India’s water crisis is deeply rooted in flawed agricultural incentives that encourage overuse of groundwater for water-intensive crops like rice and sugarcane. Addressing this requires rethinking policy design to align it with economic incentives and ecological realities.

Root of the Crisis: Misaligned Incentives

India’s water crisis is not just environmental—it’s economic. 

• Agriculture Uses Most Freshwater: Over 80% of the country’s freshwater is consumed by agriculture, and more than 60% of that goes to just two crops: rice and sugarcane. 
• Rice and Sugarcane: These water-intensive crops thrive under a system of Minimum Support Prices (MSPs), input subsidies, and assured procurement, which distort true economic costs and lead to massive resource misallocation.
• Case of Moral Hazard: Free or flat-rate electricity further exacerbates the problem, making the marginal cost of groundwater extraction nearly zero, which fuels aquifer depletion. This is a textbook case of moral hazard.
  • Moral hazard is when one person takes risks because someone else will bear the cost. It happens when both sides don’t have full information about each other.
  • Impact: The groundwater level in the states of Punjab and Haryana has gone down to 300 feet

Well-Intentioned But Ineffective Scheme

• Promise of Diversification: Haryana launched the “Mera Pani Meri Virasat” scheme to address this crisis. It offers cash incentives per acre to farmers who voluntarily shift from paddy to less water-intensive crops like bajra, maize, or pulses.
• Major Aim: On paper, the scheme aims for crop diversification and groundwater conservation.
• Reality on the Ground: However, recent findings (Paras & Dwivedi, 2025, EPW) reveal that most farmers continue growing paddy. Despite the ₹7,000-per-acre incentive, economic returns from alternative crops remain uncompetitive.
  • Why Farmers Continue to Rice?: In Sonepat, a popular basmati variety, PB 1121, yields net profits of ₹50,000 per acre due to high export demand. In contrast, bajra, even with incentives, returns only ₹32,000 per acre.
  • Given these figures, small and marginal farmers make rational choices by sticking to paddy.

Spatial Externalities in Water Use

• Water Flows Without Borders: Water behaves hydrologically, not administratively. It moves across farm boundaries. This means one farmer’s decision affects others nearby.
• Impact of Patchy Adoption: If only a few farmers switch to bajra or pulses, they face oversaturation and root stress caused by surrounding paddy fields. This makes isolated adoption agronomically unviable in many regions, particularly in low-lying areas with high water tables.
• • Thus, any solution relying solely on individual behavioural change or price signals will be ineffective without addressing these inter-field spillovers.

Solution – Collective Incentives

• From Individual to Group-Based Schemes: India’s water policy must move to group-based incentive structures. Imagine a scheme where financial support is contingent on 60-70% village-level participation in crop diversification. This model:
  • Spreads risk among small farmers
  • Reduces enforcement costs and misreporting
  • Increase in social monitoring among farmers
• Learning from Participatory Models: This approach mirrors the Participatory Guarantee Mechanism (PGM) in organic farming, where groups of farmers manage quality assurance without external certification. Social capital, peer monitoring, and shared accountability drive compliance.
• Elinor Ostrom: Nobel laureate Elinor Ostrom demonstrated through decades of research that local communities can effectively manage common-pool resources, such as water, when given the right institutional support and autonomy.
• Andhra Pradesh: In Andhra Pradesh, the implementation of community-based Sustainable Agriculture programs significantly reduced the use of chemical pesticides and promoted water-saving techniques.
• Maharashtra: The Pani Panchayat model in Maharashtra pioneered participatory irrigation management by empowering farmers to plan and distribute water equitably. Through transparent decision-making and collective planning, communities managed scarce water resources efficiently and reduced intra-village conflict.
• Case Studies Tell Us: When communities have a sense of control and responsibility over their resources, outcomes tend to be more sustainable, equitable, and resilient.

Policy Needs Smart Design

Effective water policy must go beyond infrastructure projects like pipelines or generic pricing reforms.

• Policy Aligning with Local Ecology and Soil Types: For example, promoting bajra in Rajasthan, where it thrives under arid conditions, or jute in the floodplains of Assam, makes ecological and economic sense.
• Understanding Farmers’ Behaviour: Policymakers must understand farmer behavior. For example, Haryana farmers grow PB-1121 basmati rice mainly for its high export returns, not tradition. They won’t switch crops unless alternatives are equally profitable.
• Decentralised Decision Making: policy design must decentralize decision-making. Granting village-level institutions more power in choosing crop patterns, managing water collectively, and setting priorities can lead to more effective and responsive governance.
• Spatially Sound Policy: A one-size-fits-all approach doesn’t work in a country as agro-ecologically diverse as India. Policies should promote crops that match local soil types, water availability, and climate:
• • In waterlogged areas, such as parts of eastern Bihar, promoting pulses.
  • In drought-prone regions like Bundelkhand, promoting coarse grains such as bajra and jowar

Conclusion

More subsidies won’t solve India’s water crisis—they often deepen it. We need smart, science-based, zoned incentives that respect both ecology and farmer psychology. True change begins when villages become the planning unit and policy shifts from handouts to a culture of collective responsibility.

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