The Incidence of Canal Irrigation Subsidies in India Mona Sur, Dina Umali-Deininger, R.S. Pathak, Bharat Ramaswami and Kihoon Lee.

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The Incidence of Canal Irrigation Subsidies in India Mona Sur, Dina Umali-Deininger, R.S. Pathak, Bharat Ramaswami and Kihoon Lee.

Objectives of the Study Use available data to identifying the beneficiaries of surface irrigation subsidies and quantify the magnitude of the subsidy captured by different groups of agricultural households. This study is part of a larger study on public expenditures and subsidies to canal irrigation. –The follow-on study will examine the issue of canal irrigation subsidies based on 3 case study sites in AP. Its emphasis will be on the measurement and allocation of subsidies among multiple users of water.

Measuring the Subsidy Analysis in this study is confined to examining financial subsidies.

Issues in Measurement Assume O&M share of farmers proportional to the volume of surface water used in irrigation. Lack of data on the interest charges and depreciation. Assume 100% efficiency in delivery. Is this valid? O&M expenditures also capture inefficiencies/overstaffing in the ID. Should users bear this cost? Canal irrigated area is for 5 principle crops. This to some degree underestimates gross cropped area irrigated by canals.

Distribution of the subsidy across farm households Canal irrigated area: area only irrigated by canals and area irrigated conjunctively with groundwater and canals. Amount of subsidy accruing to different farmers is proportional to the canal irrigated area on their farms. Can’t account for locational differences: head-enders vs. tail-enders. Quality of service reasonable and the same across farmers. Assume collection efficiency is the same across all farms. Water requirements depend on the crops grown. Charges also depend on crops grown. Hence, subsidy accruing to different farmers depends on their cropped area and crop mix.

Background Surface irrigation (canal irrigation) is subsidized all over India. Subsidies for surface irrigation arise from two factors: (i) water tariffs that are set well below the supply cost of water (or not charged at all), and inefficiencies in collecting tariffs. Subsidies have contributed to fiscal crises in Indian states, constrained resources for proper O&M and rise of multiple environmental problems. The social justification of the subsidies are also increasingly debated. How are these subsidies distributed across the population and whether they benefit the poor?

The data State budget data for 5 states: Rajasthan, Maharashtra, Andhra Pradesh, Karnataka and Uttar Pradesh. 54 th round of the Indian NSS from 1998 to infer how subsidies are distributed across agricultural households.

Incidence of Canal Irrigation Subsidies

Example from Maharashtra Actual O&M spending in 1997/98: Rs billion 82% of surface water used in irrigation. O&M share of farmers Rs billion. Receipts from water revenue: Rs. 816 million; Cost recovery from irrigation Rs million. 60% collection efficiency. Subsidy = Rs billion. Average subsidy Rs. 10,685/ha. Assuming 100% collection efficiency average subsidy Rs. 10,149/ha.

Maharashtra

Questions How problematic is the assumption that O&M costs are proportional to the volume of water used? Sunk costs (to include or not?) Subsidy/HH vs. subsidy/hectare? For follow on work: non-consumptive users.