Water Pricing and Irrigation Economics: An Overall Assessment of Policy, Practice, and Sustainability in Indian Agriculture

Introduction

Methods of Charging Irrigation Water Prices

Current Status of Irrigation Water Pricing in India

Tariff Structures in Maharashtra and Examples

Table 1. below summarizes the land and irrigation statistics at global, national (India), and state (Maharashtra) levels.

Challenges in Implementing Effective Water Pricing

• Low Revenue Collection and Enforcement Issues: Even when water charges exist on paper, actually collecting them from farmers has been a chronic problem. Historical recovery rates for irrigation fees are very low (often well below 50% of the amount billed). Reasons include inadequate billing mechanisms, lack of manpower in the irrigation department to follow up, and deliberate non-payment by farmers when they know enforcement is lax. Penalties for non-payment are seldom enforced it's rare for a farmer to have water supply cut off for not paying a water bill, as might happen with electricity. In some instances, officials have been bribed or influenced to overlook arrears. This culture of poor compliance means that announced tariff hikes may not translate into proportionate revenue increase. Essentially, a cycle forms: because collection is low, irrigation agencies remain underfunded; underfunding leads to deteriorating service; poor service further discourages farmers from paying, or politicians from pushing collection, perpetuating the cycle.
• Political Economy and Populism: Agriculture is a politically sensitive sector in India, and farmers are an influential voting bloc. Any increase in water charges or strict enforcement of payments can become a flashpoint. Politicians often promise free or subsidized water (alongside free power, loan waivers, etc.) to win support.
• Resistance and Equity Concerns Among Farmers: From the farmers’ perspective, irrigation water pricing can be perceived as an added financial burden with little immediate benefit. Many small and marginal farmers operate at subsistence or low profit margins; they fear that higher water costs will eat into their income, especially in the absence of guaranteed higher crop prices. There is also an ingrained sense that water is a public resource that should be provided by the state (a legacy of the welfare approach). Equity concerns are significant poorer farmers worry that pricing will favor rich farmers who can afford to pay for more water, potentially squeezing them out.
• Inadequate Measurement and Infrastructure: A practical barrier to volumetric pricing (and even to knowing how much area is irrigated) is the lack of measuring devices and modern infrastructure. Most canal systems were not built with flow meters at tertiary offtakes; installing them now is costly and logistically difficult. Even where meters exist, maintenance is a challenge silt, weeds, or tampering can cause meters to fail or give inaccurate readings. In groundwater, measuring individual well extraction is even more daunting. Because you can’t manage or price what you don’t measure, this becomes a fundamental hurdle. Many irrigation schemes also lack controlled outlets or any automated systems to monitor distribution.
• Poor Irrigation Service Delivery: One reason farmers are unwilling to pay is that the service quality of public irrigation can be quite poor. Water deliveries are often unreliable farmers might be promised water on a certain date but face delays or sudden cuts. Sometimes the quantity delivered is far less than the crop needs (especially in tail end areas of canals). In many canals, rotational water supply means some farmers get water at inconvenient times. If farmers are paying for a service, they expect that service to be reasonably reliable and timely.
• Transparency and Trust Deficit: Historically, irrigation departments did not always operate transparently. Farmers often don’t know how water allocation decisions are made or where their fee payments go. There is suspicion that even if they pay, the money disappears into government coffers and doesn’t directly improve their canal. Cases of fabricated water bills or inconsistent assessment of irrigated area have been reported, leading to grievances. This lack of transparency means farmers do not view water charges as a fair exchange. Building trust through participatory management and clear accounting is a challenge that must be met to get buy-in for any pricing regime.
• Water Theft and Illegal Use: Another ground reality is that water distribution in canals is not always strictly according to plan. Some farmers siphon extra water by breaching channels or pumping directly from canals, especially at night. If others are paying for water while some take it illicitly for free, the paying users become demotivated.
• Concurrent Subsidy Policies (Power and Crop Pricing): Irrigation water pricing does not operate in isolation. Other policies can counteract or undermine its impact. A prime example is electricity subsidies for pumping groundwater even if canal water had a price, a farmer might choose to over-extract groundwater if power is free, thus defeating the conservation goal. Similarly, if Minimum Support Prices (MSP) for water-intensive crops like rice and sugarcane remain high, farmers have incentive to grow them regardless of water cost. In fact, as one of the case studies will show, output price changes can have a bigger effect on water use than modest water price changes. This interplay means the challenge for water pricing is also about aligning broader agricultural policies. Without that alignment, water pricing alone faces an uphill battle to influence behavior.
• Institutional Capacity and Coordination: Implementing new pricing structures requires capable institutions from the state regulator (if one exists) to the irrigation department field staff and the water user associations. Training, data management, and coordination need improvement. In some areas, WUAs are lacking or inactive, so there is no intermediary to help implement pricing at the tail end. The irrigation bureaucracy in many states is oriented more towards engineering (building structures) than economic management; reorienting staff to handle tariff assessments, listen to farmer feedback, and resolve billing disputes is a major change management challenge. Additionally, coordination is needed between departments agriculture, water resources, power to ensure policies are working in concert. Such integrated functioning is still more an ideal than a reality in most places.

Recommendations for Improvement

• Gradual Introduction of Volumetric Measurement and Quotas: Instead of abrupt price hikes, start by implementing volumetric allocation (even if not pricing every drop initially). For example, enforce a per-hectare water quota for each farmer or WUA (as suggested by Case Study 1) this rations water fairly and makes its scarcity explicit. Once users adapt to fixed allotments, volumetric pricing can be phased in on the excess usage beyond the basic quota. This combination ensures everyone gets a fair share (equity) but those wanting more must pay extra, which is more politically acceptable and highlights water’s value.
• Improve Cost Recovery with Transparent Reinvestment: Aim to incrementally raise irrigation charges to at least cover basic Operation & Maintenance costs in the short term. This could mean, for instance, a 10% annual increase in tariffs until a target (say 50% of O&M) is reached, as Maharashtra has initiated. Crucially, be transparent about where the money goes establish a ring-fenced irrigation maintenance fund at the project or WUA level. Farmers should see that their payments result in canal repairs, better regulation, and timely water delivery. Publicize annual accounts of fee collection and expenditures to build trust that paying more directly leads to better service.
• Strengthen and Empower Water User Associations: WUAs need to be central actors in any pricing reform. They should be given clearly defined roles in water distribution and fee collection. Provide training to WUA leaders in basic financial management and conflict resolution. Incentivize WUAs by allowing them to retain a significant share of collected fees (e.g., 50%) for local improvements. Additionally, empower WUAs to enforce rules for example, give them authority to temporarily suspend water deliveries to members who persistently do not pay or violate allocation rules, backed by legal support from the state. A community-enforced approach can be more effective and locally legitimate than top-down enforcement.
• Revise Crop Pricing and Subsidy Policies in Tandem: Align agricultural pricing policies (like Minimum Support Prices for crops and input subsidies) with water sustainability goals. If water-intensive crops like sugarcane and rice have high support prices or free electricity, farmers will understandably grow them and pump water regardless of water charges. Therefore, gradually reduce incentives for such crops in over-stressed areas; encourage crop diversification by raising support prices or providing other incentives for less water-intensive cereals, pulses, or oilseeds. Consider incorporating the cost of irrigation water into the government’s cost-of-cultivation calculations for MSP (echoing Case Study 2’s implication) this would highlight crops where MSP is currently not covering irrigation costs and prompt policy adjustments. In parallel, ensure that any increase in water charges is timed with or preceded by support for alternative crops or value addition, so farmers have viable profitable options with lower water use.
• Differentiated Tariffs and Targeted Relief: One size may not fit all in water pricing. Develop a slab system or differential tariffs to protect vulnerable farmers while still charging larger users more. For example, smallholders could get a certain volume or area at a concessional rate (lifeline water), while large commercial farms pay higher rates for large volumes. Any such cross-subsidy should be transparent and ideally funded within the sector (so that it doesn’t gut the irrigation agency’s finances). In parallel, create a safety net e.g., an increased irrigation cost could be offset by direct income support or subsidy to small farmers during the transition period, so that no one is impoverished by water bills.
• Invest in Measurement and Technology: Prioritize investments in modernizing irrigation infrastructure to enable better measurement and control. Install flow meters or gauges at least at the canal minor or WUA level to get data on water deliveries. Use remote sensing and satellite imagery to estimate crop water use and irrigated area these can serve as proxies to validate what farmers should be paying under area-based systems or to detect if some farmers are using more water than accounted. Expand telemetry and perhaps pilot smart card systems where feasible (for instance, a WUA is given a water allocation on a smart card that is debited as gates are opened). On the farm side, continue promoting micro-irrigation with capital subsidies, but also consider coupling that with volumetric supply agreements so that farmers who save water through drip can potentially sell or bank their saved water (providing a real reward for efficiency).
• Consider Alternative Pricing Methods: As research (like Case Study 3) indicates, volumetric pricing, while logical, is not the only approach. In schemes or regions where metering is too costly, adopt second-best methods: e.g., area-based pricing with tiered cropping penalties (higher rates for water-heavy crops as a proxy for volume), or seasonal pricing (higher in dry season). Experiment with group incentives for example, if an entire WUA manages to reduce water use below a threshold, offer a rebate on their bulk bill.
• Enhance Farmer Awareness and Capacity: Conduct extensive outreach to shift perceptions about water. Extension services and WUAs can organize workshops on water productivity teaching farmers that sometimes "less water can grow the same crop yield" if managed well, and that net profit (₹ per cubic meter of water) is a metric to optimize, not just yield or acreage. Highlight success stories of farmers who, for instance, switched crops or adopted drip irrigation and maintained income with half the water use. When introducing any pricing change, accompany it with clear communication: explain why it’s being done (link to drought experiences, drying wells, etc.), and how revenues will be used to benefit farmers. Building a sense of collective responsibility for the resource can make farmers more receptive to paying for its upkeep.
• Phased Implementation and Pilot Projects: Avoid a blanket roll-out of new pricing in one go. Instead, identify pilot command areas or projects (perhaps ones with active WUAs or relatively better infrastructure) to implement the new pricing regime fully. Monitor results for a couple of seasons see how water use, cropping patterns, and collections change. Use these pilots to learn and fine-tune the tariff design and implementation process. The pilots will also create demonstration effects success there can quiet some critics and provide practical proof to convince other areas. Then scale up gradually, region by region, incorporating lessons learned.
• Political Engagement and Incentivizing Reforms: Garnering political will is crucial. One approach is to tie water sector reforms to incentives from higher levels of government. For example, the central government could condition certain grants or program funds (like under PMKSY or the Accelerated Irrigation Benefits Programme) on states updating their water tariff schedule or achieving certain collection benchmarks. This creates a top-down push for what is otherwise politically hard at state level. Simultaneously, engage local political leaders by framing pricing reforms as pro-farmer in the long term emphasize that no water, not even free water, is what many farmers will face if resources continue to decline, so pricing is a tool to secure their future water supply.

Conclusions

References

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