Economics of Groundwater Depletion: Need for Demand Management

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Economics of Groundwater Depletion Need for
Demand Management

• V. Ratna Reddy
• CESS, Hyderabad.

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Water Related Issues Concerns

• Declining Surface water sources like canal and
  tank irrigation
• Increased groundwater exploitation
• Increased Depletion of groundwater
• Replenishment becomes problem if non-renewable
  groundwater is used.
• Resource preservation would not be in the best
  interest of the region

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Source Wise Area Under Irrigation (India)
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Economics of Groundwater

• Groundwater is a public good
• Groundwater use and depletion has externalities
• Costs of depletion related externalities could be
  high and disproportionately distributed
• Rationale for mitigating (replenishment) measures
  in terms of private / social costs and benefits.
• Internalising the externalities could result in
  net social welfare

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Groundwater Externalities 
                                    
 
APPROPRIATION EXTERNALITIES
Add heterogeneity in technology. And
heterogeneity in access to technology or capital.
Add heterogeneity in spatial distribution
Add private property rights to a complimentary
resource
Assignment problems
Legislative Externalities
Technological Externalities
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Types of Externalities

• Negative Externalities Stock (over
  exploitation), technological (higher pumping
  costs) and strategic (over extraction by few).
• Positive externalities of resource investments
  (percolation tanks/replenishment mechanisms)
• - Recharge normal Percolation Tank 7.87 mm/day
• De-silted Percolation Tank 20.40 mm/day
• - Impact radius miliolite limestone 1100 mt.
• gaj limestone 780 mt.
• weathered basalt 720 mt.

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Externality context

• ?rt ?pt --- Short run due to technological or
  strategic externalities as (Drt-1) gt (Dpt-1).
  Resource rich farmers tend to appropriate more
  resources using their resource position
• ?rt ?pt --- long run due to stock
  externalities. Over exploitation resulting in use
  of non-renewable resource and tragedy of commons
  in the absence of cooperative strategy.
• 
  

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Externalities of GW Depletion Open wells

• Drying up of open wells range from 45 in good
  to 85 in scarcity conditions (decline in no. of
  open wells)
• Drying up of open wells is more prominent among
  marginal small farmers, especially in the
  moderate and scarcity conditions.
• SM farmers are the first victims of
  externalities due to location disadvantages and
  poor quality soils.

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Externalities of GW Depletion Bore wells

• Many fold increase in no. of Bore wells- rate of
  increase directly linked to resource status.
• Significant increase in the depth of bore wells
  directly linked to resource status
• SM farmers are also investing in bore wells,
  especially in the moderate scarcity conditions.

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Externalities Area irrigated

• Decline in NIA GIA in all situations, but the
  decline progresses as we move from good to scarce
  resource condition.
• Decline is more in the case rabi (where
  dependence on GW is more).
• Decline in kharif is noticed in moderate and
  scarcity conditions.
• Decline is more among marginal farmers,
  especially in moderate and scarcity conditions.

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Externalities Crop shifts

• Decline in area under paddy (kharif rabi),
  which is a water intesive crop.
• Cotton (ID), gingelly, etc., crops have replaced
  paddy though they are not remunerative.
• Decline in the rabi paddy area is the highest
  among the SM farmers, especially in moderate and
  scarcity conditions.

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Externalities Yields

• Decline in yield rates of paddy (khaif rabi) in
  all the situations.
• Declines as high as 17 percent.
• Decline is more for SM farmers.
• ID crops also have recorded a decline.

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Nature of Costs

• Direct Costs
• -Loss due to drying of open wells (sunk)
• -Investment in borewells / well deepening
  (replacement)
• Indirect Costs
• -Loss due to decline in productivity
• -crop shifts (high remunerative to low
  remunerative)

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Costs of Depletion

• Total Costs of degradation range from Rs. 3349
  (US85) per acre (good availability) to Rs. 15069
  (US425) (scarcity conditions).
• These costs compare favourably with the costs of
  renovating the tanks.
• Both direct (sunk) and indirect (cropping pattern
  changes) costs are disproportionately borne by
  small and marginal farmers.

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Costs of Degradation (Good Availability)

• Average cost /acre 3349 (US85)
• Large farmers Rs. 2362
• (US60) / acre
• Medium farmers Rs. 5723 (US115) / acre
• Small farmers Rs. 6374 (US160) / acre
• Marginal Farmers Rs. 1379
• (US35) / acre

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Costs of Degradation (Moderate Availability)

• Average cost /acre 5539 (US140)
• Large farmers Rs. 4125
• (US 105) / acre
• Medium farmers Rs. 6882 (US170) / acre
• Small farmers Rs. 14279 (US350) / acre
• Marginal Farmers Rs. 2362 (US60) / acre

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Costs of Degradation(Scarcity conditions)

• Average cost /acre 15069
• (US425)
• Large farmers Rs. 8159
• (US205) / acre
• Medium farmers Rs. 13427 (US335) / acre
• Small farmers Rs. 19787 (US480) / acre
• Marginal Farmers Rs. 44602 (US1110 / acre

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Costs Degradation vs Abatement

• Lower costs of degradation in resource condition
  is due to the availability of replenishing
  mechanisms (percolation tank).
• Differential losses range from above Rs. 2000
  (US50) to above Rs. 11000 (US275) per acre per
  year.
• Abatement costs range between Rs. 4000 Rs. 6000
  (US100-150) per acre depending on the size of
  the tank (with out de-silting) with a life of
  10-15 years.
• Investments in mitigation makes economic as well
  as ecological sense.

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GW A Mismanaged Resource

• Clear case of market failure due the absence of
  clearly defined property rights, as access to
  water is based on riparian laws resulting in over
  exploitation by some.
• Absence of Institutions in GW management has
  aggravated the problem (institutional failure)
• Absence of any policies for GW management (policy
  failure)

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Demand management of Groundwater

• Managing Demand Low priority for
• -Water demand functions
• -Water productivity
• -Water use efficiency
• Instruments
• -Market Based
• -Technological
• -Institutional

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Market based Instruments

• Pricing of water economic as well as scarcity
  value
• Pricing increases use efficiency and cuts
  wastage
• - Pricing is inversely related to demand but
  inelastic
• - Income positively related and inelastic
• - Reasonably high willingness and ability to pay
  as farmers spend as much as 50 of their GVP when
  they buy groundwater for irrigation as against 2
  in the case of public irrigation

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Market based Instruments-II

• Pricing of complementary goods (power)
• -In the event of high transaction costs, adding
  the scarcity price of water to the electricity
  would be efficient for raising resources. This
  would not only internalise the externalities at
  the regional level but also minimise the adverse
  impacts.
• Other related pricing policies
• Incentive / dis-incentive strategies

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Technological Instruments

• Technology is the key for expanding the supplies
• Technology can help in reducing wastage and
  increase use efficiency
• Micro irrigation systems can save up to 67 of
  water, energy and up to 60 of labour.
• Micro irrigation systems are economically viable
  for a number of crops
• Technology promotion through policy support

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Institutional Options

• Property rights institutions-clearly defined and
  equitable rights in water
• Collective action institutions-bringing
  groundwater under the management regime viz.,
  WUAs
• Institutional arrangements are required to make
  groundwater a common pool resource in the true
  sense of the term. In this regard de-linking of
  water rights from land rights would help
  addressing the equity issues effectively
  (vertical externalities).

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Need for an Integrated Approach

• Integration at the resource front Groundwater
  surface water bodies should be treated as
  complements rather than substitutes.
• Integration at the policy level Supply side and
  demand side management approaches need to be
  integrated.
• The experience of APFAMGS and similar initiatives
  would go a long way in helping designing better
  policies

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Thank You