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Updated: May 15, 2010 17:16 IST

Pricing in a vicious whirl

D. Murali
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Title: Agriculture, Food Security and Rural Development. Author: Asian Development Bank.
Special Arrangement Title: Agriculture, Food Security and Rural Development. Author: Asian Development Bank.

Poor revenues from public irrigation systems created at great cost are among the many factors responsible for the severe resource constraint faced by most State governments, writes K. V. Raju in one of the essays included in ‘Agriculture, Food Security, and Rural Development’ from Asian Development Bank (www.oup.com).

“The result is poor maintenance of systems, which tend to fall into disrepair, and an unreliable and unsatisfactory service. This, in turn, leads to poor revenues, thus setting in motion a vicious cycle.” The author also rues that the low pricing of irrigation water encourages an extremely wasteful use of this precious and scarce resource.

There can be multiple views, however, on the question whether irrigation water rate is a tax or a user charge. The essay cites the view of the Vaidyanathan Committee (1992), on the pricing of irrigation water, that the benefit of canal irrigation went to an identifiable group of beneficiaries, and that it was, therefore, not a public good available to all.

Noting that irrigation water rates are clearly not a general purpose tax but a user charge recoverable from the beneficiaries, the Committee had recommended a two-part tariff as a move towards full cost recovery. The objective, as Raju narrates, was to be brought about in three phases, ultimately leading to rates on a volumetric basis, linked to an improvement in the service, and the creation of autonomous, financially self-reliant entities at the system level, with participatory management by users.

In a section on groundwater extraction, the author studies the impact of power subsidy over the years, and finds that the low marginal cost of pumping leads farmers to drill more wells and install electric pumps. Subsidisation of electricity for pumping groundwater reduces the marginal cost of extraction to near zero and thus encourages famers to use the resource inefficiently, he observes. “This, in turn, has resulted in increased drilling and extraction costs for farmers, as well as complete abandonment of some wells (negative externality issue).”

On the positive side, though, is the development of groundwater markets which benefit the non-pump owning farmers. “Moreover, availability of power subsidy has also made substantial contribution in terms of raising agricultural productivity and farm incomes through irrigation.”

The essay concludes with ‘key challenges in the water sector,’ in which the author calls for water action in many critical areas. Such as, improving the efficiency of irrigation water use, and removing the incentives that encourage wasteful water use (with special attention to rice, which is a high-water-requirement crop); protecting drinking water sources; preventing water pollution; and reducing the over-exploitation of groundwater.

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