Principal investigator: Viviane Pires Ribeiro
Paper Title: Power tariffs for groundwater irrigation in India: A comparative analysis of the environmental, equity, and economic tradeoffs
Authors: Balsher Singh Sidhu, Milind Kandlikar and Navin Ramankutty
Location of the Intervention: India
Sample Size: Not specified
Main theme: Environment, Energy & Climate Change
Main Variable of Interest: Energy Tariffs
Type of Intervention: Comparative analysis of energy tariffs for irrigated agriculture.
Methodology: Literature Review
Groundwater irrigation has caused unsustainable aquifer depletion in many regions of India. Electricity tariff policies, by influencing farmer behavior, can be used as an effective tool for groundwater conservation and sustainable consumption. In this sense, Sidhu, Kandlikar, and Ramankutty (2020) use empirical evidence from previous studies in various Indian jurisdictions to compare energy tariff structures in terms of three main characteristics: administrative burden on utilities; equity in groundwater access between low- and high-income farmers; and influence on farmers' behavior regarding water pumping for agriculture.
Evaluation Context
India's Green Revolution, a government-sponsored program that successfully increased national crop production through the use of hybrid seeds, agrochemicals (fertilizers and pesticides), and irrigation techniques, transformed the country into a net food exporter due to the rapid growth in agricultural production – for example, wheat and rice production increased 3,8 and 2,5 times respectively between 1961 and 2017.
Groundwater irrigation using electric pumps plays a crucial role in supplying water for agriculture in India. Currently, there are 20 million operational groundwater wells in the country; of these, over 70% rely on electricity, 26% are diesel-powered, and the remainder depend on wind, solar, animal, and other energy sources. However, since pumps in deeper tubular wells (which require more energy per unit of water) are predominantly electric, 85% of groundwater pumping energy is supplied by electricity. In this context, energy distributors in different states use two common tariff types to charge groundwater consumers: fixed tariffs, where payments are fixed according to the pump's power rating; and variable tariffs, based on the units of energy actually consumed.
Intervention Details
Agricultural energy tariff policies in India are formulated by individual state governments and can be broadly divided into fixed tariffs and variable (measured) tariffs. Much research has been conducted across various Indian jurisdictions comparing these tariff structures: these include studies based on empirical evidence from states that have switched from one tariff structure to another in the past, as well as contrasting behavioral studies of farmers with fixed and variable tariffs in states where both tariff structures coexist. However, the results of these studies are context-dependent, and their inferences are not directly transferable to other states. Nevertheless, the overall relationship between tariffs and irrigation has not been fully explored in the literature. This is the gap that Sidhu, Kandlikar, and Ramankutty (2020) address. That is, the authors conduct a review of previous studies of fixed and variable tariffs in different jurisdictions (to account for variation between jurisdictions and natural resource regimes) in order to examine the administrative burden of fixed and variable systems in electricity distribution, equity between low- and high-income farmers in both systems, and the ability of tariffs to promote groundwater conservation by influencing farmers' pumping behavior.
Methodology Details
The review article by Sidhu, Kandlikar, and Ramankutty (2020) was conducted based on empirical evidence from previous case studies of fixed and variable tariffs that are widely used to charge groundwater consumers in India's agricultural sector. In terms of structure, the work begins with a description of the historical evolution of groundwater irrigation and agricultural electricity pricing trends. Next, the authors compare fixed and variable tariff structures in terms of their administrative characteristics, equity between high- and low-income consumers, and influence on farmers' pumping behavior to promote groundwater conservation. Subsequently, an evidence-based assessment is made of the design of the most appropriate tariff structures to achieve a balance between economic viability, farmer welfare, and groundwater sustainability. Finally, a discussion is presented on the role of enhanced agricultural energy tariffs in helping India meet the various Sustainable Development Goals.
Results
The analysis shows that fixed tariffs have low administrative costs and more equitable distributional outcomes, but do not provide incentives for farmers to conserve water. On the other hand, variable tariffs have the potential to encourage judicious consumption, but are costly to administer and disadvantageous for low-income farmers who generally buy water from owners of underground wells. Flawed tariff policies, coupled with large subsidies for agricultural energy, have caused the rapid depletion of groundwater in many regions of India, as well as significant financial losses for energy distributors and state and federal governments.
Access to groundwater from water markets is more equitable under a fixed-tariff scheme with minimal energy rationing in water-abundant regions where functioning markets are not hindered by caste and other social barriers. A shift towards rationing and stricter tariffs increases the burden on low-income households. Firstly, when fixed-tariff energy is rationed, the reduction in supply hours disproportionately harms smallholder farmers, as pump owners only sell water when their own demand is met. Secondly, when states switch from fixed-tariff to variable-tariff supply, evidence from West Bengal (a state in India) suggests that this change disproportionately harms marginal water buyers, who are forced to pay higher prices for water, lease their land for part of the year, or even abandon farming.
Farmers who pay fixed rates face no marginal costs of pumping groundwater. As a result, regions of India with fixed rates have witnessed rapid groundwater depletion and wasted energy in agriculture. On the other hand, the impact of variable rates on farmers' water pumping behavior is more complex. Their ability to promote groundwater conservation depends on the social, agricultural, and economic circumstances of the region – such as the prevalence of water markets and energy subsidies, the overall utility of groundwater for the farmer, and other options available to the farmer for accessing aquifers.
Lessons in Public Policy
Given the considerable heterogeneity in agricultural practices and groundwater availability across India, Sidhu, Kandlikar, and Ramankutty (2020) propose specific strategies that can assist policymakers in creating tariff structures that ensure sufficient irrigation for millions of farmers without harming the country's limited groundwater reserves. For regions where overexploitation of groundwater is already causing rapid aquifer depletion (particularly in western and northwestern India), the primary focus should be on tariff policies that promote groundwater conservation through energy rationing and financial incentives. While eastern regions with abundant groundwater could benefit from a hybrid fixed tariff that incentivizes farmer-to-farmer water sales, western states facing unsustainable groundwater exploitation should develop tariff policies that ration energy and prioritize its supply during critical seasons, as well as reward farmers who reduce groundwater consumption. These tariff policies will not only help conserve groundwater but will also increase the government's financial resources for social welfare programs such as education, health, access to energy, etc. Thus, improved energy policies can provide substantial assistance in India's progress towards the various UN Sustainable Development Goals.
Therefore, to formulate future tariff policies, India needs a holistic approach that is not solely based on energy availability and demand, but also incorporates various aspects such as groundwater availability, farmers' irrigation demand, and the opportunity cost of subsidized electricity. Simultaneously, the judicious long-term use of groundwater also depends on a broader review of agricultural policy. The cost of agricultural production in terms of groundwater depletion, which has so far been externalized to the environment, needs to be internalized in the cost of production, while adjusting farmers' compensation to mitigate any potential adverse impacts on their livelihoods. That is, decisions must be made based on local constraints, and farmers must be involved in the decision-making process so that new policies adopted are truly successful in achieving their objectives with minimal impact on farmers' financial well-being and national food security.
References
SIDHU, Balsher Singh; KANDLIKAR, Milind; RAMANKUTTY, Navin. Power tariffs for groundwater irrigation in India: A comparative analysis of the environmental, equity, and economic tradeoffs. World Development, v. 128, p. 104836, 2020.
