Can Electricity Pricing be a Tool for Efficient, Equitable and Sustainable Use of Groundwater in Indian Agriculture?
Institute for Resource Analysis and Policy
Flat rate and heavily subsidized prices for electricity in the farm sector ruin both groundwater and energy economy in many groundwater-scarce regions in India. But, many scholars have theoretically argued that pro rata pricing of electricity in the farm sector is socio-economically unviable and politically infeasible. This paper analyzes the potential impacts of energy pricing on efficiency, equity and sustainability in groundwater use. The analyses use empirical data on water productivity in agriculture for crops, dairying and farms for north Gujarat, eastern UP and south Bihar. For north Gujarat, the analysis uses data from well owners who pay flat rate tariff, and well owners who pay pro rata tariff. For eastern UP and south Bihar, the analysis uses data from well owners and water buyers from diesel and electric well commands. Analysis shows that introducing marginal cost for electricity motivates farmers to use water more efficiently at the farm level through careful use of irrigation water; use of better agronomic inputs; optimize costly inputs; optimize livestock composition and carefully select crops and cropping patterns, which give higher return from every unit of water and grow low water consuming crops. It also shows that higher cost of irrigation water will not lower net return from every unit of water used as the farmers will modify their farming system accordingly. Further, change in the structure of power tariff from flat rate to pro-rata will not have any adverse effects on access and equity in groundwater use. Nor will it increase the monopoly power of well owners. The number of potential water sellers and not the number of potential buyers of water govern the price of water. Pro rata pricing reduces cost of groundwater pumping per unit of land. It also reduces aggregate pumping, which is disproportionately higher than the reduction in net returns per unit of land. This leads to more sustainable groundwater use. This means that in water scarce regions, it would be possible to introduce metering and higher electricity tariff without compromising on the economic prospects of farming. Raising power tariff in the farm sector to achieve efficiency, equity and sustainability in groundwater use is socially and economically viable.