The following article of mine with Samir Saran appeared in the Lowy Interpreter on 6 May 2016. Original here.
While droughts can be written off as an ‘act of god,’ the fact that the ongoing drought in India has acquired its current intensity is a reflection of the sorry state of economic governance and planning in this country.
This state of affairs has its origin in four structural problems that plague India’s political-economic system at large, and are of immense consequence when it comes to managing India’s water:
- The continued use of government-mandated support prices and subsidies for farm produce and farmers.
- The de facto orientation of infrastructure projects towards industry, and not for lifeline support.
- The perverse effects of the rural employment guarantee schemes.
- The absence of innovation and finance around fresh-water recycling, desalination, and river-linking schemes, as well as the continued dominance of revenue expenditure over capital expenditure for the rural sector
The negative externalities of agricultural subsidies
India is the second-largest producer of sugar in the world after Brazil. Last November, India’s cabinet approved a US$173 million subsidy for sugar cane producers supplying mills that export sugar and produce ethanol. This subsidy would, in effect, make sugar and ethanol produced in India cheaper relative to other countries, and thus make it more competitive at a time when the global commodities super-cycle is at an all-time low.
Such subsidies, along with mechanisms like government-guaranteed minimum support prices for agricultural products, incentivise producers to cultivate commodities that are natural-resource intensive. It is not an accident that Maharasthra, India’s biggest sugar-producing state, finds itself hit the hardest by the current crisis. The drought in the district of Marathwada, a region which accounts for 25% of the state’s sugar output, is the worst since 1972.
Temples for the few, and the lucky
India’s first Prime Minister, Jawaharlal Nehru, once called dams the temples of modern India. It now transpires that these temples only serve a select few through a system of rent-seeking and patronage. The Jayakwadi dam in Maharastra is one of the largest of its kind in Asia. It was created in 1965 with the express purpose of providing relief to the drought-prone Marathwada district. Instead it seems, as India’s Agriculture Minister has claimed, that the biggest beneficiary of this dam is the sugar industry. Meanwhile 89 irrigation projects in the state have been on hold for more than 20 years.
It is not uncommon in India for these projects to be approved to placate certain sections of the population. Synching the approval and completion of lifeline projects to the electoral cycle leads to the kind of unmitigated disaster India is witnessing today. This electoral pandering, coupled with abysmal short-sightedness, leads to a situation where Maharastra has 1845 dams (35% of all dams in the country), yet only 18% of agricultural land is irrigated (compared to the national average of 47%).
Wither rural employment guarantees?
But construction of dams and other large-scale irrigation engineering projects is only part of the solution. A sustained effort must be made to renew and rejuvenate traditional water bodies and harvesting systems.
The previous government’s much-vaunted rural employment guarantee (MNREGA) scheme took as its goal the provision of employment to the rural poor by directing surplus labour towards infrastructure projects. In principle, MNREGA should have been the perfect vehicle through which traditional water works could have been maintained. Instead, MNREGA has distorted labour markets by disincentivising rural industries and jeopardising the income potential of the most vulnerable. Meanwhile, the scheme continues to bleed money. In 2006-07 (the first year of the scheme’s implementation), MNREGA allocation stood at US$1.53 billion. By 2010-11, the heyday of last government’s populism, it had reached an astonishing US$6.2 billion. The Modi Government seems to have fallen for the same trap: MNREGA’s budget estimate for the current financial year stands at US$5.8 billion.
The sad fact is that despite India’s considerable success in achieving food security (through the Green Revolution), very little effort has been made since to push India’s agricultural products up the value chain, which would have increased rural income as well as reduced the vulnerability of India’s farmers to climatic shocks such as the ongoing drought. Instead of infusing private capital and public infrastructure into the sector, a system of patronage through doles and waivers continues, which seriously compromises the very people it ostensibly seeks to protect. The archaic mechanism of minimum support prices continues to drain the exchequer while insufficiently contributing to the laudable goal of subsidising food. In 2011-12, the procurement subsidy accounted for 85%1 of all food subsidy. Under the Modi Government, this has come down to 43%2, a worthy first step.
Meanwhile, rural capital expenditure has fallen from US$71.3 million3 in 1999-2000 to a measly US$9 million4 in 2015-16. The sharpest drop happened between 2006-2007 and 2008-2009, from US$49 million5 to US$14.6 million6 — not surprising since between these two years, MNREGA allocations jumped three times. Even in irrigation and flood control, revenue expenditure growth overwhelmingly dominates capital expenditure growth: between 1998-1999 and 2015-2016, the former grew by 21%7 while the latter grew by 4%8 .
The need for large-scale innovation
A key challenge of a rapidly growing urban India will be the sustainability of its cities.
Modern India has never shied away from espousing faith in technology to meet its national challenges – a legacy of Nehru’s vision. However, as is the case with most ambitious national projects, the time-lag between announcing a vision and actually implementing it is often unacceptably large. An ambitious project to link 37 of India’s rivers in the north and the south is a case in point. First announced in 1982 by then Prime Minister Indira Gandhi, this project had laid dormant for more than 33 years, to be once again taken up by Prime Minister Narendra Modi last year. But opposition remains rife, from the usual coterie of nay-sayers who have a vocal anti-technology stance in the name of environmentalism. This view carries political weight in India.
It is estimated that India’s water demand will rise to 1180 billion cubic litres by 2050, more than 1.6 times the current consumption. The increase in demand for fresh water will be exacerbated by the dwindling water table. A government that plans for the future ought to incentivise the entry of the private sector into large-scale desalination plants that caters to cities along the coasts. For this to be commercially viable, the target cities should be empowered to generate more revenue. Industrial demand for fresh water is increasing at 8% annually while India’s large cities alone generate close to 40,000 million litres of sewage every day. Recycled water can also be directed towards agriculture as Israel does with 86% of its waste water contributing to farm irrigation.
If the government’s ambitious renewable energy targets are an indication of national will, large-scale deployment of desalination technology may not be out of reach.
1 Based on calculations derived from Yearly Account of Department of Food And Public Distribution 2011-12 and Food Subsidy, Expenditure by Broad Categories, Expenditure Budget, Union Budget 2012-13.
2 Based on calculations derived from Yearly Account of Department of Food And Public Distribution 2014-15 and Food Subsidy, Expenditure by Broad Categories, Expenditure Budget, Union Budget 2015-16.
3 Based on calculations derived from Expenditure budget for Ministry of Rural Development (Department of Rural Development 2000-01 + Department of Land Resources 2000-01) and Ministry of Agriculture (Department of Agriculture Cooperation 2000-01 + Department of Animal Husbandry, Fisheries and Dairying, 2000-01).
4 Based on calculations derived from Expenditure budget for Ministry of Rural Development (Department of Rural Development 2016-17 + Department of Land Resources 2016-17) and Ministry of Agriculture (Department of Agriculture Cooperation 2016-17 + Department of Animal Husbandry, Fisheries and Dairying 2016-17).
5 Based on calculations derived from Expenditure budget for Ministry of Rural Development (Department of Rural Development 2007-08 + Department of Land Resources 2007-08) and Ministry of Agriculture (Department of Agriculture Cooperation 2007-08 + Department of Animal Husbandry, Fisheries and Dairying 2007-08).
6 Based on calculations derived from Expenditure budget for Ministry of Rural Development (Department of Rural Development 2009-10 + Department of Land Resources 2009-10) and Ministry of Agriculture (Department of Agriculture Cooperation 2009-10 + Department of Animal Husbandry, Fisheries and Dairying 2009-10).
7 Calculated using Budget Provision by Heads of Accounts- Revenue 1999-00 and Budget Provision by Heads of Accounts- Revenue 2016-17.
8 Calculated using Budget Provision by Heads of Accounts-Capital 1999-00 and Budget Provisions by Heads of Accounts- Capital 2016-17.