Working Paper No. 49 March, 2003
This paper looks in to the process of environmental degradation and the resultant externalities in the context of groundwater depletion in drought prone regions. The main objective here is to estimate the costs of groundwater depletion externalities and examine the costs and benefits from groundwater replenishing mechanisms in different ecological contexts. This study shows how groundwater exploitation in India is resulting in economic losses to individual farmers apart from ecological degradation. It is argued that policies towards strengthening the resource base (abatement mechanisms) and equitable distribution of the resource (property rights) would be beneficial, economically as well as ecologically. The cost-benefit comparison is in favour of investment in replenishment mechanisms such as irrigation tanks and percolation tanks. The situation of over extraction and the resultant environmental degradation is a consequence of lack of appropriate and adequate policies (policy failure) for managing the subsurface water resources. Hither to, groundwater policies (subsidised credit, power, etc) are in the nature of encouraging private initiatives in groundwater development. While these policies helped in promoting groundwater development in the regions where groundwater development was below potential, they have led to over exploitation of the resource in fragile resource regions. On the other hand, no attempts were made (at the policy level) to strengthen the natural resource base in terms of replenishing the water table. On the contrary, groundwater development is seen as a substitute for tanks, which are the main agents of replenishment.