Environmental Degradation:  Market, Institutional and Policy Failure (A Case of Water Resources in Andhra Pradesh)

This study carried out at theoretical as well empirical levels sought to address the environmental consequences of water, mainly irrigation, management practices in Andhra Pradesh. The specific objectives of the study were to: a) evolve/develop an integrated approach on market and institutional failures in the context of natural resource degradation, b) examine the macro policy perspective on water resource management at the state level and its implications for environmental degradation and water scarcity/pollution, c) critically evaluate the water user association legislation brought in by the State in the light of environmental problems faced by the command areas, and d) explore the possibilities for integrating institutional and market aspects in water resource management and suggest policy options for sustainable water resource management.

Case studies revealed that in the case of canal irrigation systems in Andhra Pradesh and elsewhere, price policies favouring effective self-financing mechanism needed to be fostered with appropriate institutional arrangements to make the former effective. On the other hand, institutions failed when market mechanisms failed to sustain the institutions as Institutions cannot survive longer with external support. Though the case studies did not deal with such success stories, they clearly highlighted the fact that failures could be due to the absence of integration between markets and institutions. Further, there was a need for coordination between water policies and other policies such as input and out put policies, input subsidies (including power), procurement policies, etc. Integrated approach helps in keeping the transaction costs low, essential for sustaining the institutions. Pricing mechanism leads to increased cohesion and cooperation within the community, which in turn result in low transaction costs towards organising the community and keeping it together. However, equity in sharing the costs (user charges or contributions) on the basis of resource use is critical for sustaining the institutional arrangements. Otherwise, people contributing disproportionately higher shares may tend to undermine the collective action initiatives. Similarly, institutional back-up for market approaches also reduces transaction costs, as they ensure compliance to rules and regulations (including pricing) easier and smooth. Recovery of irrigation charges tends to be high in the presence of appropriate institutional mechanisms. However, the process needs to be dynamic to address the changing contexts, market as well as institutional mechanisms.