The paper analyzes the potential impacts of energy pricing on efficiency, equity and sustainability in groundwater use. The overall objective of the study is to analyze the socio-economic viability of pro rata pricing of electricity in agriculture. Specific objectives are:

• To study the impact of change in mode of electricity pricing on efficiency and sustainability of groundwater use by well owners
• To analyze the overall impact of electricity pricing on the farming system of well owners, including the economic prospects of farming 
• To analyze the impact of change in mode of electricity pricing on the functioning of water markets

The major hypothesis tested in this study is that with mounting cost of energy used for groundwater pumping, farmer would use energy and groundwater efficiently; shift their cropping system towards water efficient and high valued crops, take higher farming risks, thereby overcoming the potential negative impacts. The analysis uses empirical data on water productivity in agriculture for crops, dairying and farms, from north Gujarat, east UP and south Bihar.

The findings are as follows:

• There is a need for introducing marginal cost for electricity motivates farmers to use water more efficiently at the farm level through careful use of irrigation water, use of better agronomic inputs, optimization of costly inputs, optimization of livestock composition and careful selection of crops and cropping patterns, which give higher return from every unit of water.
• It also shows that higher cost of irrigation water because of higher energy cost will not lower net return from every unit of water used as the farmers will modify their farming system accordingly.
• Further, change in the structure of power tariff from flat rate to pro-rata will not have any adverse effects on access and equity in groundwater use. Nor will it increase the monopoly power of well owners.
• This means that in water scarce regions, it would be possible for farmers to maintain net farm surpluses at higher energy tariff by improving productivity of water use. 

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