Environment and Development Economics



Costs of resource depletion externalities: a study of groundwater overexploitation in Andhra Pradesh, India 1


V. RATNA REDDY a1
a1 Centre for Economic and Social Studies, Nizamia Observatory Campus, Begumpet, Hyderabad-500 016 (AP), India. E-mail: vratnareddy@cess.ac.in; vratnareddy@yahoo.com

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Abstract

The main objective of the paper is to estimate the costs of groundwater over exploitation and examine the costs and benefits from groundwater replenishing mechanisms in different ecological contexts. Using the public good and externalities framework, the study shows how groundwater exploitation in Andhra Pradesh, India is resulting in economic losses to individual farmers apart from ecological degradation. It is argued that policies towards strengthening the resource base (replenishment mechanisms) and equitable distribution of the resource (property rights) would be beneficial, economically as well as ecologically.

The analysis is in favour of investment in replenishment mechanisms such as irrigation tanks and percolation tanks. The situation of over extraction and the resultant environmental degradation is a consequence of lack of appropriate and adequate policies (policy failure) for managing the subsurface water resources. Hitherto, groundwater policies (subsidized credit, power, etc.) are in the nature of encouraging private initiatives in groundwater development. It is argued that community-based investments in replenishment as well as extraction of groundwater would make better economic as well as ecological sense.



Footnotes

1 This paper is part of a major study ‘Environmental Degradation: Market, Policy and Institutional Failure (A Case of Water Resources in Andhra Pradesh)’. Financial support from World Bank Aided Environmental capacity Building: India Project through Indira Gandhi Institute of Development Research is gratefully acknowledged. Thanks are due to the reviewers and experts in the programme for useful comments. Thanks are due to the editors and two anonymous referees of the journal for constructive comments on the earlier drafts of the paper. However, the usual disclaimers apply.