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.
S  ( EOf & M  rK f  K f  Raf ) / H
S  ( EOf &M  Raf ) / H
Raf  Rsf
0  1
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.
• 54th round of the Indian NSS from 1998 to
infer how subsidies are distributed across
agricultural households.
Incidence of Canal Irrigation Subsidies
All
Andhra Pradesh
Karnataka
Maharashtra
Rajashthan
Uttar Pradesh
All-India
20
16
5
10
12
13
% of Ag HHs using canals
Marginal Small Medium Large
13.36
7.38
2.07
3.39
8.96
8.16
3.36
3.77
1.47
2.34
2.16
2.36
1.67
2.77
0.76
2.03
0.95
1.33
1.53
1.72
0.37
2.65
0.39
0.85
Distribution of HH using canals (%)
Distribution of canal irrigated area (%)
All Marginal Small Medium Large All Marginal Small Medium Large
100
100
100
100
100
100
67
47
44
33
72
64
17
24
31
22
17
19
8.37
17.7
16.3
19.5
7.59
10.5
7.7
11
7.9
25
3.1
6.7
100
100
100
100
100
100
34.32
17.15
21.62
8.64
39.8
26.7
23
22
33
10
24
21
16.7
25.8
23.5
16.3
20
20.4
26.1
35.6
21.5
64.6
16.1
32.2
Example from Maharashtra
• Actual O&M spending in 1997/98: Rs. 4.31
billion
• 82% of surface water used in irrigation. O&M
share of farmers Rs. 3.52 billion.
• Receipts from water revenue: Rs. 816 million;
Cost recovery from irrigation Rs. 246.5 million.
60% collection efficiency.
• Subsidy = Rs. 3.27 billion. Average subsidy
Rs. 10,685/ha.
• Assuming 100% collection efficiency average
subsidy Rs. 10,149/ha.
Maharashtra
Canals-ALL
All
Marginal
Small
Medium
Large
Canals-ST_SC
All
Marginal
Small
Medium
Large
Average farm % of Ag
size
HHs
2.00
0.50
1.36
2.55
6.80
4.67
2.07
1.47
0.76
0.37
Average farm % of Ag
size
HHs
1.70
0.51
1.32
2.52
6.71
0.87
0.65
0.14
0.08
0.00
Average farm % of Ag
Canals-OTHER size
HHs
All
Marginal
Small
Medium
Large
2.09
0.50
1.38
2.56
6.81
3.80
1.43
1.33
0.68
0.37
% of HH
using canals
100.00
44.43
31.40
16.32
7.85
% of HH
using canals
18.56
13.84
2.93
1.80
0.00
% of HH
using canals
81.44
30.59
28.47
14.52
7.85
% of
Benefits
100.00
21.62
33.39
23.51
21.48
% of
Benefits
11.31
5.30
3.27
2.74
0.00
% of
Benefits
88.69
16.32
30.12
20.77
21.48
Subsidy/HH
11371.06
5533.79
12092.33
16378.60
31110.32
Subsidy/HH
6927.31
4354.23
12697.37
17332.11
Subsidy/HH
12383.98
6067.35
12030.11
16260.58
31110.32
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.