Why not WATER CREDIT like the carbon credit?- Some perceived “Fire Walls”

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The guiding Hypotheses

  1. Commercialization & capitalization of ground water markets is easier than surface water “markets “
  2. Enough surface water without any conditions attached is available for Commoditization-capitalization and Commercialization

Context: India continues to struggle with growing financial crunch to complete its water sector infrastructure and its operation and maintenance cost. On the other hand, inadequate institutional reforms and effective implementation has affected its performance level. In recent years, the Government of India has initiated several steps to improve investment and management of water management sector, which includes: Accelerated Irrigation Benefits Programme, Hydrology Project, setting up of Water Quality Assessment Authority, Command Area Development and water management programme, National Project for Repair, Renovation and Restoration of Water Bodies directly linked to Agriculture, Flood Management, and River Basin Organizations. Growing demand across competitive sectors, increasing droughts, declining water quality, particularly of groundwater, and unabated flooding, inter-state river disputes, growing financial crunch, inadequate institutional reforms and enforcement are some of the crucial problems faced by the country’s water sector. Availability of safe drinking water is inadequate. Severe water shortages have already led to a growing number of conflicts between users (agriculture, industry, domestic), intra-state and inter-state. Emerging challenges include management of existing infrastructure and of the water resource itself. Water reform in India mostly focuses on organizational issues rather than the instruments that govern the relationship between the regulator and the user. 

Given this context, the above stated hypotheses need to be validated by dousing the following firewalls in order that an enabling environment is created including the universally accepted methodology for capitalizing and commercializing the surface water potential towards promoting and availing the benefits of “water credits” –the concept of which is yet to find its currency in the “water markets “.


Fire wall- 1: Provision of canal irrigation and water supply services in India has largely remained with the government agencies. Absence of enforceable water entitlements at all levels is at the root of service shortcomings, water use inefficiency, and unregulated groundwater extraction, negligence of traditional and low-cost water bodies, financial problems and conflicts which plague the water sector. Faced with poor water supply services, farmers and urban dwellers have resorted to helping themselves by pumping out groundwater, which has led to rapidly declining water tables; in coastal areas this trend has led to salinity ingress. Financial crunch has also led to an enormous backlog of maintenance and thereby, inadequate performance levels of irrigation projects. Distortion in pricing of water services has further induced substantial overall economic costs by enlarging the gulf between prices and costs. Some of the causal factors are: inadequate revenue generation, chronically under-funded Operation and Maintenance (O&M) costs, revenues not channeled directly to expenditure, inappropriate prioritization of government expenditures.

Firewall-2 : It is obvious that the industrial and domestic water requirements are a fraction of the irrigation water needs but industries also release effluent to streams increasing maintenance costs. Increased efficiency in service delivery requires structural, non structural and financial linkages between water supply, sanitation and waste water to achieve adequate cost recovery and sustainable operation and maintenance. Cost recovery is needed for water supply, sanitation and waste water treatment. Financial incentives might be built into tariffs for municipal water supply system operators and for industries which set up effluent treatment plants to protect water bodies, however, such a proposal is contrary to the ‘polluter pay’ principle

Firewall-3: After independence, the Government of India gave high priority to the construction of major irrigation related infrastructure. At present, India has a capacity to store about 200 billion cubic meters of water, a gross irrigated area of about 90 million hectares and an installed hydropower capacity of about 30,000 megawatts (World Bank, 2005). These investments in turn have largely impacted the economic and social development of the country.

Firewall-4 : Assured water supplies have consistently increased crop yields on irrigated land than yields from rainfed agriculture thereby promoting national food security. Similarly, investments in construction of large dams have resulted in ‘direct benefits’ in terms of providing both groundwater irrigation and hydropower, which in turn generate both inter-industry linkage impacts and consumption-induced impacts on the regional and national economy. Increased generation of electricity and irrigation from a multipurpose dam result in significant ‘backward’ linkages (i.e., demand for higher input supplies) and ‘forward’ linkages (i.e., providing inputs for further processing). In addition, as incomes rise, there is a further feedback loop deriving from increased demands for goods and services.

Firewall-5: Out of 5723 assessment units (Blocks/Mandals/Talukas) in the country, 839 units in various States have been categorized as ‘Over exploited. In addition 226 units are ‘Critical’. There are 550 semi-critical units, where the stage of ground water development is between 70 per cent and 100 per cent (MoWR, 2007). The Central Ground Water Authority (CGWA) has notified 20 severely critical/over exploited areas in the country for regulation of groundwater development and management. This restricts the scope for further capitalization of ground water markets

Firewall-6: Water is state subject in India and so far no regulatory reforms in terms of setting up an independent regulator have been carried out in water sector at central level. While at the state level, some steps have been taken to set up independent autonomous bodies to regulate the sector or at least a link between government and utilities in a transparent manner (the experiences of states vary in practice)

Firewall-7: The current approach to water pricing for domestic, industrial and irrigation uses is compartmental, with different institutions dealing with each of them.

Firewall-8 : For levying water rates, the irrigation sources are classified into two categories. Any source of irrigation coming under Major & Medium Irrigation Projects is designated as Category–I source. Sources of irrigation other than Major & Medium Irrigation Projects are classified under Category-II source. Further, the crops are classified as Wet crops, Dry crops and Double crops. Different water rates are charged for (a) first or single Wet crop, (b) second or third Wet crop, (c) first irrigated Dry crops, (d) second or third irrigated Dry crops and (e) Double crops. For each of these types of crops, water rates are different for category-I and category–II sources of irrigation. (CWC, 2010)

Firewall-9: There exists a policy to remit the water tariff in case of natural calamities like floods, droughts, hale-storms; pest-attacks

Firewall-10 : According to 13th Finance Commission, the average receipts on irrigation have been estimated on cost recovery basis at 23 percent of the non-plan revenue expenditure. The Commission states that this is very low and needs to be enhanced to 25 percent in 2010-11, 35 percent in 2011-12 to 45 percent in 2012-13 and to 60 percent by 2013-14 and then finally 75 percent in 2014-15 (Central Water Commission, 2010). Most of the States and Project Authorities / Corporation remained unsuccessful in realizing even the O&M costs of irrigation systems despite initiatives taken by the Union Government and strong recommendations.

Firewall-11 : The low cost recovery is attributable to low water rates levied by the States and the incompetence of the existing mechanism to ensure full and timely collection of the assessed revenue. A revision in the level and structure of Water Rates as well as strengthening of revenue collection machinery is necessary both in the interest of efficiency and equity. A rational price structure, periodic review/ revision of water rates and due & timely recovery of water charges are essential to ensure availability of more reliable services and also in the process to promote savings, create disincentives for wastage and there by provide for expansion of services.

Firewall-12 : There is increase in cost every year on account of inflation but there is no provision in the Water Rates in most of the States to take care of this important cost rider which also needs to be inbuilt into the water rate structure

Firewall-13: The Water rates presently being charged from the users are highly subsidized and have resulted in low revenue realization. The revenue realization from water charges has proved so meager and much lesser than even the recurring O&M charges, having adverse impact on ensuring satisfactory and adequate maintenance. There is an urgent need for a review and restructuring the water rates to ensure full recovery of recurring O&M cost initially and a part of capital cost subsequently (Central Water Commission, 2010).

Firewall-14 : There is considerable diversity in the mechanism for collection of Irrigation Water Revenue. In some States, the assessments as well as collection of the Water Revenue are handled by the Irrigation Department. In other states, assessment is done by Irrigation Department whereas collection is in the domain of the Revenue Department. In some other States assessment as well as collection are the responsibilities of the Revenue Department. There are also States and UTs where no irrigation water rates are levied and consequently no mechanism for collection of water revenue exists

Firewall-15 : Fear of financial viability: Maintenance and operation of the system demands huge finances. Farmers have got the apprehension that in absence of surety of finance, it would be difficult for them to fulfill the requirement of funds for operation and maintenance. They feel that when Government is not able to handle the system with huge money available with them, how farmers would be able to do justice?

Firewall-16: The ongoing discourse on structural, non structural and financial linkages between Water supply, sanitation and Waste Water; cost recovery( include water supplies, sanitation and waste water treatment costs) and about giving financial incentives for users of municipal waters and to industries to set up effluent treatment plants, restrcits the entry of water credit concept

Firewall-17 : The debate on incorporation of ‘polluter pay’ principle to generate revenues leading to maintenance of water bodies is the besides

Firewall-18: The more crucial concern is not who gets the water but how that water transforms the demand for inputs, especially labor (which is provided primarily by the landless and marginal farmers).. Fundamentally, the demand for agricultural labor is 50% to 100% higher on irrigated land (World Bank, 2005). Irrigation essentially implies higher and much more stable employment, especially for the poor marginal and landless farmers (Chambers, 1998). At the national level, an analysis of the association between poverty and irrigation (percent of cropped area irrigated) in 54 national sample survey regions shows that in irrigated districts the prevalence of poverty is about one-third of that in unirrigated rural districts (World Bank, 1991).

Firewall-19 : Similarly, the relationship between electricity availability (mostly from hydropower) and poverty is also found to be strong. The major water infrastructure designed in India, to provide a platform for regional and national economic growth, has been found to be an important platform for the substantial reductions in poverty and it is actually the poor and landless who have been the biggest beneficiaries (World Bank, 1991).

Firewall-20: In respect of water used for industrial purposes, specific water rates have been laid down ( enforceable from 13/7/2000)  when water is utilized from natural sources/ rivers or when water is utilized from sources like irrigation projects, canals, tanks etc. Domestic users in Bangalore pay subsidized rates for their consumption (Rs 1800 per million cu.ft if the source of water is from natural sources /river and it is Rs 3200 per million cu.ft if the source of water is from irrigation projects/canals)

Firewall-21 : In respect of water used for Irrigation, Water rates are fixed based upon the type of crops grown, whether wet or semi-dry, duration of the crops, number of watering required till crop maturity etc. etc., keeping in view the requirement of water for each crop. The water rates for different seasons namely, Kharif, Rabi and summer is the same. For new irrigation works, no water rates are levied for the first two years, after completion and Commissioning. In the third year 50% of the water rates are levied and from the fourth year onwards full water rates as specified for the State Government are charged. The Government of Karnataka has revised the water rates for Flow irrigation with effect from 13th July 2000. No separate water rates are specified for Lift irrigation schemes. The rates for Minor irrigation (Atchkat) are the same as that of Major irrigation

Firewall-2 2 : lack of data on water pricing is a common problem in almost all the states in India and the reasons are not far too seek. Firstly, there are many departments performing the same task under different programme schemes: For example take the case of drinking water; rural development department, Panchayat department, irrigation department, and so on not only implement the drinking water scheme but in many cases also maintains the works, lays the pipeline and carry out maintenance work. Therefore, it is difficult to calculate the total O&M expenses. Even within a department like irrigation, O&M expenses also include labour charges (called as work charge) making it further complex.

Firewall-23 : Water has been seen as a common heritage or as a common pool resource, and the supply and use of water has traditionally been a domain of public entities at the national, regional or local level, this traditional model is being challenged. The bias against the private appropriation of water along the lines of private property rights regimes established for other resources is increasingly being challenged in policy and law.

Firewall-24: Discourse and discussion on water sector restructuring, including regulatory, environmental (water quality), and human rights aspects, as well as other related issues such as the links between water and agriculture and the situation in India regarding the social, environmental and economic problems stemming from water restructuring and commoditization of water for cash compensation

The above are not meant to discount the scope for working out a methodology for availing water credits but to be aware of certain road blocks in our journey towards availing “water Credits” ..( (Information compiled and reproduced from multiple source ) t

Above are some triggers for futher reflection and discussion on promoting the concept of "Water Credits"