Water: Under-Price and Wait for the Disaster
As I have written so often before, when water is priced below the market-clearing price, shortages develop at those prices (this is probably the best of my previous postings on the topic, but also see this and the others listed here).
Now we can add India to the collection. It appears that ground water, which is a common-property resource, is being pumped at a much faster rate than nature is replenishing it. And the cause is three-fold:
But it is difficult to implement policies that will reverse the current problem:
Now we can add India to the collection. It appears that ground water, which is a common-property resource, is being pumped at a much faster rate than nature is replenishing it. And the cause is three-fold:
- Water itself is underpriced:
[A]t a village called Peeplee Ka Bas... the wells have run dry and the water table fallen so low that it is too salty even to irrigate the fields.
The train came bearing precious cargo: 15 tankers loaded with nearly 120,000 gallons of clean, sweet drinking water.
The water regularly travels more than 150 miles, taking nearly two days, by pipeline and then by rail, so that the residents of a small neighboring town can fill their buckets with water for 15 minutes every 48 hours.
It is a logistically complicated, absurdly expensive proposition. Bringing the water here costs the state about a penny a gallon; the state charges the consumer a monthly flat rate of 58 cents for about 5,300 gallons, absorbing the loss. - And so is the electricity used to operate the pumps:
Electric pumps have accelerated the problem, enabling farmers and others to squeeze out far more groundwater than they had been able to draw by hand for hundreds of years.
The spread of free or vastly discounted electricity has not helped, either. A favorite boon of politicians courting the rural vote, the low rates have encouraged farmers, especially those with large landholdings, to pump out groundwater with abandon.
With the proliferation of electric pumps ...it took only 20 years for [one farmer's] groundwater reserves to sink to their current levels. Twenty more years of the same policy could be catastrophic. - And of course the lack of property rights to the water contributes to the problem:
Indian law has virtually no restrictions on who can pump groundwater, how much and for what purpose. Anyone, it seems, can — and does — extract water as long as it is under his or her patch of land. That could apply to homeowner, farmer or industry.
But it is difficult to implement policies that will reverse the current problem:
- Voters want low water prices (and expect the gubmnt to subsidize them), and so long as water prices are low, people use too much water.
- Voters want low electricity prices (and expect the gubmnt to subsidize them), and so long as electricity prices are low, people use too much electricity and pump too much water.
- And, sadly, politicians who allow prices to rise often face problems being re-elected.
Category: Economics, Price Controls Posted on
Monday, October 2, 2006 at 12:36am
<< main
