Financing Minor Irrigation Projects: A Decision Theoretic Framework to Tackle Uncertainities

Minor Irrigation Schemes such as the construction of dug wells, dug-cum-bore wells and tube wells form a substantial part of irrigation development in the Fifth Plan. The importance of these schemes can be understood from the fact that six million hectares are to be covered by minor irrigation during the plan period. To support the targets of minor irrigation programme, financial institutions have stopped up their lending. The Agricultural Refinance and Development Corporation have been playing a major role in promoting minor irrigation schemes through the financial institutions. One of the important constraints in lending for minor irrigation schemes has been the uncertainty associated with the outcome of these loans (because of the problem of failed wells) and consequent problems of recovery. This paper aims at providing a decision theoretic framework to tackle the problem of uncertainty in lending for minor irrigation schemes. The anatomy of decision theoretic approach consists of (i) alternatives, (ii) possible events which can take place in case of each alternative, (iii) probabilities associated with each possible event in case of each alternative, and (iv) a defined criterion of choice. The interactions between various elements are illustrated with the help of two examples based on the data from Mehsana district. The suggested framework is of general interest in dealing with the uncertainties in financing of dug wells, dug-cum-bore wells and tube wells. It is simple and required data are easily available at district and even at taluka level. Apart from bankers (including the regional rural banks) the framework can also be used by voluntary agencies in mitigating the hardships of those farmers who fail to strike work.