Please join us virtually for our next installment of the Seminar Series on the Indian Economy featuring our speaker Disha Gupta of Indira Gandhi Institute of Development Research (IGIDR) Mumbai and discussant Sudatta Ray of Yale-NUS College.

Paper title: Pricing Farm Electricity, Water Use and Efficiency: The Case of Paddy Cultivation in Punjab, India

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. This paper estimates the reduction in groundwater pumping under volumetric pricing of farm electricity for Punjab where farm electricity is free. The author uses 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. The paper finds 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 the 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, findings show 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. Finally, the author quantifies the average lump-sum subsidy that can be given to farmers as direct transfers to keep their surplus unchanged and shows that this can be financed within the system using collections done by the state electricity board from pricing electricity.

This seminar series is organized by the 21st Century India Center at the UC San Diego School of Global Policy and Strategy (GPS). For more information on India activities, please visit india.ucsd.edu.