Water Tables and the Politics of Pricing

Another great piece from my friend Mohit.  Water Tables and the Politics of Pricing

What is interesting is that many who would talk about pricing parking, roads, etc. don’t extend it to water. As I have explained in some earlier post, this is usually because of valid fears (poor will have to pay for water). There is also their inability, purposely or not, to extend the parking/road pricing logic to water. There is support for parking and road pricing because of the assumption that this will force the rich to pay for what they use. Well then why not make the rich pay for the water they use, whether the rich is a farmer or not?

Just like road pricing is complex and will take a lot of thinking to implement, so will water pricing. Does the poor rickshaw walla have to pay for using the road? What about the cyclists? Why not ? How will you check and implement this?

It would be far easier, I think, to price water and hence help the environment and the economy (read people in both cases!) For example, any farmer deemed poor could be given electricity credits paid for by taxpayers. The farmer still pays for the electricity he uses, but the money come out of the taxpayers’ pockets. For drinking water, I have discussed this in one or more earlier posts.

One critical issue is delinking the operating and capital cost/revenue of the company (public or private) providing the service from the subsidy. Otherwise it starts of a vicious cycle – company looses money, hence cannot upgrade its facilities, bad service, lose due to theft and leaks, company looses more money. ……

Experts seek hike in global water price

Good article – Experts seek hike in global water price in The Hindu – on water pricing. Every environmentalist should take this seriously. Anti-market environmentalists especially.

“Ideally utilities should not make any distinction between rich and poor,” said Prof. Asit Biswas, president of the Third World Centre for Water Management. “The moment you subsidise [someone's bill] people don’t use water prudently.”

The quote brings out a very key point. But this could be misconstrued as “throw all the poor out to die of thirst”. Utilities should must be paid market rate, so that they have the resources to upgrade facilities and remedy the problems mentioned in the article. Poor can be subsidised directly so that they can afford to pay market price. This not only helps them purchase the resources they need, they will also have the incentive to conserve. Basically delink the subsidy of poor from the operations of the utilities. Else utilities suffer, in turn don’t have resources, in turn can’t upkeep infrastructure and hence not provide services, in turn ….. The poor and the environment end up getting hammered from all sides.

As for the rich, let us/them eat cake (pay market price for what we/they consume).

Burning Mr Singh’s pump

One more reason why all sincere environmentalist should learn economics and a thing or two about incentives. Check out this pretty alarming piece India’s water shortage by Daniel Pepper. This shouldn’t surprise anyone. Unfortunately, most concerned environmentalist I know just talk about these issues.  Then follow it with a speech on why we should love nature, conserve water, yada yada yada. Completely oblivious to the economy distorting and ecologically disastrous effects of indirect subsidies.

Hope he goes further next time. Just give the money directly to the farmers. They know how to buy pumps, electricity, etc. keeping costs in mind. The less electricity a farmer uses, the more money he keeps. Simple. Get government out of the pump buying business. I am pretty sure soon we will get to hear about a government pump buying scam. Let the farmers buy the pumps that is appropriate for their use.

Set up a transparent regulatory framework, if necessary, so anyone and everyone can produce and distribute electricity. Introduce competition, which in turn introduces accountability, to electricity and other services.  Put an end to government MONOPOLY. This way government does not have to be in the business of “utilities will be required to upgrade transmission
lines to cut losses and improve service”. Cutting losses and improving services are what businesses do when faced with competition. Appealing and pleading is not a substitute for free and fair competition.

Farmers like Darshan Singh, 55, who grows rice and wheat on 25 acres of
Punjab land that has been in his family for generations, say they would
be happy to pay for electricity if it was constant and didn’t burn out
their pumps.

Even if you doubt Mr Singh, giving tax payers’ money, to buy electricity, water or booze for that matter, directly to farmers like Mr Singh, will be politically practical and make questions about Mr Singh’s sincerity irrelevant. Directly subsidy would be far less distorting to the economy and thereby far less harmful to the environment.

Let us stop burning Mr Singh’s pump! And yes, as Mr Kumar says, “all these issues are interconnected”.