Chapter 11. Co-managing electricity and groundwater allocation in Gujarat, India1

Flat tariffs for electricity to pump groundwater and informal water markets

The decades since 1970s saw a spectacular increase in the use of electrical pumps to abstract groundwater. These increased by 585% during the period 1970-2001 to close to 350 000 pumps5 (Shah et al., 2008). Initially, the Gujarat Electricity Board (GEB) charged farmers using electrical pumps based on their metered consumption of electricity. This scheme soon turned out to have certain disadvantages, such as high transaction costs and growing corruption linked to billing and metering. Moreover, the scheme was highly contested by farmers, who complained about the arbitrary nature of meter readers. Consequently, the GEB replaced it in 1988 by a scheme based on flat electricity tariffs linked to horsepower of pumps. As a result, the marginal cost of electricity consumption fell to zero and tube well owners were still not charged for the groundwater resource itself. This provided them with a strong incentive to sell groundwater to neighbours that did not possess their own wells. A dense informal groundwater market developed, with prices being pushed down by competition among the sellers. This greatly benefitted poor smallholders, who did not possess their own wells, leading to great access to groundwater for smallholder irrigation (Shah and Verma, 2008). As an increased number of farmers gained access to larger quantities of groundwater, agricultural productivity expanded.

Conversely, the flat tariff scheme negatively impacted farmers in the sense that they were obliged to pay for electricity consumption all year long, including during seasons where the use of water for irrigation was minor. For GEB, the flat tariff scheme resulted in declined metering and billing costs, but increasingly high costs of electricity subsidies, resulting from the rising electricity consumption (Shah and Verma, 2008). The flat tariff remained constant while consumption and actual costs rose. In 2000-01, the electricity subsidies made up as much as 56% of the fiscal deficit of Gujarat (Cullet, 2014).

The unsustainable increase in water withdrawals, the increasing consumption of electricity and the growing fiscal deficit were major drawbacks to the flat tariff scheme. GEB attempted to increase the flat tariff, but fell short of doing so because of strong opposition by farmers’ lobby groups (Shah et al., 2008). As groundwater levels dropped, well owners invested in bigger pumps, aggravating the existing problems. The groundwater overdraft was a stark concern already in the mid-1980s, and groundwater depletion assumed the proportions of a crisis in certain areas of Gujarat during the 1990s (Shah et al., 2008) (Figure 11.1).

Figure 11.1. Sharp rise in irrigation from groundwater in Gujarat, 1971-2001

Source: Shah et al., 2008.

During the 1990s, GEB began limiting the number of hours of power supply per day.6 However, unintentionally, this also impacted the power supply for domestic users, as agricultural and domestic power was fed through the same system. As a result, the villages were left with weakened and unpredictable access to electricity (Shah et al., 2008; Shah and Verma, 2008)

The Jyotigram Scheme, 2003-06

Based on scientific evidence and recommendations made by the International Water Management Institute, GEB chose to combine the flat electricity tariffs with the introduction of rationing and real-time co-management of electricity and groundwater for agriculture. The new scheme was named “Jyotigram” – “the light of the village” (Shah et al., 2008). Launched during the period 2003-06, the scheme entailed separating the power supply for agricultural use from that for commercial and residential use, which required an investment of about USD 290 million (Shah et al., 2008). The total rewiring of Gujarat was a complicated process, yet by 2006, 90% of all 18 000 villages in the state were integrated in the scheme (Shah and Verma, 2008). With a functional parallel supply network put in place, it was possible to implement targeted rationing: the non-farming sectors were given access to 24 hours full-voltage, metered power supply seven days a week, while the farmers were provided with 8 hours full-voltage supply per day, at predictable times. The power supply to farmers remained highly subsidised, whereas the supply for non-agricultural use is charged based on metered consumption (Grönwall, 2014).

The Jyotigram scheme brought numerous advantages to the non-agricultural sectors in Gujarat which enjoy continuous access to power at full voltage. Farmers now have improved predictability and strength of power supply. This has allowed them to maintain their irrigation schedules so as to use labour more efficiently, conserve water, and save on pump maintenance costs. Furthermore, the Jyotigram scheme is estimated to have resulted in a 37% reduction in farm power use for tube wells from 2001 to 2006. This allowed for a decrease in aggregate farm power supply, thus a considerable improvement of GEB’s financial viability. The aggregate farm power subsidy fell from USD 788 million in 2001-02 to USD 388 million in 2006-07 (Shah et al., 2008). From having had annual losses of between USD 119 and 550 million in 1999-2003, due to subsidy expenses, GEB ended up gaining a surplus of USD 50 million in 2006, and was considered to have performed the best power management in all of India (Shah et al., 2008).

Further, no decrease in agricultural yield has been observed in Gujarat (Rayfuse and Weifelt, 2013). During the seven years following the implementation of the scheme, agricultural GDP in the state rose by close to 10%, the highest in India, an increase that can be attributed to a broad range of factors (Planning Commission, 2012; CGIAR, 2012).7

While it is impossible to measure exactly the impact of the scheme on groundwater level (Shah et al., 2008), groundwater levels in the north of Gujarat have been rising by an average of four meters annually during recent years, compared to an annual drop of three meters per year before the launch of the scheme (Gupta, 2011). Another study indicates that the drop in water tables has at least slowed, albeit not everywhere across Gujarat (Narula et al., 2011).

However, there are some drawbacks to the scheme. For several farmers, the investment in a tube well was made viable by the fact that they could run it during 18-20 hours per day and sell groundwater on the informal market. The Jyotigram scheme obliged them to end this activity, thus reducing their income. The limitation to water pumping has also negatively impacted farmers who do not possess their own tube wells, as their access to groundwater now comes at a higher cost. Since well-owners can no longer pump unlimited amounts of water, the quantity of water being sold on the informal market is now more restricted, thus more expensive (Shah et al., 2008). Cash sales of pump irrigation water on informal markets have increased by 40-60% since the Jyotigram scheme was implemented, and several poorer farmers, not possessing their own tube wells, have been obliged to reduce their total area of irrigated land (Shah and Verma, 2008).