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Insights into Editorial: Moving towards a water pricing regime

Insights into Editorial: Moving towards a water pricing regime

24 May 2016

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Water has now become a scarce natural resource in India. Two back-to-back droughts have further aggravated this problem. Water scarcity is both a natural and man-made phenomenon. Over the years, increasing population, growing industrialisation, expanding agriculture and rising standards of living have pushed up the demand for water. Many human factors influence the availability of water, including dams or other engineering, population, and consumerism – or our water use on an individual, business, and government levels.

How to tackle this crisis in the long run?

According to experts, water pricing is the only long-term, sustainable solution to promote efficient and equitable use of this precious natural resource.

Why water pricing is necessary?

  • According to a study, water subsidies provided through public utilities in India amounted to 0.6% of global gross domestic product in 2012. But, these subsidies were inequitable and disproportionately benefitted upper-income groups.
  • The inequitable consumption also operates along other dimensions. With 18% of the world population, India has only 4% of the world’s renewable water resources. Moreover, the distribution is geographically skewed and the majority of rainfall occurs over just a few months, leading to reckless consumption in well-endowed geographies and during those months.
  • Also, inefficient agricultural usage of water and exports of water-intensive crops make India a large virtual exporter of water. And the domestic scarcity of water has not been priced into the exports.

However, moving towards an elaborate water pricing is not that easy. There are few challenges involved in it:

  • The first challenge will be to make a case for water pricing at a time when the most vulnerable to water shortage are already reeling under severe economic hardship.
  • The second challenge to introducing water pricing is the entrenched political economy in different parts of India. Severe water crisis in some parts of the country are in stark contrast to flourishing fields in some other parts. Besdies, the public procurement policies also promote cultivation of water-intensive crops, sometimes in those very states where the usage is most inefficient.
  • The third challenge is the inherent design problems associated with water pricing. This is because the government does not exercise control over the sources of water as it does over other natural resources.

What can be done?

  • The government should make people realize that without a price on water usage, it is they who will suffer the worst consequences of a drought.
  • It is also important to target irrigation water for pricing purposes because it alone comprises more than 78% of the total water usage in India. Also, irrigation consumption is an area where the scope for increase in efficiency is very high.
  • Groundwater has to be priced through proxies—electricity or diesel—used by farmers to pump the water. The strategy for pricing should be such that the cost of migration from one method of irrigation to another—or from electricity to diesel—offsets the difference in cost between the two.
  • An important part of this effort will also involve the separation of electric feeders for agricultural and non-agricultural purposes—already a focus of the government under the Deen Dayal Upadhyaya Gram Jyoti Yojana.
  • Additionally, there will be questions regarding whether the pricing should also take into account income distribution of water users and hence be accommodative towards poorer farmers or households.


A counter-argument to water pricing is that it may erode India’s export advantage. But this argument ignores how the status quo continues to erode the competitiveness of farmers living in water-deficient parts of India—also some of the same regions where the incidence of farmer suicides is high. Water prices have rather negligible effects on income distribution within the farming sector and hence water pricing should be designed in order to promote efficiency, leaving equity consideration to other policy tools. Several countries including rich ones such as Singapore and poor ones such as Burkina Faso have, within their own constraints, benefited from this regime. India needs to do the same.