Are Subsidies on Drip Irrigation Working? Evidence from Gujarat?

Abstract

Subsidies on technologies that reduce environmental externalities are popular with policy makers in developing countries. However, given “investment inefficiencies” and the multiple other factors potentially inhibiting take-up in developing countries, it is not clear whether subsidies succeed in increasing adoption, especially among the poor. We conduct an analysis of India’s subsidy program for drip irrigation, intended to reduce pressure on rapidly depleting water resources by millions of small-scale well-owning farmers. Using spatially detailed data on hundreds of thousands of adopters in the state of Gujarat, we find that increases in the subsidy rates substantially increase take-up, but do not seem to expand adoption to farmers with smaller land holdings.