Yesterday, Members of Parliament in Lok Sabha discussed the situation of drought and drinking water crisis in many states.  During the course of the discussion, some MPs also raised the issue of ground water depletion.  Last month, the Bombay High Court passed an order to shift IPL matches scheduled for the month of May out of the state of Maharashtra.  The court cited an acute water shortage in some parts of the state for its decision. In light of water shortages and depletion of water resources, this blog post addresses some frequently asked questions on the extraction and use of ground water in the country. Q: What is the status of ground water extraction in the country? A: The rate at which ground water is extracted has seen a gradual increase over time.  In 2004, for every 100 units of ground water that was recharged and added to the water table, 58 units were extracted for consumption.  This increased to 62 in 2011.[1]  Delhi, Haryana, Punjab and Rajasthan, saw the most extraction.  For every 100 units of ground water recharged, 137 were extracted. In the recent past, availability of ground water per person has reduced by 15%.  In India, the net annual ground water availability is 398 billion cubic metre.[2]  Due to the increasing population in the country, the national per capita annual availability of ground water has reduced from 1,816 cubic metre in 2001 to 1,544 cubic metre in 2011. Rainfall accounts for 68% recharge to ground water, and the share of other resources, such as canal seepage, return flow from irrigation, recharge from tanks, ponds and water conservation structures taken together is 32%. Q: Who owns ground water? A: The Easement Act, 1882, provides every landowner with the right to collect and dispose, within his own limits, all water under the land and on the surface.[9] The consequence of this law is that the owner of a piece of land can dig wells and extract water based on availability and his discretion.[10]  Additionally, landowners are not legally liable for any damage caused to  water resources as a result of over-extraction.  The lack of regulation for over-extraction of this resource further worsens the situation and has made private ownership of ground water common in most urban and rural areas. Q: Who uses ground water the most? What are the purposes for which it is used? A: 89% of ground water extracted is used in the irrigation sector, making it the highest category user in the country.[3]  This is followed by ground water for domestic use which is 9% of the extracted groundwater.  Industrial use of ground water is 2%.  50% of urban water requirements and 85% of rural domestic water requirements are also fulfilled by ground water. IMAGEThe main means of irrigation in the country are canals, tanks and wells, including tube-wells.  Of all these sources, ground water constitutes the largest share. It provides about 61.6% of water for irrigation, followed by canals with 24.5%. Over the years, there has been a decrease in surface water use and a continuous increase in ground water utilisation for irrigation, as can be seen in the figure alongside. [4]   Q: Why does agriculture rely most on ground water? A: At present, India uses almost twice the amount of water to grow crops as compared to China and United States.  There are two main reasons for this.  First, power subsidies for agriculture has played a major role in the decline of water levels in India.  Since power is a main component of the cost of ground water extraction, the availability of cheap/subsidised power in many states has resulted in greater extraction of this resource.[5]  Moreover, electricity supply is not metered and a flat tariff is charged depending on the horsepower of the pump.  Second, it has been observed that even though Minimum Support Prices (MSPs) are currently announced for 23 crops, the effective price support is for wheat and rice.[6]  This creates highly skewed incentive structures in favour of wheat and paddy, which are water intensive crops and depend heavily on ground water for their growth. It has been recommended that the over extraction of ground water should be minimized by regulating the use of electricity for its extraction.[7]  Separate electric feeders for pumping ground water for agricultural use could address the issue.  Rationed water use in agriculture by fixing quantitative ceilings on per hectare use of both water and electricity has also been suggested.[8]  Diversification in cropping pattern through better price support for pulses and oilseeds will help reduce the agricultural dependence on ground water.[6]     [1] Water and Related Statistics, April 2015, Central Water Commission, http://www.cwc.gov.in/main/downloads/Water%20&%20Related%20Statistics%202015.pdf. [2] Central Ground Water Board website, FAQs, http://www.cgwb.gov.in/faq.html. [3] Annual Report 2013-14, Ministry of Water Resources, River Development and Ganga Rejuvenation, http://wrmin.nic.in/writereaddata/AR_2013-14.pdf. [4] Agricultural Statistics at a glance, 2014, Ministry of Agriculture; PRS. [5] Report of the Export Group on Ground Water Management and Ownership, Planning Commission, September 2007, http://planningcommission.nic.in/reports/genrep/rep_grndwat.pdf. [6] Report of the High-Level Committee on Reorienting the Role and Restructuring of Food Corporation of India, January 2015, http://www.fci.gov.in/app/webroot/upload/News/Report%20of%20the%20High%20Level%20Committee%20on%20Reorienting%20the%20Role%20and%20Restructuring%20of%20FCI_English_1.pdf. [7] The National Water Policy, 2012, Ministry of Water Resources, http://wrmin.nic.in/writereaddata/NationalWaterPolicy/NWP2012Eng6495132651.pdf. [8] Price Policy for Kharif Crops- the Marketing Season 2015-16, March 2015, Commission for Agricultural Costs and Prices, Department of Agriculture and Cooperation, Ministry of Agriculture, http://cacp.dacnet.nic.in/ViewReports.aspx?Input=2&PageId=39&KeyId=547. [9] Section 7 (g), Indian Easement Act, 1882. [10] Legal regime governing ground water, Sujith Koonan, Water Law for the Twenty-First Century-National and International Aspects of Water Law Reform in India, 2010.

After months of discussion,  the issue of FDI in retail is being deliberated in the Lok Sabha today.  In September 2012, the Cabinet had approved 51% of FDI in multi-brand retail (stores selling more than one brand).  Under these regulations, foreign retail giants like Walmart and Tesco can set up shop in India.  Discussions on permitting FDI in retail have focused on the effect of FDI on unorganised retailers, farmers and consumers. Earlier, the central government commissioned the Indian Council for Research on International Economic Relations (ICRIER) to examine the impact of organised retail on unorganised retail. The Standing Committee on Commerce also tabled a report on Foreign and Domestic Investment in the Retail Sector in May, 2009 while the Department of Industrial Policy and Promotion (DIPP) released a discussion paper examining FDI in multi-brand retail in July, 2010.  Other experts have also made arguments – both in support of, and in opposition to, the move to permit FDI in retail sales. The table below summarises some of these arguments from the perspective of various stakeholders as collated from the above reports examining the issue.

Stakeholder

Supporting arguments (source)

Opposing arguments (source)

Unorganised retail
  • No evidence of impact on job losses (ICRIER).
  • The rate of closure of unorganised retail shops (4.2%) is lower than international standards (ICRIER).
  • Evidence from Indonesia and China show that traditional and modern retail can coexist and grow  (Reardon and Gulati).
  • Majority of small retailers keen to remain in operation even after emergence of organised retail (ICRIER).
  •  Unorganised retailers in the vicinity of organised retailers saw their volume of business and profit decline but this effect weakens over time (ICRIER).
  • Other studies have estimated that traditional fruit and vegetable retailers experienced a 20-30% decline in incomes with the presence of supermarkets (Singh).
  • There is potential for employment loss in the value chain. A supermarket may create fewer jobs for the volume of produce handled (Singh).
  • Unemployment to increase as a result of retailers practicing product bundling (selling goods in combinations and bargains) and predatory pricing (Standing Committee).
Farmers
  • Significant positive impact on farmers as a result of direct sales to organised retailers.  For instance, cauliflower farmers receive a 25% higher price selling directly to organised retailers instead of government regulated markets (mandis).  Profits for farmers selling to organised retailers are about 60% higher than when selling to mandis (ICRIER).
  • Organised retail could remove supply chain inefficiencies through direct purchase from farmers and investment in better storage, distribution and transport systems.  FDI, in particular, could bring in new technology and ideas (DIPP).
  •  Current organised retail procures 60-70% from wholesale markets rather than farmers. There has been no significant impact on backend infrastructure investment (Singh).
  • There are other issues like irrigation, technology and credit in agriculture which FDI may not address (Singh).
  • Increased monopolistic strength could force farmers to sell at lower prices (Standing Committee).
Consumers
  • Organised retail lowers prices. Consumer spending increases with the entry of organised retail and lower income groups tend to save more (ICRIER).
  • It will lead to better quality and safety standards of products (DIPP).
  •  Evidence from some Latin American countries (Mexico, Nicaragua, Argentina), Africa (Kenya, Madagascar) and Asia (Thailand, Vietnam, India) reveal that supermarket prices for fruits and vegetables were higher than traditional retail prices (Singh).
  • Even with lower prices at supermarkets, low income households may prefer traditional retailers because they live far from supermarkets, they can bargain with traditional retailers and buy loose items (Singh).
  • Monopolistic power for retailers could result in high prices for consumers.

Source: ICRIER [1.  "Impact of Organized Retailing on the Unorganized Sector", ICRIER, September 2008]; Standing Committee [2.  "Foreign and domestic investment in retail sector", Standing Committee on Commerce, May 13, 2009]; Singh (2011) [3. "FDI in Retail: Misplaced Expectations and Half-truths",  Sukhpal Singh, Economic and Political Weekly, December 17, 2011];  Reardon and Gulati (2008)  [4. "Rise of supermarkets and their development implications," IFPRI Discussion Paper, Thomas Reardon and Ashok Gulati, February 2008.]; DIPP [5. "Discussion Paper on FDI in Multi-brand Retail Trading", Department of Industrial Policy and Promotion, July 6, 2010]