Social cost-benefit analysis of a watershed development project in Karnataka, India

Watershed Development Programmes (WDPs) have been initiated in India to improve and sustain productivity and the production potential of the dry and semiarid regions of the country at higher levels, through adoption of appropriate production and conservation techniques. The aim is also to meet the needs of rural communities for food, fuel, fodder, and timber and, thereby, reduce pressure on natural forests. In view of their potential for growth, for improving income, and the natural resource base of the disadvantaged regions of the country, WDPs are being accorded importance in the development plans for India and by donor agencies. This paper presents a social cost-benefit appraisal of a watershed development project in Karnataka, India. Using alternate viability measures, i.e. Net Present Value (NPV), Benefit-Cost Ratio (BCR) and Internal Rate of Return (IRR), and rigorous tests and sensitivity analyses, the results show that if expected full benefits are realized, the benefits derived from the watershed project are quite high, with the IRRs ranging from 19 to 96%. If, however, expected full benefits were to fall short by 25%, and net costs of (including the opportunity cost of grazing benefits foregone by the villagers on account of establishing community woodlots on degraded forestlands and village commons used earlier for free grazing of their cattle) the project will report losses. Even these losses can be contained if the direct benefits from some community woodlots, for which information was not available, and other indirect benefits, mostly of an environmental nature, are included. The findings of this study suggest that watershed development projects initiated to improve the economy and ecology of India's dry and semiarid regions are economically viable and socially desirable.