Impact of groundwater markets in India on water use efficiency: a data envelopment analysis approach

In the hard rock areas of India, overdraft of groundwater has led to negative externalities. It increased costs of groundwater irrigation and caused welfare losses. At the same time informal groundwater markets are slowly emerging and are believed to improve water distribution and to increase water use efficiency in the irrigation sector. These claims are evaluated in this study. For this purpose data was collected from a sample containing three different groups of water users: water sellers, water buyers and a control group of non-traders. First the socio-economic characteristics of these groups are compared. Then the efficiency of water use of the three groups is studied using Data Envelopment Analysis. The results indicate that groundwater markets provide resource poor farmers access to irrigation water, giving them the opportunity to raise their productivity. Water buyers are furthermore shown to be most efficient in their water use, while water sellers are also shown to be more efficient than the control group. The differences in efficiency between the groups are statistically significant. The demonstrated potential of groundwater markets to improve the efficiency of water use and to increase equity in resource access should be taken into account by the Indian government when deciding on their attitude towards the emerging groundwater markets.