Water Pricing and Irrigation Economics: An Overall Assessment of Policy, Practice, and Sustainability in Agriculture

Abstract

Water plays a crucial role in agricultural productivity, yet its inefficient allocation and underpricing remain major challenges for sustainable irrigation management. This paper examines the economic and policy dimensions of irrigation water pricing, with particular focus on its implications for resource efficiency, financial sustainability, and ecological balance in agriculture. Agriculture accounts for nearly 80% of total freshwater withdrawals in India, while irrigation tariffs remain significantly lower than the actual cost of water delivery, resulting in inefficient use and increasing pressure on water resources.

The study reviews various irrigation water pricing mechanisms including area-based charges, volumetric pricing, block tariffs, and water markets, highlighting their advantages, limitations, and applicability in developing country contexts. It also analyzes the gap between the cost of irrigation infrastructure and the tariffs charged to farmers, emphasizing the role of subsidies and political economy constraints in shaping current pricing policies.

The findings suggest that ineffective pricing structures, weak cost recovery, and institutional limitations contribute to unsustainable water use and declining groundwater levels. The paper argues for gradual reforms in water pricing supported by improved measurement systems, strengthened water user associations, and better alignment of agricultural policies. Such reforms can promote efficient water allocation, enhance irrigation sustainability, and contribute to achieving long-term agricultural and environmental goals.