Some key issues in policy, pricing,regulation and financing of irrigation development in India today

Abstract

In this paper we discuss the stylised problems relating to water and irrigation in India and argue that most of the inefficiencies, misuse and environmental damage have their roots in the mispricing of water and electricity. Since the only kind of subsidies thus far used are price based input subsidies they end up distorting the allocative prices, from which the other distortions follow. The problems of the sector can be overcome by changing the method of subsidisation. Converting price based or tariff subsidies to direct subsidies and endowments with improved tradability would solve most of the problems in the water and electricity sectors. Administrative and managerial initiatives by themselves would not succeed without this crucial tariff and subsidy reform. Such reform would also result in political capital for its initiators, and should make private and public financing of water (and electricity) projects possible. The issues related to pricing, water rights, subsidies and financing are deeply interlinked, and the correct pricing would necessarily have to recognise the financing dimension. Water being a scarce commodity with major composition and coordination economies in its use, its pricing cannot be discussed without a consideration of the rights (implicit or otherwise).