An Enquiry into Equity Impact of Groundwater Markets in the Context of Subsidised Energy Pricing: A Case Study

In India, groundwater over-extraction is often linked with subsidized electricity in the agricultural sector. Proponents of electricity subsidy argue that such a subsidy helped even the resource-poor farmers to have had access to groundwater irrigation. This article explores inter- and intra-generational equity implications of groundwater markets in the context of subsidized electricity where the market enables even non-well owners to access groundwater for irrigation. The study is based on survey data collected from two districts in the state of Madhya Pradesh, India. The sample includes farmers who use electricity- and diesel-powered pumps to lift groundwater. The structure of the existing water market is examined through the determination of the water price–cost ratio. The article finds that, in the short run, water markets improve accessibility to groundwater irrigation, particularly for marginal and small farmers. With the help of this, farmers are able to mitigate water-scarcity-related vulnerabilities. However, in the long run, electricity subsidy may have negative dynamic implications by causing over-exploitation of groundwater that reduces the volume of groundwater available for future agricultural use. In other words, this article finds that, in the initial phases of the development of the water markets, there are intra-generational equity implications. However, in the advanced phases, the unsustainable extraction of groundwater could lead to inter-generational inequities.