Market instruments for demand management in the face of scarcity and overuse of water in Gujarat,Western India

The paper analyses the water scarcity problems in Gujarat in Western India using definitions of water scarcity propounded by Falkenmark, and Raskin and others, and a more universal definition based on supply and demand. While a lion's share of the scarce water goes for irrigating cash crops at the cost of subsistence farming and rural drinking, the pricing of canal water and electricity used for groundwater pumping is highly inefficient and inequitable. To manage demands for water, the paper suggests the use of water market as the institutional arrangement for promoting economically efficient uses, along with rational pricing of canal water and electricity for encouraging conservation. The paper advocates policies that enable: reforms in the governance and management of water for decentralisation and local institutional development; and increased investment in the irrigation and power supply sector for technological innovations and improvements in infrastructure, which are the fountainhead of the demand management strategy.