The role of farm subsidies in changing India's water footprint

India faces a critical challenge of dwindling groundwater supplies, threatening food security and livelihoods. Groundwater consumption has increased 500% in the last half-century, leading to alarming depletion rates, particularly in the alluvial aquifers of northwest India. Output subsidies, a common agricultural policy tool in India, guarantee government procurement of water-intensive crops like rice and wheat at predetermined prices. Introduced during the Green Revolution to incentivize high-yielding varieties and ensure food security, these subsidies are now argued to be causing unintended harm by accelerating groundwater depletion. The mechanism involves two key aspects: first, the focus on rice and wheat incentivizes their overproduction, even exceeding national needs; second, the increased cultivation necessitates irrigation, predominantly met through groundwater extraction, leading to depletion. This depletion undermines the very objectives of the subsidy policy, compromising food security and farmer livelihoods, as groundwater scarcity decreases crop yields. Long-term groundwater loss can significantly reduce crop production and cropping intensity, further exacerbating food insecurity. This study investigates the extent to which output subsidies contribute to this groundwater stress, examining its impact across diverse hydrogeological conditions in India.

The literature highlights the detrimental effects of groundwater depletion on Indian agriculture and food security. Studies demonstrate the significant social and economic losses associated with costly well deepening and the need for sustainable groundwater irrigation practices. Research emphasizes the symbiotic relationship between water and agricultural transformation in India, while also examining the impact of groundwater depletion on agricultural production and adaptation strategies. Concerns are raised regarding the long-term consequences of groundwater depletion, potentially causing desertification and reducing the ability of groundwater to serve as a buffer against climate change. Previous work has explored the various aspects of India's agricultural subsidies, including the potential for unintended consequences such as distortions in cropping patterns and inefficient resource allocation. This study contributes to the existing literature by quantitatively assessing the contribution of output subsidies to groundwater stress in India, considering diverse hydrogeological contexts.

The study uses a mixed-methods approach combining quantitative analysis with case studies. Data was compiled from various sources, including the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) for crop production and area data, the Food Corporation of India and state agencies for government procurement data, the Central Groundwater Board of India and state groundwater boards for groundwater level and stress data, and minor irrigation census rounds for tubewell construction data. District-level weather data was constructed by averaging gridded temperature and precipitation data from the Indian Meteorological Department. The all-India analysis examines the correlation between groundwater stress (measured by defunct wells) and rice cultivation growth using multivariate statistical models at the district level, controlling for confounding factors like growth in other crops, precipitation, and initial crop areas. Case studies in Punjab (1981-2015) and Madhya Pradesh (2008-2016) utilize more detailed data to estimate the causal impact of rice and wheat procurement on groundwater stress, respectively. In Punjab, with its deep alluvial aquifers, changes in groundwater levels over multiple horizons are analyzed. In Madhya Pradesh, which has predominantly hard-rock aquifers, the analysis includes additional metrics of groundwater stress such as dry wells and the demand for deep tubewells. Regression models are employed to analyze the relationship between procurement, cultivation, and groundwater stress, controlling for relevant factors and using fixed effects to account for unobserved heterogeneity. Placebo tests and sensitivity analyses are conducted to assess the robustness of the findings.

The all-India analysis reveals a strong correlation between the growth in rice cultivation and the increase in defunct wells. A one-standard-deviation increase in rice area growth was associated with a significant increase in defunct wells (at least 5.44 percentage points between 1996-2015 and double that when considering the period from 1966). Similarly, increased rice area growth was also linked to a 50% increase in the construction of tubewells. The analysis underscores the role of output subsidies in inducing overproduction of rice and wheat, far exceeding consumption needs and buffer requirements. The Punjab case study demonstrates a clear link between rice procurement and groundwater depletion. A doubling of rice procurement resulted in a significant fall in groundwater depth over time, with effects accumulating over several years. The study estimates that increased rice cultivation induced by government procurement may account for at least 50% of the fall in groundwater levels in Punjab between 1981 and 2015. In Madhya Pradesh, the analysis reveals that the introduction of substantial wheat procurement in 2008 led to a significant increase in groundwater stress. A doubling of wheat procurement post-2008 caused a substantial rise in groundwater level depth, an increase in dry wells, and a surge in deep tubewell construction. The study also shows that the policy increased the marginal effect of wheat procurement on wheat cultivation and irrigated area, partially at the expense of less water-intensive crops. Overall, the findings highlight that output subsidies have significantly contributed to groundwater depletion, impacting food security and livelihoods in diverse hydrogeological contexts.

The findings confirm that India's output subsidy program, particularly the assured grain procurement program, has played a significant role in driving groundwater stress. The results highlight the importance of considering the hydrogeological context when assessing the impact of agricultural policies on water resources. The study reveals unintended negative environmental consequences that counteract the intended policy objectives of ensuring price stability, food security, and supporting farmers' income. The distortionary effects of the subsidies on crop choices and irrigation practices lead to harmful spillovers on local water resources and undermine sustainable development. The study emphasizes the need for policy reforms that move away from distortionary output subsidies toward less environmentally damaging alternatives such as income transfers or insurance against price crashes. Recognizing the limitations of the existing system and building trust with farmers will be crucial for successful policy transitions.

This study provides compelling evidence that India's output subsidy program has significantly contributed to groundwater depletion, underscoring the need for policy reforms that prioritize environmental sustainability. The findings emphasize the importance of designing agricultural subsidies that are less distortionary and better aligned with long-term water resource management. Future research should focus on exploring alternative policy mechanisms, evaluating their effectiveness, and addressing the political economy constraints that hinder necessary changes. Furthermore, building trust with farmers and effectively communicating the long-term benefits of sustainable practices are essential for successful implementation of these reforms.

The study acknowledges limitations related to data availability. The analysis relies on readily available data, which may not fully capture the complexities of groundwater dynamics. The availability of disaggregated district-level procurement data is limited, restricting the scope of the all-India analysis. Furthermore, the use of monitoring well data may not perfectly reflect the water levels experienced by farmers in their irrigation wells. Despite these limitations, the findings offer valuable insights into the role of agricultural subsidies in driving groundwater stress in India.