some of their quota either through efficient use or non-use. This suggests the need to introduce some form of water quota or water rights system if one wants the water rates to reflect the scarcity value or the opportunity cost of water.

  15. 15.

    There are also exceptions to this pattern as small farmers are also seen on the supply side with a market share ranging from 30 to 45 % (Shankar 1992: 33; Shah 1993: 51).

  16. 16.

    This is because small sellers normally with lower capacity wells/pumps but with higher self-irrigation needs (due to intensive land use and irrigation) have less water to spare which can meet only the smaller water demand of small farm buyers.

  17. 17.

    In Allahabad district, Uttar Pradesh, most of the summer sales are to meet the water requirements of brick kilns (Shankar 1992: 59–61). Similarly, in Tamil Nadu, water sales around Chennai occur year round to meet urban domestic water needs (Packialakshmi et al. 2011).

  18. 18.

    The difference is still higher for specific crops especially at the state level. In Gujarat, for instance, while canal water charges for paddy and sugarcane are respectively Rs. 110 and Rs. 830/ha, the comparable groundwater charges are Rs. 2,964–3,705 and Rs. 5,979–9,174/ha. Likewise, in Tamil Nadu, canal water charges for these two crops are in the range of Rs. 49–62/ha and the groundwater charges are in the range of Rs. 225–3,411/ha.

  19. 19.

    The buyers perform better because they, unlike the sellers, have mostly small farms known for higher crop** as well as land and input use intensities. Likewise, the better water use efficiency of buyers comes from the fact that they face restriction on their access to groundwater but the sellers do not face such restrictions.

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Authors and Affiliations

  1. Madras Institute of Development Studies, 79-Second Main Road, Gandhi Nagar, Chennai, 600 020, India

    R. Maria Saleth

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  1. R. Maria Saleth
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Editors and Affiliations

  1. University of Minnesota Dept. Applied Economics, St. Paul, Minnesota, USA

    K. William Easter

  2. Department of Agricultural Economics and Agribusiness, University of Arkansas, Fayetteville, Arkansas, USA

    Qiuqiong Huang

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Saleth, R.M. (2014). Water Markets in India: Extent and Impact. In: Easter, K., Huang, Q. (eds) Water Markets for the 21st Century. Global Issues in Water Policy, vol 11. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-9081-9_13

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