Promoting energy and water efficiency in irrigation through direct and indirect incentives

Groundwater irrigation has revolutionised agriculture in India, but in many areas, over-extraction is now worsening water quality, increasing poverty, and overloading the electric grid. Meanwhile, plenty of water- and energy-efficient techniques and technologies exist – such as micro-irrigation – but adoption remains low. What is the best way for governments, utilities, NGOs to encourage water and energy conservation? Two commonly proposed solutions are:

• Direct incentives for conservation: Impose a per-unit price on water or energy consumption. (This is the most theoretically efficient solution if the main problem is that farmers fail to consider the costs to others when they pump groundwater, possibly due to flat-rate electricity prices and unmonitored access to groundwater.)
• Indirect incentives for conservation: Subsidise adoption of micro-irrigation and/or other resource-efficient technologies. (This is the best policy if farmers still under-invest even when these technologies are individually beneficial – possibly due to factors such as limited information, credit constraints, or present bias.)

In this pilot study, we will offer both types of incentives – direct and indirect – to farmers in coastal Saurashtra, a region of Gujarat where groundwater depletion poses a serious threat to agricultural livelihoods. Then, in a follow-on, larger-scale randomised controlled trial, we will evaluate the effectiveness of these two policy solutions for water conservation and learn which factors may be most important in explaining under-investment in micro-irrigation.

The results of this pilot study will be used by our partner organisations – the Coastal Salinity Prevention Cell and the Aga Khan Rural Support Programme (India) – to design the larger-scale study and also to guide future programs to promote efficient irrigation practices. The results of our full experiment will be of interest for policymakers concerned with groundwater management and rural electricity service in Gujarat, the rest of India, and beyond. By evaluating indirect incentives and comparing them to direct incentives, we will inform whether the currently widespread government subsidies for micro-irrigation are the most cost-effective approach. In addition, our project may serve as a “proof of concept” for a politically palatable model of water pricing.