A⁺| A| A^-

Water Markets : Public Resource and Private Appropriation

Commentary

Vol. 37, Issue No. 01, 05 Jan, 2002

Updated on 19 July 2017

Tags:

The emergence of water markets has been a consequence of the popular use of groundwater and now increasingly surface water resources for irrigation. But as this paper explains, while this may have helped raise agricultural output, it has also seen a widening of rural inequalities and has had an adverse impact on the interests of small and marginal farmers and other weaker sections of society.

A visible trend in irrigation relates to the utilisation of groundwater. In the state of Karnataka, for instance, there has occurred a big spurt in the utilisation of groundwater for agriculture. This is partly due to the uneven spread of irrigation facilities, decay of tanks and the introduction first of a flat rate system for electricity for irrigation pumpsets and the subsequent free supply of power to this sector. The exploitation of groundwater has resulted in 330 blocks all over the country being classified as dark areas. Out of these 23 are in Karnataka.

An important offshoot of this increased utilisation of groundwater is the emergence of ‘water markets’. These water markets are not confined only to groundwater. They thrive even in areas irrigated by surface water where farmers lift water from the canal using pumpsets. This note focuses on surface water markets and the implications of the privatisation of a public resource. This is based upon fieldwork in Mandya district in Karnataka as part of a doctoral thesis. The questions raised are as follows: (i) what are the factors which have led to the emergence and development of water markets? (ii) should these markets be regulated, implying thereby that they should be ‘legalised’ since at present they do not appear to enjoy any legal status? and (iii) what lessons can be drawn for the larger issues relating to markets, privatisation and the role of the state?

These water markets refer to a ‘localised, village level set-up through which owners of modern water extraction methods supply water to other members of the community at a price” [Tushaar Shah 1993]. The same definition has been used here in analysing water markets. The surface water markets are different from private lift irrigation schemes in that these are not approved or permitted by the irrigation department. The practice of selling water has been in vogue in many parts of the country. This was prevalent even under the traditional extraction methods (using cattle to lift water). The terminology used during those times was ‘sharing’ the resource. But this practice expanded rapidly with the installation of modern water extraction devices.

Water Markets in Karnataka

In Karnataka ‘water markets’ have been operating in irrigated areas since the 1970s utilising surface water. Earlier, water was not treated as a tradeable commodity, even though ‘water sharing’ was in practice. As far as groundwater is concerned, there was rapid development of these water markets after the state government introduced a ‘flat rate system’ for pricing electricity provided to irrigation pumpsets. This gained further momentum in 1991 when the state government started supplying free electricity to irrigation pumpsets.

Water market is an informal market and the transactions that take place between the sellers and buyers do not appear to have any legal status. In the case of groundwater there is no legislation which bans the selling of the resource. With respect to surface water, the Karnataka Irrigation Act (1965) prohibits unauthorised use of canal water in the command areas and also the digging of wells near the canal which may lead to decrease in the flow of water in the canal. Since lifting water through irrigation pumpsets is prohibited and wells cannot be dug by the side of the canal, by implication it would appear that the sale of water is not legal. Farmers can obtain permission to lift water from a canal subject to payment as fixed by the irrigation authorities. Even in cases where farmers have taken permission to lift water, the question arises whether they can sell water to others. Since the Act is silent on this issue, sale of water is assumed to be legal. But provisions prohibiting wells by the side of the canal have not been enforced by the irrigation department which has resulted in illegal installation of pumpsets in the command areas. This has enabled the sellers to use the loopholes in the legislation to their advantage.

Surface Water Markets

Surface water markets emerged in the study village (Buduguppe) in Mandya district in early 1970s. The village has canal irrigation for about 50 per cent of the lands. The remaining lands are located at a higher level and do not have canal irrigation facilities, even though the canal is situated nearby. Thus farmers whose lands are located along the canal installed pumpsets to lift water from the canal. In the initial stages they used water only for cultivating their lands. This was done mainly by operating diesel pumpsets. Gradually the farmers started hiring-out the diesel pumpsets to the neighbouring farmers on rent in order to lift water from the canal. Later on, they took to the practice of using electric pumpsets to lift water from the canal. Then the farmers shifted to the practice of selling water to the neighbouring farmers who found this easier compared to hiring a diesel pumpset on their own. Since there was sufficient water in the canal throughout the year, some farmers installed pumpsets along the canal to lift water and sold it to neighbouring farmers. In the initial years farmers were using a 5 HP pumpset to irrigate about 25 acres of land. The policies pursued by the state government on supply of power to irrigation pumpsets encouraged them to install pumpsets of higher horsepower. Along with the installation of these pumpsets water was supplied through pipes. Nowadays sellers supply water to farmers through field channels or through pipes which are regulated through valves. With the introduction of these devices an individual seller sells water to more than 45 acres of lands. There are about 13 farmers who sell water to ‘neighbouring farmers’.

Before these water markets developed farmers from most of the dry lands grew only ragi, jowar and pulses. Now the buyers grow two crops of paddy and also sugarcane. Water is supplied throughout the year to grow two crops. The important crops grown are paddy, ragi, sugarcane and mulberry. The pumpset owners are selling water for growing sugarcane for the last two years. Purchasers of water can make payment in cash or in kind.

Payment in cash: paddy: Rs 500/ per crop per acre; ragi: Rs 300/ per crop per acre; and Mulberry: Rs 3,000/- per acre per year.

Payment in Kind

Farmers who grow sugarcane have to make payment in kind. They are expected to give the water seller five tonnes of sugarcane per crop. The seller has to ensure adequate supply for a duration of about ten months. This is one reason for insisting on payment in kind. Further, sugarcane prices are fixed by the local sugar factory with a sufficient hike in price every year. Also there are a significant number of sugarcane crushing units which pay higher prices than the factory. As a result the seller is able to charge five tonnes each from about 13 purchasers, who together cultivate about 20 acres of sugarcane. Most of the water sellers are owners of sugarcane crushing units and sugarcane collected for supplying water is used in these units. As in groundwater markets there are instances where purchasers prefer more than one mode of payment.

In the initial years farmers had some difficulties in negotiating the terms for purchasing water. These were related to rendering the free services of maintenance of pumpsets and field channels, offering labour for cultivating the waterseller’s lands etc. But here also the increasing number of sellers resulted in buyers having the possibility of negotiating with another seller in case such problems arose. This is an example of competition among sellers benefiting the buyers.

Price Determination in Surface Water Markets

The determination of water prices depends on the availability of water or flow of water in the canal. There is a possibility of water price being hiked during years of deficit rainfall. Purchasers of groundwater in dry regions are at disadvantage in the sense that there is likely to be an increase in water prices. Generally water rates are higher in groundwater markets compared to surface water markets. One explanation is that in dry regions where farmers depend mainly on groundwater, the demand for water is high which results in higher prices. At the same time it has to be noted that the relative bargaining power of buyers and sellers also depends on the legal position. In the case of groundwater there is no legislation either to control over-exploitation of the resource or which prohibits the selling of water by well owners. On the contrary Karnataka Irrigation Act (1965) clearly prohibits installation of pumpsets in the canal command and lifting of water from the canal, but the Act is silent on the issue of selling of water. This legislation which bans unauthorised lifting of water from the canal may force the sellers to fix the price at a lower level. The legal position has its impact on prices. In the case of surface water markets the buyers are in a better position to bargain for lower prices, since there is a provision which bans lifting of water from the canal for unauthorised purposes. On the other hand, in groundwater markets, the sellers can fix a higher price since there is no legislation which prohibits sale of groundwater. Another point to be kept in mind is that in the case of groundwater markets, well owners with a 10 HP pumpset can irrigate about 18 acres of land. But a farmer with a five HP pumpset who lifts water from the canal sells water to about 25 acres of land. To supply water to such an extent he may have to come to an arrangement with number of farmers in order to lay field channels or pipes. The difficulty arises if a farmer in the middle between a buyer and seller is reluctant to permit pipes through his land. Thus the difficulty in excluding farmers in the middle may compel the seller to fix differential prices. For instance a buyer whose lands are at some distance from the point of supply pays a higher price than those whose lands are contiguous to that of the supplier. The latter offers a lower price in order to obtain permission to take the pipes through their lands.

Implication of Emerging Water Markets

Today we are witness to the serious consequences of the privatisation of ground and surface water resources. In the case of surface water there are apprehensions that lifting water from the canal may lead to a decreased water flow in the canalwhich ultimately results in hardship to farmers in the tail end region of the canal. Though there is no direct evidence regarding this issue in the study area, it is a distinct possibility.

Though the emergence of water markets, both ground and surface water, has helped in increasing agricultural output, it has also widened the inequalities in the rural areas and has failed to protect the interests of the small and marginal farmers and other weaker sections of the society.

The above discussion raises an important question relating to the role of the state in the sphere of water markets. The options left for the state are either to intervene by legalising these markets or to regulate them to ensure conservation of water resources. One has to examine seriously the consequences of legalising water markets. It is important to mention that water as a resource has already become privatised. Further these markets appear to be working in an efficient manner if one’s vision is restricted to the buyer-seller transaction without reference to other consequences. There are complaints from purchasers of water regarding some of the free services they have to undertake.This may not amount to actual exploitation of the purchasers and their efforts most probably are compensated while fixing water price. Further these markets cannot work unless there is a convergence in the interests of both buyers as well as sellers. In one respect these markets exhibit a characteristic not seen elsewhere. In a typical water market a farmer can refuse to purchase water and simultaneously withhold permission for pipes to be laid through his lands. In such a case a farmer on the other side who wants to purchase water may find it impossible to do so. At the very least the seller and potential purchaser whose lands are not adjacent to the seller’s may have to negotiate with the reluctant farmer. Although such a case of refusal was not found in this fieldwork the possibility cannot be denied.

Next is the question of legalising these water markets. This measure may result in the entry of ‘big operators’ into rural areas like in urban areas. In urban areas the big operators have entered this sphere by installing pumpsets of high capacity sometimes up to 40 HP. Water extracted using the pumpsets is supplied in tankers to urban areas at exorbitant rates in the range of Rs 3,000-5,000 per tank load of water. A similar situation may arise in rural areas if the big operators are allowed to tap water. This step may well lead to rapid deterioration of the prevailing situation.

In the case of surface water, the Karnataka Irrigation Act has provisions regarding location of wells in the command areas, cropping pattern, and penalty provisions for violation of both cropping pattern as well as location of wells etc. But the implementation of these provisions has not been satisfactory. Irrigation department officials attribute this to shortage of staff in the department and also pressure from politicians and farmers’ representatives. What is clear is that water, essentially a public good, is being privatised. Its implications are obvious. It is necessary for the state to intervene and prevent the privatisation of a public good.