Free Power, Irrigation and Groundwater Depletion: Impact of the Farm Electricity Policy of Punjab, India, Agricultural Economics, 2023
[Journal Article] [Working Paper]
Abstract: This paper examines the impact of a change in the policy regime from flat rate to free farm electricity pricing, introduced in Punjab, India in February 1997 using a difference-in-differences framework. Based on village-level data from the second and the third rounds of the Minor Irrigation Census, the study finds a differential increase in the number of electric-operated tubewells and horsepower load of pumps in Punjab as compared to an agriculturally-similar and neighbouring state, Haryana, which is taken as the control group. Through these channels, the study finds that the average groundwater depth increased by 1.9 meters more in Punjab as compared to Haryana, which is 22 per cent of the baseline average groundwater depth in Punjab. Nationally-representative well-level data on groundwater depths from the Central Ground Water Board shows impact heterogeneity with sharper effect on groundwater depth for wells that are lying closer to the cut-off of about 10 meters where a technological shift from centrifugal to submersible pumps is required to maintain access to groundwater pumping.
How to cite this article: Gupta, D. (2023). Free power, irrigation, and groundwater depletion: Impact of farm electricity policy of Punjab, India. Agricultural Economics, 54, 515–541. https://doi.org/10.1111/agec.12773
Pricing Farm Electricity, Water Use and Efficiency: The Case of Paddy Cultivation in Punjab, 2024 [Link]
Abstract: There has been a declining trend in groundwater depths in India and subsidies on farm electricity contribute to over-extraction of groundwater raising concerns about its sustainability for irrigation. In this paper, we estimate the reduction in groundwater pumping under volumetric pricing of farm electricity for Punjab where farm electricity is free. We use parcel-level cost of cultivation data from the Ministry of Agriculture for 2011-12 to 2013-14 to estimate the production function for paddy using the instrumental variable approach. We find that the estimated marginal product of water function is relatively flat at the level of the average water application. The average marginal product of water is 34 kilograms for an additional thousand cubic meters of water per hectare, which is very low. Simulations show that increasing the price of electricity from current level of zero to the true cost of electricity supply leads to sharp cutbacks of 59 percent in water extraction using electric pumps, while the decline in average paddy yields is 11 percent, keeping all the other inputs constant. Allowing adjustment in all the inputs and assuming Cobb-Douglas production function, we find that the reduction in average groundwater pumping is even sharper at about 79 percent. However, the reduction in paddy yields roughly triples due to reduced use of other inputs. The saved up resources have the potential of being utilised for diversifying to crops with lower water requirements. Finally, we quantify the average lump-sum subsidy that can be given to farmers as direct transfers to keep their surplus unchanged and we show that this can be financed within the system using collections done by the state electricity board from pricing electricity. The paper provides an important policy framework which allows for efficient use of scarce water resources along with protecting farmers’ incomes, and ensuring food security for sustainable agricultural and economic development.
Unwatering the Fields: Analyzing Incentives for Crop Diversification amid Groundwater Crisis in India (with Archisman Mitra), IGIDR Working Paper Series, 2025 [Link]
Abstract: Groundwater depletion has become a serious concern in north-western India, particularly in Punjab and Haryana, largely due to the dominance of paddy cultivation and unsustainable irrigation practices driven by agricultural electricity subsidies. This paper aims to assess the effectiveness of current incentive strategies for crop diversification in this region introduced by the government for the reduction of groundwater over-extraction. Using the plot-level cost of cultivation data for the period 2017-18 to 2019-20, obtained from the Ministry of Agriculture & Farmers Welfare, Government of India, we show that the current proposed incentives are inadequate for shifting from water-intensive paddy to less water-intensive crops, mainly due to the higher profitability of paddy cultivation in terms of high yields and lower production costs as compared to other crops. We find that the average proportion of area under paddy that would shift to less water-intensive maize or cotton in Punjab with the current policy would be about 17–20 percent, which is 33 percent lower than the 30 percent target area set by the government. The area that would shift to non-paddy crops in Haryana would be about 11–16 percent, which is even lower. Our results show that the cash incentives required for crop diversification could be as high as 2.5 times the amount offered under the current scheme in order to shift to even the most profitable non-paddy crop. Our study highlights challenges in the implementation of the crop diversification scheme and propose alternatives.