Irrigation pricing narayanamoorthy

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Irrigation pricing narayanamoorthy

  1. 1. Pricing and Financial Aspects of Irrigation Water in India Dr. A. Narayanamoorthy Reader Gokhale Institute of Politics and Economics Pune - 411 004 (India) E-mail: na_narayana@hotmail.com Tel: 020-5650287; Fax: 020-5652579
  2. 2. Basis for sanctioning irrigation projects <ul><li>British era: </li></ul><ul><ul><li>Projects were taken purely on financial consideration </li></ul></ul><ul><ul><li>The financial rate of return was fixed in the range of 4% to 6 % till 1949 </li></ul></ul><ul><ul><li>Peripheral (gross impact) benefits were ignored </li></ul></ul><ul><ul><li>Rules and regulations were relaxed because of series of famines and two tired policy for construction of irrigation projects was introduced </li></ul></ul><ul><ul><li>productive and protective schemes were introduced </li></ul></ul><ul><ul><li>Projects were allowed to come up in drought and famine prone areas, even if they did not satisfy strict financial criteria. </li></ul></ul>
  3. 3. Basis for sanctioning irrigation projects <ul><li>Post-independence period: </li></ul><ul><li>- Rate of return was reduced from 6% to 3.75% in 1949 </li></ul><ul><li>- D R Gadgil committee in 1964 recommended economic benefit should be prime criterion, instead of financial rate of return </li></ul><ul><li>- B-C ratio was recommended and fixed at 1.5 </li></ul><ul><li>- Second Irrigation Commission (1972) relaxed this criterion for drought-prone areas and fixed BCR at 1% </li></ul><ul><li>- But cost recovery was not improving because of BCR. </li></ul><ul><li>- In 1983, Nitin Desai Committee recommended IRR criterion instead of BCR. </li></ul><ul><li>- IRR was fixed at 9% for normal areas, 7% was recommended for areas with hills, drought-prone areas. </li></ul>
  4. 4. How is the price of irrigation water fixed in India? <ul><li>It is one of the sensitive issue in irrigation sector </li></ul><ul><li>No systematic and uniform rules are followed in setting price for irrigation water </li></ul><ul><li>Prices are fixed by a mix of social, economic and political factors </li></ul>
  5. 5. Main Criteria followed for Fixing Water Price <ul><li>Farmers ability to pay (determined by output) </li></ul><ul><li>Volume of water used (area irrigated) </li></ul><ul><li>Quality of irrigation (dependability, season) </li></ul><ul><li>Recovery (at least to cover OM cost) </li></ul>
  6. 6. What is the current pricing system? <ul><li>Varies with the seasons </li></ul><ul><li>Varies with the crops </li></ul><ul><li>Varies with states (water a state subject) </li></ul><ul><li>Rate is fixed based on area irrigated </li></ul><ul><li>Volumetric pricing is not followed. </li></ul>
  7. 7. Guidelines Suggested by the Second Irrigation Commission (1972) for Fixing Water Rates <ul><li>Water rates should be related to the benefit rather than to the cost of irrigation projects </li></ul><ul><li>Since irrigation requirements vary not only from crop to crop but also from different seasons, the quantity of water supplied is also relevant. </li></ul><ul><li>Adequacy and dependability of supply are important considerations in fixing irrigation water rates. </li></ul><ul><li>Irrigation is the only one of the basic inputs used by the farmer and it is difficult to evaluate the precise contribution that it makes to the farmer’s net gain. Hence, water rates, on a crop basis,should be fixed between 6 and 12% of the gross income , the gross income being easier to calculate. The higher limit of 12% for cash crops and the lower one (6%) for food crops. </li></ul>
  8. 8. Second Irrigation Commission Guidelines Continues…... <ul><li>In fixing water rates for the different crops the state policy in respect of cropping needs to be kept in mind. </li></ul><ul><li>Ordinarily, there should be no disparity in water rates between one project and another. But when there is a marked difference in the quality of service, there can be differential rates. </li></ul><ul><li>Water rates should be revised every five years . </li></ul><ul><li>Water rates should be levied on a crop basis, except in the case of irrigation tubewells. </li></ul><ul><li>In raising water rates, groups of neighbouring states must have a common policy . </li></ul><ul><li>In canal commands where the State has to supply water by lifting it, rates charged should be higher than the rates for gravity flow to take in to account additional cost of lifting. </li></ul>
  9. 9. Statewise water rates and working expenses:1995-96
  10. 10. WE, GR and Water Rates (ha) of IMPRVP 6/04/1977 37-124 8 470 15. WB 18/09/1995 30-474 21 484 14. UP 1/07/1962 3-62 27 846 13. TN 24/05/1999 27-607 65 888 12. Rajasthan 14/02/1997 abolished 20 217 11. Punjab 5/04/2002 28-930 30 256 10. Orissa 1/9/2001 180-4763 130 3050 9. Maharashtra 15/06/1999 124-741 87 516 8. MP 18/09/1974 37-99 33 442 7. Kerala 13/07/2000 37-989 53 2014 6. Karnataka 1/4/2000 20-49 6 319 5. JK 27/07/2000 86-198 94 683 4. Haryana 16/2/2001 70-2750 346 4768 3. Gujarat Nov.2001 74-371 76 375 2. Bihar 1/7/1996 148-1235 6 1556 1.AP Date since applicable Water Rate (Rs/ha) GR (Rs/ha) in 1999-00 WE (Rs/ha) in 1999-00 States
  11. 11. Gross Receipts from Major and Medium Irrigation Projects Relative to Productivity of Irrigation
  12. 12. Relative Share of Administration and Maintenance Expenses in Total Working Expenses in Major and Medium Irrigation Projects: 1974-89.
  13. 13. Financial Performance - India <ul><li>GR (1993-94 prices) of IMPRVP declined Rs. 562 crore to 1976-77 to Rs. 250.7 crore in 1999-00 </li></ul><ul><li>WE increased from Rs. 605.2 crore to Rs. 4378.3 crore during this period. </li></ul><ul><li>Recovery rate plunged in to single digit within 24 years, during mid-seventies RR was touching 100%. </li></ul>
  14. 14. Financial results of IMPRVP: India Source: CWC (2004), Water and Related Statistics. 5.7 7980.2 457.0 1999-00 10.3 4819.0 498.2 1995-96 9.2 2476.3 228.9 1990-91 46.0 486.9 223.8 1985-86 45.8 225.7 103.4 1980-81 92.9 112.8 104.7 1976-77 GR/WE*100 WE (Rs. crore) GR (Rs.crore) Year
  15. 15. Financial Results of IMPRVP, All India, (in1993-94 prices)
  16. 16. Recovery rate in IMPRVP in India: 1974-75 to 1999-2000
  17. 17. Financial Condition across States <ul><li>Considered both developed and less developed states for analysis </li></ul><ul><li>Three time points: late 1980s, early 1990s and late 1990s were considered </li></ul><ul><li>RR declined across the states </li></ul><ul><li>RR appears to be far better in MP & Orissa compared to Punjab, Haryana &TN </li></ul><ul><li>Situation worsened after early 1990s </li></ul><ul><li>Steep increase in WE was found in all states, which reduced RR substantially </li></ul>
  18. 18. Financial results of IMPRVP- selected states 3.02 299.05 9.05 Late 1990s   2.59 84.80 2.20 Early 1990s   2.00 72.45 1.45 Late 1980s Tamil Nadu 9.03 188.10 17.00 Late 1990s   16.03 91.40 14.65 Early 1990s   23.69 71.75 17.00 Late 1980s Punjab 15.40 62.75 9.50 Late 1990s   24.00 20.80 4.90 Early 1990s   35.00 14.75 5.10 Late 1980s Orissa 3.07 1541.15 47.65 Late 1990s   3.63 546.20 19.80 Early 1990s   5.80 399.35 23.15 Late 1980s Maharashtra 0.42 1082.55 4.60 Late 1990s   8.32 376.20 31.30 Early 1990s   5.03 403.25 20.30 Late 1980s AP RR (%) WE GR Year States
  19. 19. Recovery Rate in Selected States
  20. 20. Why does recovery rate decline? <ul><li>Literature says it is mainly because of low and unrevised water rates </li></ul><ul><li>Low water rate alone is not responsible for low RR (example, Maharashtra state) </li></ul><ul><li>WE increased steeply over the years </li></ul><ul><li>Vaidyanathan committee: “the staff component has been increasing over the years and leaving progressively less funds for physical maintenance. Deliberate efforts are called for bring down the staff costs substantially” </li></ul><ul><li>Large share of water rates demanded is not actually realised physically. </li></ul>
  21. 21. Questions to be addressed? <ul><li>Why is the recovery rate declined? </li></ul><ul><li>Is recovery declined because of low water rates? </li></ul><ul><li>What are reasons for the huge increase in O&M costs? </li></ul><ul><li>Is there any guarantee for better performance even after increasing the price of water? </li></ul>
  22. 22. Trends in GR, WE and RR of IMPRVP (in 1993-94 prices) 12.83 a 10.44 a -2.40 a 1976-77 to 1999-00 -6.19 a 3.11 a -3.09 ns 1990-91 to 1999-00 -17.12 a 11.72 a -5.41 a 1976-77 to 1989-90 Growth Rate (% per annum) 5.73 4378.30 250.70 1999-00 9.34 3227.40 301.30 1989-90 92.86 605.20 562.00 1976-77 RR (%) WE ( Rs. Crore) GR ( Rs. Crore) Year/period
  23. 23. Demand raised, actual collection and arrears of irrigation charges in MMI sector, selected states, TE 1990-91 (Rs.in lakh) Na 80 234 WB Na 5703 6179 UP -- -- 337 TN 115.93 Na 1150 992 Punjab 44.65 Na 417 934 Orissa 70.54 7325 1341 1901 Maharasht 60.20 6859 1475 2450 MP 120.26 1151 1389 1155 Haryana 65.42 3347 719 1099 Gujarat 45.30 3593 463 1022 Bihar (3)/(2)x100 (5) Arrears (cumulative) (4) Actual collection (3) Demand raised (2) States (1)
  24. 24. Extract of the Report on Committee on Pricing of Irrigation Water (1992) <ul><li>The under pricing of water adversely affects the availability of resources for the management of irrigation systems </li></ul><ul><li>Revision of water rates should go hand in hand with measures to improve the quality of service and to keep a check on costs. </li></ul><ul><li>Water rates should be based on O&M norms and capital charges. </li></ul><ul><li>Water rates interms of head and tail reaches of a system, soil quality or other criteria should be approached with considerable caution as they are difficult to apply and will add to the complexity of water pricing. </li></ul><ul><li>Two-part tariff can be applied: flat annual fee (membership), variable fee linked to the actual extent of service (volume or area) </li></ul>
  25. 25. Extract of the Report on Committee on Pricing of Irrigation Water (1992) <ul><li>Full-fledged volumetric pricing cannot be introduced immediately. The rationalization of water pricing will have to be accomplished in a phased manner: </li></ul><ul><li>Phase I - rationalize and simplify the existing system of assessment. </li></ul><ul><li>Phase II - to shift to a fully volumetric system. </li></ul><ul><li>Phase III - consolidate the system of farmer group management, increasing the efficiency of water use and to use more sophisticated techniques for water management. </li></ul><ul><li>The staff component has been increasing over the years and leaving progressively less funds for physical maintenance. Deliberate efforts are called for bring down the staff costs substantially. </li></ul>
  26. 26. Policy Options for improving the Financial Performance <ul><li>Accountability in working expenses </li></ul><ul><li>Revising water rates on regular basis </li></ul><ul><li>Pricing should be based on ability to pay principal. </li></ul><ul><li>Volumetric pricing wherever possible </li></ul><ul><li>Transfer of irrigation management </li></ul>

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