Water trading opportunities and irrigation technology choice: An example from south India

Farmers as well as rural and urban consumers in India are facing water shortages. There is a need to increase efficiency in the supply and use of water. In this context, we consider the potential of a market in water, for improving water management in a small river basin wherein sixteen villages are the primary beneficiaries of a reservoir on the Varaha River.Using secondary data and observations from a household survey, we estimate the financial implications to farmers of shifting from traditional methods of cultivation, in four different scenarios (shifting to a better technology for cultivation, shifting to a dry land crop, shifting to short term cash crops, or leaving the land fallow).Our model suggests investing in better technology and less water intensive crops would not only benefit the farmers, adding to their income by selling the “saved” water, but also provide a cost efficient alternative water supply option to the government. Given that informal water markets already exist in the study area, formal transactions in water within the ambit of markets will not require a completely new institution and would be a 'win-win' situation for both the Government and the participating farmers.