Financing Aspects of Sustainable Water Management in India

Abstract

For nearly seven decades, the Government of India and many state governments have invested in large amounts in the irrigation sector. It is estimated that about INR 4820 billion has been spent to create an irrigation potential of 42 million hectares through major and medium irrigation (Irrigation projects are classified based on culturable command area (CCA) as major having CCA more than 10,000 hectare (ha), medium having CCA between 2000 and 10,000 ha, and minor having CCA less than 2000 ha.). And nearly one and half times of that amount is required to develop the remaining potential during the next quarter century. Such a scale of investment is not possible to be catered based on conventional investment and implementation modalities alone but would need active participation and collaboration of various stakeholders, including users, private sectors, and financial institutions.

Academic literature presents limited evidence of engaging with private sector as most initiatives are for improving efficiency and service improvements. Direct capital investment and maintaining an asset for a long period of time would need to be supported with appropriate revenue mechanisms. Involvement of other stakeholders, notably the private sector, does not have a long precedence in irrigation and drainage sector world over and particularly in India. Past experiences and learnings indicate that there is a lack of robust revenue model and conducive framework to enable better participation. All the revenue models envisage collecting monies from user charges. Given the nature of holdings, societal structures and political and institutional setups, ability to pay higher user charges is limited in India. As an illustration, a viability (financial) analysis has been undertaken to estimate the extent of user fees required to fully pay for an irrigation project. Also an assessment is done to see if any ancillary revenues would help in alleviating the user charges needed. Suggestions for developing an equitable water pricing mechanism from various studies are consolidated and presented.