A midnight session of the Maharashtra assembly amends a law that governs the state’s water regulatory system. Coalition partners begin to slug it out in the public amid allegations that water belonging to farmers is being snatched and surreptitiously handed over to industrial users. Someone utters the word cronyism and before the law can see daylight, it is readied for another change.
What is today Maharashtra’s water dilemma could well be what the rest of the country faces tomorrow. The controversy stemmed from changes in the pattern of allocation of water, preferring industry over agriculture. The amendment had taken away this right from the Maharashtra Water Resources Regulatory Authority and vested it with a committee of ministers. The original position will now be restored. It is important to understand the incentives that propelled politicians to make these changes in the first place.
The water problem should be seen in the light of two disparate facts. On the one hand, per capita availability of water has fallen continuously since independence: it is down by 68% from what it was in 1951. On the other hand, the bulk of the demand is in agriculture, the slowest moving wheel of the Indian economy. This has led not only to serious distributional issues, but has also provided an excuse to block any attempt to resolve them rationally.
The dice today is loaded against urban consumers. Private water markets have existed for long in urban India. Most consumers in such markets pay for what they consume, however unhappy they may be with the arrangement. In the agriculture sector, the situation is vastly different: Few, if any, governments have ever tried to rationally price water consumed by farmers. The moral argument is that farmers’ income is so low that it would be inhuman to make them pay. Politically, it is suicidal to take the right step of pricing the water that farmers use. As a result, it is much easier to divert water from agriculture to industry, charge the right price and earn some revenue. This is nearly impossible to do in the farm sector. This was evident in the story from Maharashtra.
The question is about choices that affect the country’s future. Cheap electricity coupled with freedom to extract groundwater (and/or free canal water) will only exacerbate the problem. If there are qualms about distributional issues, a remedy exists. Let an independent regulator charge the appropriate price and the government can then pay the difference between the regulator-determined price and a base price as a subsidy. The trick is to let the irrigation authorities charge what the regulator has set: The subsidy should be transferred to farmers’ bank or post office accounts. That will lead to fewer distortions.
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