Large swathes of India will soon run out of groundwater, which could threaten food security for millions. Letting markets play a greater role will bring about efficiency and help avert the looming crisis.

A new study has found that by 2025, large swathes of north-western and southern India will have “critically low groundwater availability.” As a result, winter crop harvests could decline by 20 percent nationwide, and 68 percent in the worst hit regions. Even if groundwater is replaced by alternative irrigation methods such as canals, harvests could still decline seven percent nationwide and 24 percent in worst hit areas. This could threaten food security for millions, the authors warn.

Water shortages occur not because there isn’t enough water in the environment, but rather because water is wasted in enormous quantities. The agricultural sector accounts for 80 percent of India’s water demand every year.

The authors of the study identified the regions running out of groundwater are the ones where farmers mostly cultivate wheat and rice, two of the most water intensive crops. A lot of excess wheat and rice is grown in India, so a tremendous amount of water is wasted.

The government encourages farmers to grow more than is needed via Minimum Support Prices (MSPs). In order to supplement the incomes of poor farmers, the government sets price floors for wheat and rice. Whatever stock private traders don’t buy at those prices, the government does.

In June 2020, the government had 83.2 million tons of wheat and rice. This is two to four times the amount it needs to provide subsidised foodgrains to the poor. The excess is either diverted to low-value uses such as ethanol production or simply left to rot.

Rather than buying less to correct this excess, the government has expanded procurement of these water intensive crops. Instead of MSPs, directly giving poor farmers money would be a better way to help them, since it wouldn’t distort prices and encourage wastage of groundwater. It would also ensure that benefits actually go to poor farmers, unlike MSPs which mainly benefit wealthy farmers.

Another policy which encourages waste is state governments providing free electricity, which is used to pump out groundwater. If farmers had to pay for electricity, they would be more mindful of their usage and not extract more water than absolutely necessary. The government’s own economic survey admitted this, way back in 2016.

Finally, the problem with groundwater is that it is owned collectively rather than individually. Since no one in particular owns it, there is no price for wasting it, and no incentive to discourage waste by others.

By contrast, if groundwater aquifers were owned by private companies, they would be protected against depletion. A private water company would want to maximise profits. Therefore, on observing a decline in the water table, it would raise prices to reflect the lower supply.

Farmers, on having to pay for every litre of water they use, would have to switch to less water intensive crops, and implement irrigation techniques which require less water. This would slow the consumption of water and allow time for the water table to naturally recharge.

Those worried that farmers might be exploited by corporations should keep two things in mind. One, we want farmers to use less water, and them having to pay for it will help. Two, the government could set up companies to own aquifers, and distribute all shares of the companies to the farmers. Thus, farmers themselves would be the owners of the water companies. They would still have to pay for the water they use, but they would also receive their share of profits from these companies. Even under this scenario, each farmer would have an incentive to reduce water usage as much as possible to maximise their own profits.

Apart from creating a legal framework to enable private ownership of water bodies, there are a few additional steps which the government must take to help water markets thrive. For instance, it could privatise the water supply in urban areas as well. Urban residents, especially wealthy residents, consume a lot of water on a daily basis while the poor can’t get enough.

Making city folk pay for water will ensure less wastage. It will also increase competition, since more customers would mean more companies could operate profitably. Competition breeds innovation, which is necessary to ensure that as little water is wasted as possible, and consumers get the best possible prices.

Another good policy would be to exempt the water supply industry from taxes until it matures sufficiently. This would give an additional incentive for entrepreneurs to enter the market and speed up the process of making water usage sustainable. When the tax holiday expires, even the government will have an incentive to make sure that water markets thrive, yielding tax revenues to be used in other areas.

The way forward is to ultimately let markets play a much greater role in deciding how water is used. As long as the government is in charge, politicians will always have an incentive to buy votes with favours such as free electricity or MSPs, and farmers will have an incentive to exploit groundwater without regard for the future. Only the market can align the incentives of various stakeholders to ensure that groundwater is used sustainably and avert or at least mitigate the looming crisis.

Jairaj Devadiga is an economist specialising in public policy and economic history.

This article is published under a Creative Commons License and may be republished with attribution.