Ensuring sustainable water use in agriculture

When inputs are subsidised and outputs are price-guaranteed, resource misallocation is inevitable. India’s water crisis is also an economic one. Over 80 per cent of the country’s freshwater is consumed by agriculture, yet more than 60 per cent of that is absorbed by just two crops: rice and sugarcane, both heavily supported through Minimum Support Prices (MSPs), input subsidies, and assured procurement. Free or flat-rate electricity makes the marginal cost of groundwater extraction effectively zero, driving aquifer depletion.

This is a textbook case of moral hazard and negative externalities, where private incentives contradict social welfare. Even schemes meant to address this crisis risk limited impact if underlying incentives remain blunt or misaligned. What India needs is a shift towards more scientifically calibrated incentive structures.

Take, for example, Haryana’s well-intentioned “Mera Pani Meri Virasat” scheme. Launched in 2020, it provides a per-acre cash incentive to farmers who voluntarily shift from water-intensive crops like paddy to less thirsty alternatives such as bajra, maize, or pulses. On paper, the scheme promises a win–win: reduced pressure on groundwater and increased crop diversification. But a closer look at its implementation reveals why such policies, while well-meaning, fall short when they are built on flawed incentive structures. Paras and Dwivedi (2025) in a recent EPW paper found that despite high-profile announcements and financial support, many farmers continue to grow paddy. The reasons are two-fold, economic and geographic, but both trace back to how incentives are designed.

From a farmer’s perspective, the decision to grow paddy is rational. Even after factoring in the government’s ₹7,000-per-acre incentive, the returns from alternative crops do not match the profitability of paddy. In Sonepat, a high-yield basmati variety known as PB 1121 is commonly cultivated. With strong export demand, especially from Gulf countries, this variety fetched farmers net profits upwards of ₹50,000 per acre in 2023. By contrast, bajra, even with subsidies, offered returns around ₹32,000.

Under such circumstances, it is unsurprising that small and marginal farmers prefer to stick with the status quo. Unless policy incentives are calibrated to match or exceed the opportunity cost of switching crops, they are unlikely to lead to substantive behavioural change.

Geographic constraint

Water, by its hydrological nature, is a non-excludable and spatially diffusive resource, leading to significant externalities when managed at the individual plot level. Lateral subsurface flow, capillary rise, and preferential pathways in alluvial and clayey soils allow water to move across fields irrespective of ownership demarcations. As a result, any decision to adopt water-conserving crops like bajra or pulses is undermined when adjacent plots continue to grow paddy, which requires prolonged submergence.

This inter-field water migration becomes particularly acute in low-lying regions with high water tables and slow percolation rates, resulting in over-saturation and anoxic stress for non-aquatic crops. Therefore, policy frameworks that rely solely on individual behavioural nudges or price-based incentives, without embedding cooperative water governance or hydrological zoning, fail to internalise these spatial spillovers, rendering such interventions sub-optimal or even counterproductive.

Collective incentives

To address these issues, India’s water policy needs to evolve from rewarding isolated behaviour to fostering cooperative action. We need a shift from individual to group incentives. Imagine a scheme where subsidies are disbursed only when a significant portion, say 60-70 per cent, of farmers in a village agree to switch to less water-intensive crops. This would reduce the economic risk for small farmers and help overcome the agronomic challenges of patchy adoption.

Such an approach would also reduce monitoring costs and mitigate the risks of misreporting. When compliance is linked to group performance, communities are more likely to self-regulate. This model of decentralised oversight, rooted in social capital and local accountability, has already proven successful in other domains, such as organic farming through the Participatory Guarantee Mechanism (PGM). Under PGM, quality assurance is managed by groups of farmers and consumers without the need for costly third-party certification.

We can envision a similar participatory model for water conservation. Call it Hamara Pani Hamari Virasat: a scheme where the government announces conditional incentives for village-level collectives that commit to crop diversification and water-saving practices. Peer monitoring, shared accountability, and community ownership would form the backbone of this new architecture.

Thus, correcting course requires more than technocratic fixes. It requires understanding human behaviour, especially how farmers make decisions under uncertainty. A shift to group-based incentive structures recognises the interdependent nature of agricultural ecosystems. It aligns individual incentives with collective outcomes, which is essential for managing shared resources like groundwater.

As India faces a looming water crisis, we must realise that solving it is not just about more regulations or higher subsidies. It’s about smarter incentives. Only by aligning policy with ecological realities and behavioural dynamics can we hope to ensure sustainable water use in agriculture.

If the Green Revolution was driven by state-led interventions to achieve food self-sufficiency, the next transformation must pivot towards ecological sustainability through coordinated, multi-scalar governance. India’s water crisis transcends mere hydrological scarcity; it manifests fragmented institutions, misaligned incentives, and behavioural rigidities at the user level. In this context, policy must evolve beyond pipelines and price signals to embed collective action mechanisms, spatial planning, and community-based stewardship at the core of resource governance.

Dwivedi is Assistant Professor (Economics), Faculty of Management Studies, University of Delhi, and Sinha writes on macroeconomic and geopolitical issues. Views are personal

Published on May 25, 2025

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