India is the largest user of groundwater globally and as high as 85 percent of water is used for irrigation. Groundwater extraction started with the green revolution that increased  food security and reduced poverty. However, it gradually led to drastic depletion in groundwater levels. With abstraction now exceeding recharge, 28 percent of administrative blocks in India have aquifers classified as over-exploited, critical, or semi-critical.

The government has been trying to use positive incentives to reward farmers for reducing groundwater abstraction, but such policy approaches often ignore the presence of informal groundwater markets (IGMs), where wells owners supply irrigation services to other farmers for a charge, in addition to irrigating their own fields. However, there is very little information and data on IGMs in India informs this paper titled 'Positive incentives for managing groundwater in the presence of informal water markets: perspectives from India' published in Environment Research Letters.

Groundwater abstraction data is poor

Groundwater in India is abstracted from 27 million private wells that are unmetered for water and  for energy. However, much of the data on groundwater is unreliable or inadequate. For example, changes in groundwater storage can be estimated using satellites, but while this data has high coverage, it has a poor resolution and low reliability. Monitoring wells can help with high resolution and reliability, but their coverage is poor with only 15 640 being monitored for 27 million wells.

Current methods to control groundwater abstraction are ineffective

Standard market-based policy instruments such as water pricing, purchase and trade of water quotas, and fines for exceeding quotas are challenging to introduce from a cost, political and institutional perspective in the context of subsidised well-drilling and pumps, subsidised or free energy (electricity in particular) and minimal restrictions on well installation.

Regulating groundwater abstraction has historically focused on restricting electricity supply and voltage for electric pump owners and rationing subsidised fuel for diesel pump owners. However, these have not been effective at reducing groundwater overdraft.

The effect of IGMs on groundwater abstraction continues to be overlooked

Recently, federal and state governments are experimenting with positive incentive programs such as rewarding desirable behaviours rather than penalising undesirable ones that are based on payments-for-ecosystem-service approaches.  However, the success of these programmes has to take into consideration the impact of IGMs on groundwater abstraction, that continues to be unacknowledged at the policy level and overlooked in the design of these types of programs.

Data on IGM is limited

India’s National Agricultural Census and the National Sample Surveys record irrigated areas, but they do not collect information on irrigation sources. The Minor Irrigation Census records the number of groundwater wells and their ownership, but they do not have any information on whether well owners supply irrigation services to other farmers.

Limited research estimates that the share of irrigated area served by IGMs is around 80 percent in North Gujarat (largest producer of cotton and oilseeds in India), 60 percent in Uttar Pradesh (largest wheat and second largest rice producer), and 30 percent in Tamil Nadu. Overall the studies show that at least 15 percent of the country’s area irrigated by groundwater in the early 1990s was through IGMs. While experts agree that this share has increased considerably over time, there is no evidence to support this.

IGMs occur in places where farmers face barriers like high costs of well-drilling in hard rock and deep aquifers, problems in getting regulatory permits for installing wells or fragmentation of land-holdings that prevent farmers from installing wells on each plot.

While studies show that IGMs have been helpful to poor farmers and extended irrigation access to smaller, marginal farmers, who otherwise would not have been able to irrigate their crops, it is still unclear if they will continue to be pro poor in the future with the increase in competition for access to groundwater as more and more smallholder farmers gain access to groundwater and groundwater levels deplete further.

Irrigation prices in IGMs are likely to rise as pumping costs increase and against the backdrop of weakly defined rights to groundwater, the access of groundwater for irrigation among the poor may also decline and groundwater markets might only cater to those able to afford the services.

Thus, implementation of positive incentive programs in the presence of IGMs may not work and prove to be ineffective in reducing groundwater abstraction. Also designing and implementing such programs is challenging in the presence IGMs. For example, determining individual entitlements for electricity where no metering has historically existed is harder if well-owners have also been selling water to neighbours. Similarly, with grid-connected solar pumps, setting the purchase tariff for evacuated units will need to account for the income pump owners have been making from selling irrigation services to smallholder farmers in their communities.

Groundwater in India is rapidly depleting, and abstraction needs to be reduced. The livelihoods of millions of farmers is at stake, especially those who do not own wells and pumps but access groundwater through IGMs. However, positive incentive programmes still do not acknowledge the impact of IGMs on outcomes.

Data on IGM is urgently needed

While satellite data may be used to estimate changes in water storage, it is not able to separate groundwater from surface water or evapotranspiration and it can also not be used to estimate the volume of water that was applied on agricultural land at any resolution and determine the source of water.

The paper argues that the only way to understand the extent and functioning of IGMs is through survey data and India’s Minor Irrigation Census, and the National Agricultural Sample Survey can be appropriate avenues to collect representative and systematic data on whether farmers sell and purchase water, including the manner in which payments are made, and the challenges that sellers and buyers encounter.

This data would be vital for helping policy makers to understand the tradeoffs between reducing abstraction of groundwater and its welfare implications for sellers and buyers of irrigation, says the paper.