Right pricing of water

With the growing scarcity of water, we need to invest in institutions for water allocation rather then work at interventions for augmenting its supplies, says M. Dinesh Kumar in Managing Water in River Basins: Hydrology, economics, and institutions (www.oup.com). Citing studies, he adds that in situations such as what India faces, the opportunity cost of not investing in institutional reforms would be much higher than the transaction cost involved.

A section on ‘pricing of water’ opens by stating the general principle that the price of water for competitive use sectors such as irrigation and water-intensive industries means that pricing of water should be fixed in such a way as to discourage economically inefficient uses.

Wasteful practices
The author traces how, after Independence, the Indian governments saw irrigation as welfare means and therefore were reluctant to raise irrigation fee charged to poor farmers. “Also, the charges are paid on acreage basis and are not reflective of the volume of water used. It is believed that the lack of linkages between volumetric water use and water charges, and lack of agency capability to recover water charges and penalise free riders create incentive for overuse or wasteful practices.”

Full report here Hindu