More than 40 per cent of India is arid and semi-arid with erratic and scanty rainfall leading to water stress/scarcity situations that impact lives and livelihoods in these regions. With climate change, the rainfall pattern is changing and water shortage is visible in many parts of the country. Also, there are wide spatial and temporal variations in the distribution of water. Eighty per cent of rainfall occurs in nearly four months of the year.

A NITI Aayog study (2019) estimates that by 2050, water availability (supply) in India will reduce to half of the demand. Thus, demand side water management is extremely important.

For many years, water was considered a free or non-economic good such as air. However, due to exponential growth of population, increased food demand, lifestyle changes, and high economic growth, water is now considered an economic good in addition to being a social good in some cases. The UN Dublin Principle (1992) emphasised on the importance of economic value of water in general and irrigation water in particular.

If water is treated as an economic good, some price should be attached to it. Domestic water and water for industries are charged, but irrigation water is considered a non-merit good, often supported by government funds.

The National Water Policy (NWP) 1987 mandated that water rates should convey the scarcity value of the resource to users, foster motivation for economy in water use, and cover annual operation and maintenance (O&M) costs and a part of fixed cost for irrigation works.

The NWP 2002 suggested that water rates should cover at least O&M cost initially and part of capital costs subsequently. The rates should be linked to the quality of service provided. Subsidy on water rates should be well-targeted and transparent. The NWP 2012 suggested that in order to meet equity, efficiency and economic principles, water pricing should, as a rule, be determined on volumetric basis.

Norms followed by States

Per NWP 2012, water pricing should be under the domain of the Water Regulatory Authority (WRA). There are no independent WRAs in many States and, as a result, the mechanism of fixing water charges is ad hoc, non-consultative and non-transparent. Revision of water rates by States is often outdated; in Kerala, for 47 years there were no changes in water rates. In Karnataka, there are water rates for 16 crops with respect to flow irrigation and lift irrigation; for sugarcane, the rate for lift irrigation is ₹2,965.16 per hectare, and for flow irrigation it is ₹988.39 per hectare. For manurial crops in Karnataka, for lift irrigation it is ₹74.13 per hectare and for flow irrigation, ₹37.06 .

In the case of groundwater, while 20 States/UTs (Maharashtra, Rajasthan, etc) follow Central Ground Water Authority (CGWA) regulation, 16 States/UTs follow Ground Water Regulation set by States. In most cases, there is no coherence between State and Central guidelines. For groundwater, there is no pricing in both rural and urban areas for drinking and domestic purposes, for agriculture activities, and for micro and small enterprises drawing groundwater of less than 10 cum/day.

For others, groundwater rates are linked to the quantum of withdrawal and criticality of aquifers. Groundwater rates are applicable to category of areas (i.e., safe, semi-critical, critical, over-exploited). For example, if the quantum of withdrawal is up to 50 m3/day, the abstraction charges for safe areas is ₹1 per m3, and for overexploited area (existing industries), ₹8 per m3. However, the largest consumer, agriculture, is not under the net of groundwater regulation.

International experience

Many countries follow volumetric water pricing. It ensures economic efficiency if processes are kept at marginal cost of water. In the case of domestic, industrial and commercial use of water, OECD countries levy uniform volumetric charges. Many other countries follow the two-part tariff (fixed and volumetric components) norm. The volumetric pricing system is followed in the US, Jordan, the UK, Australia and France for irrigation water. In India, in contrast, there is only area- or crop-based pricing with flat rates.

In the case of groundwater, volumetric water pricing is adopted in China, South Africa, Australia, Israel, Chile. In South Africa, there is seasonal pricing based on groundwater availability, and incentive for adopting water saving practices. In Australia, market-based mechanism such as water trading ensures water entitlement and flexibility for users to buy and sell water allocations.

Future steps

First, the concept of water as an economic good should be adopted in all cases; the cost recovery in irrigation sector should cover O&M costs and at least 1 per cent interest on capital employed, as recommended by the erstwhile Planning Commission.

Second, a volumetric pricing system in irrigation sector should be implemented. Incentive should be given for using water-efficient technologies such as drip/sprinkler irrigation in agriculture. A National Irrigation Water Policy should be framed after extensive deliberations with States.

Third, more and more users of groundwater should be brought under the ambit of water pricing. Volumetric pricing should be introduced for all uses including irrigation. There should be incentive for adopting metering of infrastructure, for water conservation, and for introducing water audit-based credit.

And, finally, all States should have a WRA and their mandate on pricing for various water users should be ensured.

The writer is a Distinguished Fellow, TERI, New Delhi, and a former Secretary, Ministry of Water Resources

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