Annual expenditures on management and maintenance of irrigation systems in the Punjab province amounts to over Rs5 billion. Revenue collected through water charges remain much below the expenditures , resulting in provision of large subsidies to the sector.
Substantial amount of funds is spent annually on the collection of water charges. Appropriate charging policy is important not only for making water charge collection more efficient, but also for recovering the costs more effectively. It has strong implications for income distribution in the rural areas.
Water charging policy option as suggested in this article would result in significant increase in revenue and lead to re-distribution of Rs976 million every year, in favour of small and poor farmers.
On 10 June 2003, the Punjab government has taken a historic decision to change the canal water charging policy from crop-area-cum-crop type based charging to crop-area-based flat-rate charging. Under crop area-cum-crop based system, water charges were levied based on the area cropped and differentiated by the type, condition and season of the crop.
Charges were generally higher for high water consuming crops such as rice, and low for less water consuming crops such as wheat (for example, per hectare crop-based-water-charges prior to June 10, were Rs37 for fodder, Rs148 for wheat, Rs222 for cotton, Rs297 for rice, Rs432 for sugarcane).
Under the new flat rate system, per hectare water charges are to be fixed for Rabi and Kharif seasons, regardless of the type of crops grown in each season (new rate per hectare are Rs124 for Rabi and Rs210 for Kharif crops, regardless of the type of crops grown). Several factors have led to this change. These include: (a) the crop-based charging system was considered obsolete and not in line with the changing water and irrigated agriculture situation; (b) it was thought to be often manipulated by the influential farmers and revenue officials (such as the mis-reporting and mis-recording crop types and crop areas, e.g., charging for fodder rates when high water rate crops such as rice or sugarcane were cultivated); (c) as the water charge assessment was based on the discretion of the revenue officials, it is generally perceived that it has lead to creating an environment for rent seeking behaviour; (d) crop based charges were considered advantageous to large farmers and disadvantageous to small farmers that constitute majority in the farming community; and (e) old system has lead to increased pressure on public funds resulting from widening gap between the irrigation expenditures and revenue collection (e.g., in recent years total revenue collected through water charges in the Punjab province accounted for 31.4 per cent (or Rs1.6 billion) of the total expenditures (of Rs5.1 billion).
Also, the estimates suggest that the Punjab government has been spending three rupees for every one rupee of water charge collected).
Reaction to this policy change has been mixed. While, there are many supporters of this change who see this as a welcome development, some continue to resist and criticize this policy change.
There are three key issues in relation to this policy change. First, in the newly introduced flat rate system, the charge is based on the farm area cropped during Rabi and Kharif seasons (i.e., flat rate per hectare of area cropped in each season) and not based on farm area owned or farm area having water entitlement or area receiving water.
Under warabandi type of systems, water allocation is made on the size of farm landholdings. In aggregate terms, large farmers receive and use more canal water than small farmers. On per hectare basis, if we assume that small and large farmers receive similar amount of water, small farmers who generally have higher cropping intensity will end up paying more per hectare water charge than large farmers.
As in the past, under the new policy, area irrigated partially from surface water and partially from groundwater would be fully liable for canal water charges. Those who make more use of groundwater and other inputs to increase their cropping intensity would have to pay more in per hectare water charges. It is important to note that it is the farm size that forms the basis of water allocation, regardless of the proportion of farm area cropped. Therefore, it makes sense to levy flat rate charge based on farm size or farm area having water entitlement.
The new crop area based flat rate policy, though does not account for intra-seasonal crop differences, it accounts for inter-season crop differences and, like old system, water charges are levied based on area cropped and cropping intensity during a season. So while, the new system would help in addressing the crop type-misreporting issue, but it would not resolve the problem of crop area mis-reporting. The flat rate per unit of land based on land size, independent of crop type and cropping intensities is better option to address both of these issues.
Second, there are two critical questions: (a) will the flat rate policy result in increased revenue? and (b) what are the implications of such policy changes for small and poor farmers?.
The International Water Management Institute (IWMI) has recently undertaken an in-depth study on the implications of alternate water charging policies in Pakistan. The study is based on data sets collected through households level surveys from 891 farm households from 10 canal distributaries in four scale large surface irrigation systems in the upper Indus basin (namely, Upper Jehlum Canal system, Lower Jehlum Canal system, Lower Chenab Canal system and Hakra canal system). The survey covered the period 2001-2002 agricultural year. Following policy options are analyzed in this study:
Option 1. Present policy: No change in the structure and level of water charges, charges are based on cropped areas and cropping intensities (old system); Newly introduced so-called 'flat rate policy', which is based on cropped area, crop season and cropping intensity, independent of crop type in a season, is similar to the old system