BS3: FINANCING OF IRRIGATION PROJECTS 6 th April, 2016 INDIA WATER WEEK by R. K. Agrawal Senior General Manager

Contents Introduction Capital and Working Expenses & Status of Projects ( ) Financial Implications of On-going Projects of XI Plan Existing Sources of Funding Irrigation Projects Accelerated Irrigation Benefits Program (AIBP) Problems in Irrigation Financing Supplementing Financial Resources

INTRODUCTION

CAPITAL AND WORKING EXPENSES (1992 – 2014)

CAPITAL EXPENDITURE, WORKING EXPENSES AND GROSS RECEIPTS OF MAJOR & MEDIUM IRRIGATION PROJECTS IN ALL INDIA 36,59,713 Lakhs 21,85,308 Lakhs

CAPITAL EXPENDITURE, WORKING EXPENSES AND GROSS RECEIPTS OF MINOR IRRIGATION PROJECTS IN ALL INDIA 10,09,319 Lakhs 6,22,237 Lakhs

CAPITAL EXPENDITURE, WORKING EXPENSES AND GROSS RECEIPTS OF COMMAND AREA DEVELOPMENT IN ALL INDIA 60,709 Lakhs 89,070 Lakhs Nil

 Major & Medium Projects For Utilised Potential: For Unutilised Potential:  Minor Irrigation Projects: (Utilised Potential) For Special Category States : 60% Extra OPERATION & MAINTENANCE COST (PER HECTARE PER ANNUM)

1452 Nos. Completed up to XI Plan 326 Nos. Spilled over projects in XII Plan 86 Nos. New Projects of XII Plan COMPLETED MAJOR, MEDIUM & ERM PROJECTS

553 Nos. Number of Projects Thousand Crores Estimated Cost mha Likely Creation of Irrigation Potential FINANCIAL IMPLICATIONS OF ON-GOING PROJECTS OF XI PLAN

A. MAJOR AND MEDIUM PROJECTS  Budgetary resources of state governments  Central loan assistance  Major medium & ERM Schemes  Schemes under AIBP  EXISTING SOURCES OF FUNDING OF IRRIGATION PROJECTS Share of Centre & State For General Category States - 2:1 For Special Category States - 3:1 Projects under fast track programme are fully funded by Central Government General Category States - 70% Loan & 30% Grant Special Category States – 10% Loan & 90% Grant

 External Funding  World Bank  Asian Development Bank  JICA etc.

B. MINOR IRRIGATION PROJECTS  Institutional Finance  NABARD  MNREGA  CADA  Banks (e.g. State Bank of India, State Bank of Hyderabad, State Bank of Bikaner, Punjab National Bank, Union Bank of India etc.)  Central assistance under AIBP for Special Category states  Farmers own investment especially for ground water pumping

C. MICRO IRRIGATION  For Sprinkler and Drip Irrigation, bank loan up to 85% of Project Cost.  Financing also available under Accelerated Irrigation Benefits Programme (AIBP)

Programme Launched in 1996 – 97 Number of Schemes Covered: 297 Central Assistance released upto 3/2015 : Thousand Crores Irrigation Potential Created: 8.09 Mha ACCELERATED IRRIGATION BENEFITS PROGRAM (AIBP)

A. Capital works  Limited resources of central and state governments  External funding available only occasionally for a few projects  Private sector funding is negligible – Mainly for micro irrigation of select cash crops B. Operation and Maintenance  Under Non-plan, mostly to meet establishment cost  Very little funds for actual maintenance  Irrigation water charges are very low  Collection of water charges is very poor PROBLEMS IN IRRIGATION FINANCING

 Project Construction at relatively more difficult sites. Most of easier sites have already been developed.  More stringent requirements for planning and design of projects to address increased demands for  Environmental Safeguards  Social Safeguards  Disaster Management  Challenges of dealing with the adverse impacts of climate change on water resources FINANCIAL REQUIREMENT FOR FUTURE PROJECTS It would be much more than those of projects completed so far due to:

 Increasing cost of land acquisition  Political, administrative and technical problems of projects on international rivers (e.g. Pancheshwar on Mahakali, Kosi High Dam etc.)  Cost Escalation due to delays  Interstate disputes on sharing of river waters  Cost Escalation due to long delays

National Commission for Integrated water resources development Plan has recommended:  Reforms of Existing Arrangements  Exploring New options SUPPLEMENTING FINANCIAL RESOURCES

i) Funding by NABARD State governments should take measures to ensure recovery of loans from the farmers ii) Strengthening Water Users Associations For operation and maintenance of Minors Collect revenue from individual beneficiaries iii ) External funding may be improved through improved project management with focus on: Proper Utilization of funds Ensuring quality assurance Timely completion of the projects Post project evaluation of benefits REFORMS OF EXISTING ARRANGEMENTS

iv) Integrating Rural Development Programmes with Water Resources Sector v) Rationalizing water changes and ensuring full recovery vi) Promoting private sector participation Cost recovery methods, water rates allowed and guarantees, if any should be specified Improvements in the procedure for clearance of projects. Procedures should be simplified as much as possible to promote private sector participation. Obligation of the government and the private sector should be clearly spelt out in the agreement. Provision should also be made for settlement of disputes and arbitration.

Some incentives should be offered to the private sector including avenues to augment revenues Framing of a definite policy and its adoption by the National Water Resources Council may be essential for implementing this concept Various combinations of building, owning (of Structure etc.), operating, leasing and transferring of projects may be considered. The exact type may be decided by the states as considered appropriate by them

i) Water Equity or Bonds Success would depend on full recovery of irrigation water charges ii) Commercial exploitation of land such as Development of recreational facilities in the vicinity of Reservoirs/Dams iii) Promoting Commercial uses of water such as: Allocating dedicated storages in existing and future dams for Industry EXPLORING NEW OPTIONS

THE WAY FORWARD

To develop an Action Plan Short term Mid Term Long Term CONSULTATION WITH FINANCIAL INSTITUTIONS AND PRIVATE SECTOR

Focus on Demand side Management to reduce burden on Financial Resources Minimize wasteful uses of water Improve water use efficiency through technological up gradation, capacity building and institutional strengthening LAST BUT NOT THE LEAST