Water and Communities: Access , Usage and Institutions

1. Water and Communities: Access, Usage and Institutions Hanan Jacoby Development Research Group

2. Outline • Productive benefits of irrigation in India • Defining terms: Efficiency and equity in water allocation • Surface (canal) irrigation • Groundwater

3. Irrigation and its benefits in India • Most of recent increase in irrigated area due to groundwater. For every hectare irrigated by surface water, about two are now irrigated by groundwater. • Irrigation, or rather irrigation potential, is strongly positively associated with cropping intensity, farm revenue, and land values. • Evidence from plot-level NSS data on land values 40% higher land productivity with surface irrigation (comparing land values on irrigated and non-irrigated plots only in villages with surface irrigation and no groundwater exploitation).

4. (a) Proportion irrigated (b) River density (b) River density (c) Groundwater potential (d) Land value/hectare

5. (e) Net revenue/hectare (‘02-’03) (f) Cropping intensity

6. Land values in IE • Farmer reported land values are a potentially useful tool for impact evaluation, reflecting the long-run value of productive characteristics such as infrastructure. • Changes in permanent income and distributional effects can be imputed directly from estimated changes in land values (based on household landholdings).

7. Water Allocation: Efficiency vs. Distribution • Efficient allocation: • Maximizes net benefits of resource to society, including nonagricultural uses. • Equalizes marginal net benefits across users • Short-run marginal cost takes irrigation infrastructure as given; in long-run includes cost of infrastructure. • For groundwater, insofar as it is exhaustible, efficiency also involves choosing optimal rate of extraction over time. • Distribution • Efficient allocations are not necessarily ‘equitable’. • Since water = wealth, water allocation is necessarily political. Governments often pursue conflicting distributional objectives (pro-landowner vs. pro-poor)

8. Geography of a Canal System

9. Power, Corruption, and Theft • Powerful landowners can organize large-scale water diversions and canal breaches. At the tertiary level, farmers can tamper with watercourse outlets to increase discharge (perhaps by bribing official). • Tail-enders at obvious disadvantage b/c of greater conveyance losses and higher costs of monitoring upstream users. But, are landowners in the tail reaches actually poor relative to landless households in the head reaches? • Efficiency of theft: Depends on complimentarity between irrigation and other assets. Corruption may act as a ‘shadow’ market  officials sell water to highest bidder. • Equity: Depends on organization of production (e.g., tenancy). Can water theft be ‘pro-poor’?

10. Canal Irrigation Management: The Role of Government • Public economics rationalization: Irrigation water is not itself a pure public good, being both rivalrous and excludable. Canal maintenance is a public good, in a sense. • Why not private management? Demsetz argument: Auction off water rights to the firm that will supply it at lowest price?  Efficient water allocation using price mechanism. • Problem with privatizing/pricing irrigation service: Too ‘transparent’—delinks resource allocation and political clout. With uniform pricing, difficult to implement cross-subsidy for the poor (although vouchers could work) Gov. provision appears to be about control of distribution.

11. Water Allocation Mechanisms • Bureaucratic – inflexible, nonresponsive, poor service/maintenance, prone to corruption • WUAs and PIM • Theory: Build large scale water distribution system from externally initiated users groups. WUAs help resolve coordination problems at watercourse level • Reality: Absent an explicit assignment of property rights to the WUAs, they can do little to affect water allocations. Within watercourses, self-organized farmer groups manage free-rider problems; feasible cooperation already achieved (see Ostrom, et al). • Market mechanisms (e.g., WC level canal water trading on Indus basin). Need for pilots and impact evaluation!

12. Economic Features of Groundwater • Heterogeneous hydro-geology. • Exhaustible resource (when not recharged) • Aquifers are common property • Landowner has unlimited right to groundwater beneath. • In SAR, typically many landowners over a single aquifer. • The cost of accessing groundwater—i.e., boring a well—is large, discrete, and irreversible Access restricted to landowners with sufficient wealth. • Groundwater is costly to transport due to conveyance costs markets are localized and hence pricing not necessarily competitive  inefficient allocation.

13. Groundwater Crisis? • Can be difficult to distinguish long run trend in water table from transitory effects due to rainfall (i.e., successive years of poor recharge). • Secular rise in well ownership has been a boon to farmers in non-command areas, but first-adopters were wealthier and now they have incentive to restrict entry of poorer farmers. • Climate change: increase in water demand, but increase in rainfall  greater recharge.

14. Tragedies of the Commons • Strategic externality: Groundwater not bankable for any one extractor  “use it or lose it” • Stock externality: exploitation lowers water-table, raising pumping costs for all extractors. • Buffer-stock externality: less groundwater available increases income risk for everyone. • Congestion externality: spacing wells close together reduces draft per well. Interference is local effect (< 300m) vs. aquifer-wide. • How important are each of these? How big are the associated social costs?

15. Groundwater and Electricity • Power subsidies can further distort groundwater extraction away from social optimum. But subsidies are usually coupled with rationing . Rationing reduces over-exploitation for a given number of wells but increases incentive to drill so as to capture free power. • Political economy: Power subsidy is a transfer to wealthier well-owners, but also a compensation to those who do not benefit from free canal irrigation. • Voltage fluctuations lead to pump burnouts  scope for providing fewer hours of electricity/day but with greater reliability.

16. Regulation vs. Institutions • Well permits with spacing restrictions to limit interference. Little incentive to apply; no enforcement. • Coasian bargaining  regulatory regime matters for well spacing insofar as transactions costs are high. (e.g., water/well sharing prevalent among brothers) • Micro-basin management: coordinate groundwater use in basin so that draft ≤ recharge. How to get compliance? • APFAMGS: Participatory hydrology monitoring, crop water budgeting. What is the value of information? Rigorous impact evaluation would be welcome!