Economic Value of Water in Agriculture: Comparative Analysis of a Water-scarce and a Water-rich Region in India

If the balance between availability and requirement drives the value, then the economic value of water in agriculture should be remarkably higher in water-scarce regions when compared to water-rich regions. Similarly, in water-abundant regions, if the land is scarce, then the incremental return per unit of land should be higher than that in land-rich region that are water-scarce. These hypotheses are tested by comparing the situation in western Punjab, which is land-rich and naturally water scarce and eastern Uttar Pradesh which is land-scarce and waterrich. The methodology used for assessing the economic value of water considered estimating the incremental value of output for a composite farming system from a unit of irrigation water used. The incremental value of farm output was estimated on the basis of the volume-based weighted average of the water productivity values (Rs./m) in various agricultural crops and milk production. The total effective volume of water used for various crops and milk production were estimated using physical productivity of water in various crops and milk production (kg/m), and the weight of outputs in the respective crops and milk. The regression analysis shows that every extra unit of water diverted for agriculture generates more economic surplus in western Punjab. Regression of land against economic surplus shows that every extra unit of land put under cultivation generates more economic surplus in eastern Uttar Pradesh when compared to western Punjab. The total economic value of agricultural output generated from a unit of water in western Punjab (Rs.14.85/ m) is higher than that of eastern Uttar Pradesh (Rs.11/m). The farmers in western Punjab allocate a larger share of their water for growing crops and dairying activities that have high water-productivity thereby maximizing the return per unit of water, whereas in eastern Uttar Pradesh, land productivity is an important consideration in deciding the cropping patterns. The livelihood impact of irrigated agriculture in western Punjab, with a livelihood index of 0.928 is higher than that of eastern Uttar Pradesh with a livelihood index of 0.87, meaning greater dependence of Punjab farmers on agriculture for livelihoods. Hence, transfer of water from a water-rich, land scarce region to a water-scarce, land rich region for agriculture might result in realization of higher economic value.