In the News: Reforming Energy Subsidies Could Curb India’s Water Stress

From Worldwatch Institute: Water scarcity is a global problem, as demonstrated by the recent droughts across the U.S. Midwest and the Horn of Africa. And it is projected to become increasingly widespread in the coming years: the 2030 Water Resources Group estimates that by 2030, one-third of the world’s population will live in regions where demand for water exceeds supply by more than 50 percent.

The rapidly growing and urbanizing global population will need more natural resources, especially water, to feed and sustain itself in the coming years. The effects of climate change will only exacerbate water scarcity. A rise in sea levels will increase the salinity of already-limited freshwater resources. Changing weather patterns will further polarize rainfall levels around the world: according to climate experts, many wet regions will see more rain and increasing flood risk, while many dry regions will experience less rainfall, increasing the frequency of drought.

India’s water woes

Although water scarcity is a global concern, some countries, such as India, are more affected than others. Home to 1.2 billion people, India struggles to feed 17 percent of the world’s population with just 4 percent of the world’s freshwater resources. More than 85 percent of India’s villages and over half of its cities rely on groundwater for agriculture, domestic use, and industry, but overuse has resulted in sinking water tables. Despite relative scarcity, India is the largest freshwater user in the world.

Water levels of India’s dams are falling to record lows. According to an analysis by NASA hydrologists, India’s water tables are declining at a rate of 0.3 meters per year, and between 2002 and 2008 more than 108.37 cubic kilometers of groundwater disappeared—double the capacity of India’s largest surface water reservoir. Decreasing levels of dams and rivers could lead to political conflict within the country, as well as conflict with neighboring countries, such as Bangladesh and Pakistan.

In India, agriculture is responsible for approximately 90 percent of domestic water withdrawals, placing strain on the country’s limited freshwater resources. Farmers continue to employ inexpensive—but highly inefficient—flood irrigation systems, which often lose more than 50 percent of water to evaporation and runoff. Flood irrigation increases soil salinity, and the resulting runoff pollutes groundwater and leads to the loss of nutrients. Stagnant water in flooded fields also provides a breeding ground for pests and diseases.

Flood irrigation was popularized in India following the advent of the Green Revolution of the 1960s. Proponents of the revolution believed that breeding high-yielding crops and using irrigation and chemical inputs would enable rural and low-income farmers to increase yields, improving food security and food equity. The main focus was on cereal grains, which are generally water intensive and require farmers to irrigate. Flood irrigation, which uses low levels of technology and labor, was the easiest method for Indian farmers to adopt, particularly since many lacked access to infrastructure such as canals.

The water-energy nexus: tubewells, subsidies, and overconsumption

To irrigate their new, high-yielding crops, Indian farmers began using tubewells, five-inch pipes that are bored into the ground and pump water to the surface. In most cases, tubewells require electricity for powering the pumps. According to the International Water Management Institute, the number of electric tubewells in use in India has increased dramatically from less than 1 million in 1980, to 12 million by 2001 and more than 15 million in 2010.

As farmers transitioned to using tubewells, the Indian government began to subsidize much of the energy cost associated with pumping groundwater. These subsidies remain in place today, long after the transition period ended, using up government funds and perpetuating inefficient water use in agriculture. India spends over US$6 billion on energy subsidies annually, and it is estimated that farmers pay only 13 percent of the true cost of electricity.

Before 1970, government electricity subsidies were metered. Meters installed with tubewells tracked water use, and electricity companies charged citizens, farmers, and businesses a fee based on volume of water used. Local State Electricity Boards subsidized portions of these tariffs, although policies (and subsidy levels) varied by region. Following the significant increase in irrigation during the Green Revolution, it became increasingly challenging to install, monitor, and maintain meters. In addition to a vast increase in the number of tubewells, the expansion of irrigation to rural areas made it difficult for electricity companies to monitor and repair meters. Some consumers also illegally tampered with meters and attempted to collude with electricity employees for lower tariffs, which created additional problems for electricity suppliers.

In the 1970s and 1980s, most electric companies switched to flat tariffs to avoid the increasing challenges of metering. Flat tariffs charge water consumers a flat rate, usually based on the horsepower of the pump, regardless of water use. While less labor intensive for electric companies, this approach can present problems of efficiency and equity. Since farmers pay a flat price for water usage, they frequently over-extract groundwater and flood their fields with more water than is necessary for their crops. As water tables drop, consumers must extract water from greater depths, which increases dependence on energy subsidies to power tubewells. Water from deeper wells also frequently contains higher levels of arsenic, fluoride, and other harmful chemicals, presenting dangers to human health, particularly in rural areas where residents have no alternative source of drinking water.

The debate over subsidy reform

Many worry that if Indian electricity costs were to increase, low-income farmers who are struggling to pay current electricity bills would be put out of business. Some also argue that agricultural energy subsidies are necessary to ensure that farmers have the resources to grow enough food to feed India’s rising population. Farmers, who comprise some 58 percent of India’s total population, keep significant pressure on politicians to avoid raising agricultural energy tariffs, which would in turn increase irrigation costs. Few if any government officials want to take the political risk of subsidy reform.

Proponents of subsidy reform maintain that agricultural energy subsidies are not economically feasible, noting that the government spends more on energy subsidies than on higher education or health care. Electricity companies and State Electricity Boards (SEBs) are losing significant profits, with many operating at an annual loss. According to the Organisation for Economic Co-operation and Development’s 2011 Economic Survey of India, the gap between revenues and costs in the energy sector was nearly $6 billion between 2008 and 2009. This annual loss leaves little incentive for electricity companies or SEBs to invest in new plants or infrastructure. Lack of new infrastructure, combined with population growth and wasteful electricity use, is contributing to frequent blackouts throughout India.

Boosting irrigation efficiency

Inefficiency presents an opportunity for considerable reform in India’s agricultural sector. Replacing traditional flood irrigation with methods such as drip irrigation would increase water conservation by dramatically reducing surface runoff and deep percolation losses. In drip irrigation, perforated pipes are placed either above or slightly below ground and drip water on the roots and stems of plants, directing water more precisely to crops that need it. According to the U.S. Geological Survey, correctly managed drip irrigation can result in less labor and fertilizer use, less waste, less water lost to evaporation, and higher yields than traditional flood irrigation. A case study in India by the Consultative Group on International Agricultural Research (CGIAR) found that drip irrigation has field-level application efficiencies of between 70 and 90 percent, in contrast with the less than 50 percent efficiency of flood irrigation. Cutting water usage can in turn save energy, as less electricity is required to pump groundwater.

Some of India’s states have implemented experimental energy reforms. Energy subsidy reform in the state of Gujarat, for example, is showing signs of success. The Jyotirgram scheme (JGS) enacted in 2003, helped to significantly reduce farm electricity subsidies and groundwater withdraws. JGS separated tubewells between famers and non-farmers. Households and non-farm businesses are given 24-hour access to electricity. Meanwhile, farmers are given access to tubewells for crop irrigation for only a certain period of the day, usually eight hours. The ability to switch tubewells on and off allows the government to adjust water usage based on need. During dry spells, tubewells can be switched on for longer periods, and during the monsoon season, tubewells can remain off for larger intervals.

An International Water Management Institute (IWMI) study shows that JGS had numerous positive effects: decreased subsidy spending, decreased periods of power outage, and increased water conservation. However, the study also suggests that JGS had disproportionately negative effects on many farmers, as tubewell owners face increased water prices in response to higher energy costs. IWMI researchers also wonder whether farmers will need a longer irrigation period each day to sustain their crops during periods of drought or light monsoon seasons.

Another solution implemented in some states, including West Bengal and Uttarakhand, is to reinstate the practice of metering tubewells. Metering systems charge users based on the amount of water they use, in lieu of a flat fee. Such systems can more equitably distribute the cost of water: those who use the most pay the most. A major obstacle to metering, however, is the investment required to hire staff and purchase the resources necessary to monitor meters and collect payments.

Impacts of subsidy phase-outs

The OECD’s 2011 Economic Survey of India cautioned that many (especially low-income) farmers are reliant on the status quo of subsidies that has been in place for decades, noting that approximately one-quarter of India’s population lives below the poverty line. Based on the survey’s findings, the OECD proposed a gradual phasing out of current subsidies, while simultaneously providing a subsidy program to those identified by the government as living below the poverty line. This would allow time for citizens to adjust to possible increases in electricity prices, and reduce the risk of low-income farmers going out of business.

A 2012 guide to India’s energy subsidies, published by the International Institute for Sustainable Development (IISD) also encourages a gradual phase-out, as well as support for low-income households, as part of reform. IISD added that communication will be an important element in promoting public awareness and acceptance of the potential effects of subsidy reform. IISD recommends periodic monitoring and adjustment of the reform to continually assess its effects and to adapt policies as needed.

Any major reform of Indian energy subsidies will have widespread effects on the country’s farmers, local governments, electricity companies, and agriculture industry. However, innovative subsidy reform that incorporates the needs of all players has the potential to improve the economy, conserve natural resources, and increase food security across India.