Water Policy 8 (2006) 1-13

Water in the economy of Tamil Nadu, India: more flexible water allocation policies offer a possible way out of water-induced economic stagnation and will be good for the environment and the poor

Ramesh Bhatia, John Briscoe, R. P. S. Malik, Lindy Miller, Smita Misra, K. Palainisami and N. Harshadeep

Corresponding author. Resources and Environment Group, SU-125 Vishakha Enclave, New Delhi, India, Tel: 650 638 1560, Fax: 650 506 1236, rameshbhatia77@yahoo.com

The World Bank, 70, Lodhi Estate, New Delhi, India

The World Bank, 70, Lodhi Estate, New Delhi, India, ; Agricultural Economics Research Centre, University of Delhi, Delhi, India

Harvard University, USA

The World Bank, 70, Lodhi Estate, New Delhi, India

Water Technology Centre, Tamil Nadu Agricultural University, Coimbatore, India

The World Bank, Washington, D.C.

The state of Tamil Nadu, India, is in the grips of a water crisis, with demand far outstripping supply. As the economy of the state grows, this crisis is going to become ever more serious. To date the focus of state water policy has been on trying to augment supplies, from within the state (even from desalinization) and from neighboring states. In addition, the water use is regulated in a way that does not encourage the highest value uses. International experience shows that supply-side measures must be complemented by demand-side measures and that practice must move away from fixed, command-and-control allocation policies towards flexible allocation mechanisms, which facilitate the voluntary movement of water from low to high-value uses. This study addresses the question of whether such a change in allocation policies is worth doing. It addresses this question by developing optimization models for each of the 17 river basins in Tamil Nadu (including an assessment of the economic value of water in different end-uses – agriculture, domestic and industry), then using an input–output model embedded in a social accounting matrix (SAM), to assess the impact of these changes on the state economy and on different rural and urban employment groups. The results suggest that a shift to a flexible water allocation system would bring major environmental, economic and social benefits to the state. Compared with the current “fixed sectoral allocation” policy, a flexible allocation policy would, in 2020, result in 15% less overall water used; 24% less water pumped from aquifers; 20% higher state income; with all strata, rich and poor, benefiting similarly, with one important exception, that of agricultural laborers.

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