Costs of Resource Degradation Externalities – A Study of Groundwater Depletion in Andhra Pradesh

V. Ratna Reddy
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.