TCS Daily

India's Woe Over H2O

By Roger Bate - August 11, 2004 12:00 AM

Water is rarely a political topic in rich countries, and in most developing ones it only reaches the national media when its delivery becomes a problem. But India is something of an exception. It has both serious water problems and politicians that are routinely fired for not delivering voters this most precious substance. India desperately needs water reform, and especially privatization, but even the current Indian government -- the most free-market oriented realistically imaginable -- is unlikely to try to tackle hydro-politics.

There are two most remarkable statistics about Indian water: over one million children die from water-borne diseases every year and illegal water trading realizes over $1 billion in value. What is perhaps not surprising is that these two issues are inter-related. Few Indians (perhaps 30%) have access to decent sanitation and high quality drinking water. Not only does this expose the majority to dangerous dysenteries and other water-borne disease, but it provides back-breaking toil for those (usually women and children) who have to collect it every day. The indirect costs are even more staggering with salinity levels rising in so much irrigation water that crops fail, farmers commit suicide (over 500 year this so far) and thousands of the poorest starve.

However, widespread famines no longer occur. Nobel Prize winning economist Amartya Sen wrote an influential paper about the Bengal Famine of 1947, and his book Poverty and Famines: An Essay on Entitlement and Deprivation (Oxford University Press) explained that part of the reason for that famine was the poor had no entitlement over the food or land on which it was grown. Food was controlled by large farm cooperatives, and hoarded and traded to the highest bidder by unscrupulous private traders. The poor in India have virtually no property rights, as land was owned then by the British Government and today the Indian Government.

The lack of title over land, and especially over water, is the central reason for misallocation of water, which causes crops to fail and the poor to have no potable water or sanitation. Change to allow individual property rights over water is unlikely anytime soon. As a local former civil servant puts it: "The administration only takes decisions that benefit administrators." Aid is either absorbed by the delivery mechanisms (the consultants and advisers, their equipment and research costs), or is pilfered. One canal in the region of Rajasthan is fifteen years behind schedule and has no completion date.

Indians are proud to be part of the world's largest democracy, but given the elitism in their society they are also part of the world's largest rent-seeking, politically manipulative and bureaucratically stifling society the world has ever seen. It is against this history that the new administration of Prime Minister Manmohan Singh and Finance Minister Paliannapan Chidambaram are faced when they try to instill greater private role in land and water ownership.

The corporate rent-seekers want more funding for new delivery systems (dams, canals, aqueducts etc.), but it's the institutional structures that need the Ministers' attention. They should start by legalizing farmers' trading of their de facto water rights. An Indian water study funded by the World Bank in the late 1990s found that an astonishing amount of trading was taking place of farmers' water allocations. The estimate -- inevitably speculative given that trading is illegal -- was that the value created was over $1 billion a year. Given that water quotas are historically allocated and rarely changed, trading allows water to go to those who can use it most productively (and hence will pay for it). Before trading was widespread, inefficient farmers would use the water relatively unproductively; now they can sell the water to someone else.

Unfortunately they cannot do this permanently because they cannot legally sell their right. This stops investment in less polluting and less wasteful irrigation (and other) techniques by more efficient farmers since they cannot be certain that they will be able to use the water after the current season.

Given that the vast majority of water (over 75%) is used in farming in India, establishing tenure is the most important policy action the Singh administration can take. If water was used better in farming there would be far more water available for the poor. Indeed in other countries where rights have been defined and traded, water for the rural poor has increased in volume and lowered in price. Aside from making economic sense, there is a moral imperative for such reform as better quality water reduces disease and death.

However, demanding greater water tenure would upset the powerful members of the 12-party coalition headed by Prime Minister Singh. The Communist party would definitely leave the coalition were even partial privatization of water tried. And there is little demand for change in the capital. Water for the middle class in Delhi is sold at 10% of its delivery cost, and since there are no meters there are no incentives to conserve. Delhi residents use far more water than even those in rich western countries. The slum dwellers a few miles away pay ten times as much for unclean water.

Given the coalition structure, policy change is extremely unlikely. It will probably take a massive water failure in a politically important region with hundreds of thousands of deaths before policy will change.

Roger Bate is a visiting fellow of the American Enterprise Institute. He is working on a book about water markets.


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