This paper presents key results and analysis of a field study of the role of pump irrigation markets in the agrarian transformation of six villages of the Muzaffarpur district in north Bihar. Pump irrigation markets have emerged as a robust and dominant irrigation institution serving as virtually the sole powerhouse energising north Bihar*s new-found agrarian dynamism. Three criteria used to assess the performance of water markets were depth, breadth and efficiency. Their impacts were analysed on four variables: cropping intensity, cropping patterns, labour use and crop yields. Water markets in the region have developed a high level of depth and breadth, but they are highly inefficient, generating large monopoly rents for pump owners. These produce powerful negative distributive impact; however, the output impact of monopoly pricing by water sellers is negligible because of the price inelasticity of irrigation demand explained by its high marginal productivity. The overall impact of water markets are highly beneficial; crop yield and cropping intensity achieved by water buyers are far superior to non-irrigatorst and in many cases even in comparison to pump owners; cropping patterns used by water buyers are nearly the same as of pump owners; finally, operation of water markets substantially expands labour use in agriculture. Abysmal power supply environment is a major barrier to fuller development of equitable water markets; equally critical to promoting efficiency and equity in these markets are the prices and supply of diesel for pumping.
