Water transfer from irrigation tanks for urban use: can payment for ecosystem services produce efficient outcomes?

Abstract

Many Indian states have begun to transfer water meant for irrigation to non-agricultural purposes, but the economic and environmental consequences are not adequately understood. Transfer of water out of water bodies from rural areas not only reduces the economic welfare of the traditional water users but also reduces their incentives to manage these water bodies on a sustainable basis. The study explores the possibility of introducing the mechanism of ‘payment for ecosystem services’ at the grass-roots level in the Indian context as a return for reallocation of water from irrigation to urban uses so that it can produce a non-zero-sum outcome for villagers, farmers, urban consumers and governments.