Incorporating Cost of Irrigation Water in the Currently Underestimated Cost of Cultivation: An Empirical Treatise

Abstract

This study highlights that even though water for irrigation substantially contributes to production of principal crops, the cost of cultivation discounts its role, since it does not incorporate the cost of irrigation water in the cost of cultivation methodology followed by Directorate of Economics and Statistics/Commission for Agricultural Costs and Prices (DES-CACP). The study suggests modifications in data and methodology in estimating cost of cultivation of crops considering the field data from Karnataka. Estimating the net returns from the DES Cost of Cultivation Scheme data for TE 2008-10 according to market prices, economic prices and natural resource valuation (including cost of water), the study highlights that the extent of under estimation of cost of cultivation varies from 16 per cent to 49 per cent of the cost of cultivation in the case of groundwater irrigated crops and 4 per cent to 14 per cent in the case of canal irrigated crops. The minimum support price (MSP) offered did not include the cost of irrigation water of the principal crops cultivated in Karnataka. The study also suggests focusing on removal of market imperfections in addition to an MSP which properly accounts for cost of irrigation water, to enable farmers to reap a favourable proportion of consumer’s rupee.