Water allocation between states in inter-basin water transfer in India

Abstract

In the following paper, we illustrate the proposed inter-basin water transfer in India and attempt to do an ex ante analysis of the sharing of the transferred water between the donor and the recipient states. The paper identifies that one of the possible ways of water allocation between the states could be market based. Our results also indicate that such price-based water transfer could lead to an inefficient outcome. The donor states could charge a much higher price and the buyer would buy lesser amount of water than optimal. We also investigate water allocation in a situation where a state cares about the welfare of the other states, and the political relations between the states are crucial elements influencing such altruistic concerns. We recognize the risk of hostile political relationship between the donor and the recipient state, which can affect the welfare of the latter states. We consider different scenarios of political relationship and the corresponding altruistic concerns under which the upstream states would allocate water after the river-linking project takes place. The case of water allocation between Orissa, Andhra Pradesh and Tamil Nadu is illustrated in the paper.

Keywords:

• Inter-basin water transfer
• water allocation
• market-based water transfer
• political economy

Notes

The states traversed under some of the prominent Peninsular Links area are shown in Table 2. Kerala, Bihar, West Bengal, Assam, Punjab, Chhattisgarh, and Goa have opposed the river-linking proposition. Gujarat, Karnataka, Andhra Pradesh, Orissa, and Maharashtra have only given a conditional agreement; that is, they have agreed to links where they would receive water but are opposed to those links where they would donate the water (Bandopadhay and Parveen 2003).

In order to make the problem tractable, we consider other factors influencing the excess demand, for instance price of crops, to be exogenously determined; and thus making the excess demand,ED ^j , a function of water availability only.

According to the Coase theorem, such a social planner will choose a water allocation on the Pareto efficient frontier that is equivalent to maximizing the joint benefits of the states from the water transfer (Coase 1960).