Positive incentives for managing groundwater in the presence of informal water markets: perspectives from India

Abstract

Abstract Groundwater is rapidly declining in India. A history of subsidized well-drilling, pumps, and energy with minimal restrictions on well installation, in a landscape characterized by millions of smallholder farmers renders standard ‘market-based’ approaches such as water pricing and quotas on abstraction challenging to introduce from a cost, political and institutional perspective. Instead, federal and state governments are experimenting with positive incentive programs, which draw from payments-for-ecosystem-service-type market approaches, by rewarding reductions in groundwater abstraction rather than penalizing abstraction. Whether such programs succeed will depend, among other things, on the state of informal groundwater markets (IGMs) where wells owners supply irrigation services to other farmers, often smaller ones, for a charge; in addition to irrigating their own fields. While IGMs are quite extensive, data on them is poor and outdated, and are often overlooked in the design of positive incentive programs. This oversight can also detrimentally affect the access to irrigation of smaller farmers who purchase these services. Representative and systematic data on IGMS would help policy markers design positive incentive programs that are informed by the tradeoffs between reducing abstraction of groundwater and its welfare implications for sellers and buyers of irrigation services.