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The Incidence of Canal Irrigation Subsidies in India

The Incidence of Canal Irrigation Subsidies in India

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The Incidence of Canal Irrigation Subsidies in India

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  1. The Incidence of Canal Irrigation Subsidies in India Mona Sur, Dina Umali-Deininger, R.S. Pathak, Bharat Ramaswami and Kihoon Lee.

  2. Objectives of the Study • Use available data to identifying the beneficiaries of surface irrigation subsidies and quantify the magnitude of the subsidy captured by different groups of agricultural households. • This study is part of a larger study on public expenditures and subsidies to canal irrigation. • The follow-on study will examine the issue of canal irrigation subsidies based on 3 case study sites in AP. Its emphasis will be on the measurement and allocation of subsidies among multiple users of water.

  3. Measuring the Subsidy • Analysis in this study is confined to examining financial subsidies.

  4. Issues in Measurement • Assume O&M share of farmers proportional to the volume of surface water used in irrigation. • Lack of data on the interest charges and depreciation. • Assume 100% efficiency in delivery. Is this valid? • O&M expenditures also capture inefficiencies/overstaffing in the ID. Should users bear this cost? • Canal irrigated area is for 5 principle crops. This to some degree underestimates gross cropped area irrigated by canals.

  5. Distribution of the subsidy across farm households • Canal irrigated area: area only irrigated by canals and area irrigated conjunctively with groundwater and canals. • Amount of subsidy accruing to different farmers is proportional to the canal irrigated area on their farms . Can’t account for locational differences: head-enders vs. tail-enders. • Quality of service reasonable and the same across farmers. • Assume collection efficiency is the same across all farms. • Water requirements depend on the crops grown. Charges also depend on crops grown. Hence, subsidy accruing to different farmers depends on their cropped area and crop mix.

  6. Background • Surface irrigation (canal irrigation) is subsidized all over India. • Subsidies for surface irrigation arise from two factors: (i) water tariffs that are set well below the supply cost of water (or not charged at all), and inefficiencies in collecting tariffs. • Subsidies have contributed to fiscal crises in Indian states, constrained resources for proper O&M and rise of multiple environmental problems. • The social justification of the subsidies are also increasingly debated. • How are these subsidies distributed across the population and whether they benefit the poor?

  7. The data • State budget data for 5 states: Rajasthan, Maharashtra, Andhra Pradesh, Karnataka and Uttar Pradesh. • 54th round of the Indian NSS from 1998 to infer how subsidies are distributed across agricultural households.

  8. Incidence of Canal Irrigation Subsidies

  9. Example from Maharashtra • Actual O&M spending in 1997/98: Rs. 4.31 billion • 82% of surface water used in irrigation. O&M share of farmers Rs. 3.52 billion. • Receipts from water revenue: Rs. 816 million; Cost recovery from irrigation Rs. 246.5 million. 60% collection efficiency. • Subsidy = Rs. 3.27 billion. Average subsidy Rs. 10,685/ha. • Assuming 100% collection efficiency average subsidy Rs. 10,149/ha.

  10. Maharashtra

  11. Questions • How problematic is the assumption that O&M costs are proportional to the volume of water used? • Sunk costs (to include or not?) • Subsidy/HH vs. subsidy/hectare? • For follow on work: non-consumptive users.