[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...

MORE MARKETS, LESS GOVERNMENT
their needs by acquiring the rights of
those who are using water for low-value
purposes.
“....there are strong incentives for
those using water for low-value purposes
to voluntarily give up their rights,
making reallocation politically attractive
and practical.”
The Water Sector Review 1998’s Report
on Intersectoral Allocation gives
the example of Chennai. It says 8 :
“As in all parts of the world, the value
of water for irrigated foodcrops is a fraction
of the value for urban and domestic
purposes. Rough calculations suggest
that the value of water in irrigation in
Tamil Nadu is less than Rs. 0.5/cubic
meter. Even if Metrowater could pay several
times this amount, it could obtain
additional water….
“The potential for voluntary inter-sectoral
transfer of water to urban users
from irrigation provide a promising low
cost alternative...”
Thus, the Bank argues that in a water
market, the farmer would find it more
profitable to sell his share of water to the
city (or an industry, or a golf course)
than to grow crops.
One of the first ‘trials’ of this approach
is taking place in Maharashtra. The Maharashtra
Water Resources Regulatory
Authority Act (MWRRA) 2005 came
into force on 8th June 2005. Maharashtra
soon became the first, and so far the
only, state to set up the Water Resources
Regulatory Authority - more or less
on the lines of the regulatory commissions
set up for electricity in various
states - with objectives that include fi x-
ing the rates for use of water for agriculture,
industrial, drinking and other purposes
and several related matters.
Among the functions of the Authority is
the mandate to develop a framework for
trading in water entitlements. The Authority
is to determine the distribution
of entitlements between various users,
and then these entitlements can be
“transferred, bartered, bought or sold
on annual or seasonal basis within a
market system” 9 to be created by the Authority.
The Authority has already begun
the exercise of setting up entitlements in
six irrigation projects in Maharashtra on
a pilot basis, inlcuding tow major projects.
Will such an exercise lead to a rational
and efficient allocation of water?
While the economic argument that water
will be allocated to the highest valueadding
user looks attractive, there are
likely to be serious implications. For example,
if a farmer finds it more profitable
to sell his share of water to industry
or a near by city – and this happens on a
large scale, what are the implications for
food security? What would happen to
associated rural economic activity? For
example, agricultural residues provide
fodder for cattle, but if a farmer does not
cultivate his land, what happens to the
cattle? Another important question is
related to the conversion of livelihood to
cash. The farmer, by cultivating his land,
gets the output in the form of grain,
food, milk and some cash. By selling his
water right, this is likely to be largely
Market driven inter-sector allocation poses more serious
broader concerns. Water is not just an economic commodity
– it is essentially an ecological, natural entity, and
water as an ecological system is vast and complex
converted to cash. This has the danger
of being spent on careless consumptive
expenditure, or worse, on liquor and
other addictions. More cash can also
mean that women will have lesser
control on the household income as cash
is more likely to be controlled by
the men.
Apart from these individual-related
issues, market driven inter-sector allocation
poses even more serious broader
concerns. First of all, water is not just an
economic commodity – it is essentially
an ecological, natural entity, and water
as an ecological system is vast and complex.
Water – and water bodies like rivers,
lakes etc. – have many cultural, social
and religious associations. Thus,
there are many externalities associated
with water, and it is simply not possible
for market mechanisms to address these.
Consider (as is happening in several
places like Chennai) if a farmer wants to
sell his groundwater to the city instead
of farming. But unrestricted withdrawals
by the farmer could affect the wells
of the neighbouring farmers. Or, consider
whether the waters of a river that
THE INDIA ECONOMY REVIEW
49