A Preliminary Assessment of Water Institutions in India: An Institutional Design Perspective

A Preliminary Assessment of Water Institutions inIndia: An Institutional Design Perspective

Jayanath Ananda and Lin CraseLa Trobe University

P.G. PaganAustralian National University

Abstract

Water institutions in India play a crucial role in managing scarce water resources and are central toeconomic development and poverty alleviation. Designing appropriate institutional mechanisms to allo-cate scarce water and river flows has been an enormous challenge due to the complex legal, constitutional,and social issues involved. The Indian water sector has been grappling with poor performance anddeterioration of public (canal and tank) irrigation systems, high extraction levels of groundwater, andrelated economic and environmental problems. The objective of this article is to carry out a preliminaryassessment of institutional mechanisms available to manage water resources in India. The article surveysvarious formal and informal institutional arrangements that are used at present and their design featuresin order to identify those institutions related to superior performance. The analysis indicates that crafting“winning institutions” and the policy frameworks to strengthen them should take into account not only theproven criteria of institutional design but also the changing socioeconomic, political, and cultural factors.

Introduction

Water institutions1 or institutional arrangements for water management play avital role in managing and sustaining water resources as well as in economicdevelopment and poverty alleviation in India. Designing institutional mechanismsto allocate scarce water and river flows has long been an important legal, constitu-tional, and social issue in India (Marothia, 2003). The water resource sector in Indiais confronted by several institutional challenges. The institutional issues the Indianwater sector is grappling with can be classified into three main areas: poor perfor-mance and deterioration of public (canal and tank) irrigation systems, high extrac-tion levels of groundwater and related economic and environmental problems, andtransition from a water management focus to an integrated management systemthat takes wider hydrological boundaries into account (Shah, Giordano, & Wang,2004). Thus, redefining institutional governance of water remains a high priority inthe policy debate.

Undoubtedly, institutional arrangements in the water resource sector largelyinfluence the welfare outcomes for rural masses in India. However, there is littleagreement about appropriate institutional arrangements and criteria for successfulinstitutional design. Various scholars have identified successful design principles tomanage common pool resources. They include the seminal works by Olson (1965),Hardin (1968), Uphoff (1986), Wade (1987), Ostrom (1990, 1992, 1993), Ostrom,Gardiner and Walker (1994), and Goodin (1996), which have been highly influen-tial in debates on governance of water institutions. Hannah and Folke (1995) andBalland and Platteau (1996) also offer alternative sets of design principles (Hussain& Bhattacharya, 2004). These propositions have been primarily based on theoriessuch as rational choice and collective action. Alternative propositions such as

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Review of Policy Research, Volume 23, Number 4 (2006)© 2006 by The Policy Studies Organization. All rights reserved.

cultural theory and contextual theory have also been proposed to describe institu-tional arrangements and their performance. Cultural theory2 (McCay & Acheson,1987) involves the neo-institutional styles that define people’s, group’s, and orga-nizations’ behavior and strategic choices (Mollinga, 2001) while contextual theory(McCay, 2002) argues that the context in which the choice has to be madedetermines the rationality of a choice.

New Institutional Economics Approach

North (1995, p. 3) defines institutions as “the rules of the game in a society or, moreformally, the humanly devised constraints that shape human interaction.” He dis-tinguishes critically between the institutions and organizations. Organizations aredefined as “groups of individuals bound by some common purpose to achieveobjectives” (North, 1995, p. 5). Various authors have emphasized quite differentaspects of institutions including how much the institutions coincide with organiza-tions, whether they are created or evolved from more diffused sources, whetherthey are embedded in as opposed to differentiated from other institutions, howthey are linked to technology, and the like (Nabli & Nugent, 1989). There is alsodisagreement as to whether institutions can be best understood from a behavioralperspective, in which “institutions are complexes of norms of behaviour that persistover time, by serving collectively valued purposes” (Uphoff, 1986, p. 9), or from theNorth’s rules perspective. Institutions can be broadly classified into two groups:formal and informal institutions (North, 1995). Bromley (1989, p. 42) defines theformal institutions, taking the behavioral perspective as “structured set of expecta-tions about behaviour, and of actual behaviour, driven by shared and dominantpreferences for the ultimate outcome as opposed to the means by which thatoutcome is achieved.” Informal institutions, in general, can be regarded as custom-ary rules and traditions of a community.

New institutional economics offers a useful framework for analyzing the issuesrelated to water use governance and the role of institutions. The institutionalconcepts used in this approach are institutional arrangements, property regimes,entitlement systems, and transaction costs. Institutional arrangements define whocontrols the resource and the extent of a property regime. A property regime is a setof institutional arrangements or working rules of rights and duties characterizing therelationship of co-users to one another and to a specific natural resource (Bromley,1991). Property rights to a resource could exist under either a state property regimeor private property regime or a common property regime or open access. Anentitlement system refers to a quota system that defines the shares of the resource tovarious entities such as the state, collectives, and individuals. Transaction cost analysisis seen by many as the core of the institutional economics analysis, which acknowl-edges positive transaction costs. Transaction costs can be broadly defined as oppor-tunity costs of establishing and maintaining a voluntary exchange of resources(Crase, 2000)3. It shows how formal and informal institutional arrangements influ-ence socioeconomic and environmental outcomes. Transaction costs can be furthersubdivided into static and dynamic transaction costs. Static transaction costs areincurred within a particular institutional environment while dynamic transaction

928 Jayanath Ananda, Lin Crase, and P.G. Pagan

costs incur during the changes to the existing institutional environment (Challen,2000).

Objective of the Article

The objective of this article is to carry out a preliminary assessment and a review ofinstitutional arrangements of water management in India using a new institutionaleconomics framework. The article describes the various formal and informal insti-tutional arrangements that are in place currently and their design features in orderto identify those institutions related to superior performance. Analysis of waterinstitutions and their design features provides useful insights, contributing to theinstitutional reform debate in water resources management in India. The nextsection briefly discusses various institutional responses to water management inIndia. The third section presents an institutional design criteria framework that canbe used to evaluate water-related institutions. Results of the preliminary assessmentof water institutions are presented in the fourth section. A discussion based on theinstitutional assessment is presented in the fifth section while the sixth sectionprovides some concluding remarks.

Institutional Responses in Irrigation and Water Management in India

Federal Water Institutions

A wide range of institutional responses have evolved over the years to use andmanage the ever-increasing demand for irrigation water in India. The State List(List II) of the Indian Constitution empowers the states to govern the waterresources. The regulation and development of interstate rivers is entrusted with thefederal government through entry 56 of List I. The core legislation emanating fromthis constitutional privilege includes River Boards Act 1956 and the Inter-StateWater Disputes Act 1956. The effectiveness of these acts are clouded by lack ofclarity in terms of institutional objectives, fragmentation of basins by state bound-aries, lack of cooperation among states, and intense political lobbying by states(Mohanty & Gupta, 2002; Richards & Singh, 2001).

The Ministry of Water Resources and its allied supporting agencies function asthe apex body responsible for planning, formulating policy, and coordinating waterresources at the national level. The national policy regarding water resources inIndia is spelled out in the National Water Policy 2002 (Government of India, 2002),which emphasizes the need to reorient the existing water related institutions. Themain thrust of the national policy has shifted toward a participatory, multisectoralapproach leading to the establishment of River Basin Organizations (RBOs), whichadvocate a hydrological basis for water governance. Compared to surface watergovernance institutions, groundwater institutions at the federal and state levels areyet to be established. Lack of integration of policy at central and state levels and lackof coordination within government ministries and line departments dealing withwater remain core institutional deficiencies at the federal level (James, 2003).

A Preliminary Assessment of Water Institutions in India 929

State Water Institutions

Under state authority, departments of irrigation are responsible for developmentand maintenance of major, medium, and minor irrigation schemes as well asgroundwater development. Most state-level irrigation departments are plaguedwith corruption, mismanagement, and inefficient bureaucratic procedures. Theyalso suffer from chronic funding deficiencies and often subscribe to top-down andengineering approaches to solving water management problems.

In addition to state-level departments, Panchayati Raj Institutions4 (PRIs), whichare the local self-governing bodies at the grassroots level, also control variouswater-related institutions. The main strength of the PRIs is their strong grassroots-level contact and their capacity to offer many opportunities for effective agriculturaldevelopment, including irrigation under the distributed governance model(Gandhi, 1999). However, it appears that a number of ministries of the federalgovernment have not taken substantive steps to integrate PRIs into their strategicplanning (Planning Commission, 2001). Put differently, the state governments havenot empowered and adequately internalized the subject of PRIs (Pillai, 2004;Sehgal, 2004). The political nature of PRIs, extant low skill level and the inability todeal with multiple tasks without becoming overburdened, can also hinder theireffectiveness. Ultimately, this can manifest in lower priority being given to agricul-ture than is optimal (Gandhi, 1999). Moreover, PRIs often lack necessary power andauthority as institutions for local governance (Shah et al., 2004). Although wellinterconnected with other informal institutions at the grassroots level, the PRIs lackcompliance capacity and adaptiveness. Nevertheless, they may be well placed withappropriate social scale because of their decentralized structure.

Tank Irrigation Institutions

Tank irrigation is the primary source of traditional irrigation which provided themuch needed livelihood security through its multiple uses to the poor living infragile regions of India (Sakthivadivel, Gomathinayagam, & Shah, 2004). Tanks areinextricably linked to the social web of rural life and have been predominantlymanaged by local communities as common property with a variety of local customsand norms for centuries. Tanks obtain water from a range of sources such asrain-fed, river-fed, and rain-fed cascades and they differ in their ownership andmanagerial regime (village community, village panchayats, registered water userassociations, fishermen’s cooperative, Revenue Department, Public Works Depart-ment, Minor Irrigation Department, etc.) (Sakthivadivel et al., 2004). The distri-bution of tanks is concentrated in the southern Indian states of Andra Pradesh,Tamil Nadu, and Karnataka.

The area under tank irrigation has declined steadily and its share in the netirrigated area has declined from 18.5% to 6.1% between the 1960/61 and the1996/97 period (Narayanamoorthy, 2003). During 1999–2000 the net area irrigatedby tanks has fallen to 5% of the total net irrigated area ( Table 1). The main reasonsfor this decline include the development of large-scale gravity irrigation systems,the rapid spread of tube well technology, and the decline of traditional communitymanagement (Sakthivadivel et al., 2004). Perhaps not surprisingly, it has beenpointed out that there is a strong negative relationship between tube well density


and tank performance in Tamil Nadu (Palanisami & Balasubramanian, 1998). Thisshift in common property governance to predominantly private property gover-nance could be due to the high transaction costs associated with the use andmaintenance of tank institutions. Rehabilitation of tank systems while encouragingeffective institutional change is the major focus of current government policy toimprove productivity and performance.

Canal Irrigation Institutions

Canal irrigation provided the impetus for the green revolution and the rise of theagrarian economy in India. It is characterized by publicly funded and managedlarge-scale dams and canal infrastructure, predominantly constructed during thelate sixties to early eighties. Although the investment in canal irrigation hasenhanced the productive capacity of land in the past, severe management problemsrelated to water use and allocation within the distribution network are exacerbatedby poor maintenance and degraded infrastructure (Marothia, 2003). The areaunder irrigation increased rapidly but resources needed for adequate operationand maintenance (O&M) of this infrastructure are dwindling mainly due to thepoor cost recovery policies, which are threatening the physical and financial sus-tainability of the systems. In response to these pressures, many irrigation econo-mies, including India, implemented aggressive irrigation reforms aiming to securefarmer participation in irrigation management. In 1999–2000, the extent of areairrigated using canal irrigation was 17,995 thousand hectares or 31% of the totalnet irrigated area (Table 1). Canal irrigation schemes are classified on the basis oftheir command areas: major (�10,000 ha), medium (10,000–2,000 ha), and minor(�2,000 ha) schemes (Gandhi, 2004b).

Water User Associations (WUAs)—Water User Associations (WUAs) are the predomi-nant canal irrigation institutions with the advent of the Participatory IrrigationManagement (PIM) policy. Many states including Andhra Pradesh, MadhyaPradesh, and Maharashtra have adopted legislation to promote PIM. The AndhraPradesh Farmers Management of Irrigation Systems Act (Government of AndhraPradesh, 1997), which was enacted by the government in 1996 and granted theapproval of the legislative assembly in 1997, was the first legislation in India thatis broadly representative of the PIM arrangements. The key rationale of the actwas to negate the existing irrigation inefficiency and inequity and low croppingintensities and yields by reorienting the irrigation department as the competent

Table 1. Total Area Irrigated in India by Type of Irrigation (Thousand Hectares)

Year

Canals

Tanks

Wells

Other

Total NetIrrigated

AreaGovernment Private Total Tube Wells Other Wells Total

1998–99 17,205 503 17,708(31%)

2,939(5%)

20,404 12,754 33,158(58%)

3,272(6%)

57,077(100%)

1999–00 17,550 445 17,995(31%)

2706(5%)

20,953 12,679 33,632(60%)

2,905(5%)

57,238(100%)

Source: Department of Agriculture and Cooperation (2004) http://www.agricoop.nic.in


http://www.agricoop.nic.in

authority to provide technical support to the WUAs who would manage the system(Vermillion, 1997). WUAs formed under the act are responsible for the operationand maintenance of irrigation networks. Irrigation departments are responsible formaking available a reliable water supply, rehabilitation of the distributary system,and facilitation and determination of water charges from the users. WUAs in turnreceive a portion of water charges to carry out their designated tasks.5

The basic structure of PIM in Andhra Pradesh, as stipulated by the act, ispresented in Figure 1. WUAs provide the basic platform for all water users. WUAsregulate and distribute water within its command area. Landholders, titleholders,and tenants have voting rights and are members of the WUA. The other water usersthat do not have voting rights are referred to as co-opted members. The Distribu-tary Committee (DC) is comprised of a group of WUAs under a distributarychannel. The DC is responsible for issues related to a distributary. All the WUApresidents are members of the DC. They elect the managing committee and presi-dent of the DC. All the DC presidents will be members of the Project Committee(PC), which is in charge of the entire project command area. The Apex Committeeis headed by the minister for major and medium projects and formulates broadpolicy guidelines to resolve conflicts (Reddy & Reddy, 2002).

WUAs can be classified according to their nature of origin: government-induced,farmer-initiated, and NGO-facilitated WUAs. Under PIM initiatives, numerousgovernment-induced WUAs were formed. In some instances, WUAs were pro-moted to jointly manage either main or branch canals of the irrigation systems(partial autonomy) with the irrigation agency. In such cases, a chosen group offarmers or a committee collaborate with the irrigation department. In otherinstances, the whole system has been turned over to farmers (full autonomy).

From an institutional design perspective, it is worth noting that farmer devel-oped and managed irrigation institutions have been in existence for up to 2,000years in India. They have shown a high resilience to various adverse conditions andmanaged to survive for centuries. These institutions usually operate by adhering tothe principles basic to sustainable, fair, and affordable services (noncash basis) to

Project Committees

APEX COMMITTEE

Distributary Committees

Water User Associations (WUAs)

Territorial Committee

Landowners (voters)

Tenants (voters)

Other water users (non-voters)

Fin

anci

al fl

ows

Res

pons

ibili

ties

Figure 1. Basic Structure of the Participatory Irrigation Management in Andhra Pradesh (modified from Reddy &Reddy, 2002, p. 523)


beneficiaries. However, despite its historic record, community-managed systemscover less than 1% of the total irrigated area in India and have failed to make anyinroads into large-scale irrigation systems (Government of India, 1992, quoted inReddy, 1998).

Irrigation Cooperatives—Irrigation cooperatives have emerged as a response to inad-equate and irregular water supply leading to numerous conflicts. State irrigationdepartments have often failed to deliver satisfactory irrigation management andO&M outcomes due to various reasons. Frequent breakages of canal walls andunauthorized use of water by farmers have created chaos and inequity in canalsystems,6 often resulting in the tail-enders failing to receive any water at all (Gandhi,2004b). The membership of the irrigation cooperative is obtained by purchasingownership shares. The share capital assigned to individual farmers is based on thesize of the land holding of the farmer. Irrigation cooperatives are usually governedby a General Body, which meets twice a year. The General Body is comprised ofmembers and a management committee of elected and/or nominated representa-tives. The cooperatives employ staff to manage the day-to-day business of theorganization. Irrigation charges are based on both area and crop type. The coop-erative decides charges for a given year. Although initially reluctant, the govern-ment has transferred the responsibility of managing the water distribution system tocooperatives. The success of the cooperatives has led the government to hand overlarger command areas to cooperatives in recent times (Gandhi, 2004b).

Groundwater Institutions

Groundwater institutions have revolutionalized the Indian irrigation sector. Theextent of area irrigated by groundwater has already surpassed the area irrigatedwith surface water. India has the highest annual groundwater abstraction volume inthe world. It is estimated that some 200 billion cubic meters of groundwater isextracted annually in India (Shah, 2002). Nearly 60% of the total irrigated area(Table 1) is irrigated by groundwater and tube well irrigation, which recorded anannual growth rate of 13.7% from 1960 to 1999 (Department of Agriculture &Cooperation, 2004).

The emergence of groundwater markets is considered to be context-specific(Dubash, 2002). Tube well technology and the supply of electricity in the early1970s intensified groundwater extraction and water trading. Higher water supplybrought changes to cropping intensity and, consequently, more-organized institu-tions emerged. However, lower castes facing resource constraints were commonlyexcluded from these institutions. In sum, the groundwater revolution redefinedcropping patterns, labor practices, tenancy arrangements, and caste relations inmost parts of India (Dubash, 2002).

In groundwater depleting areas such as northern Gujarat, several farmers gettogether to form cooperative tube well organizations. Their primary aim is to secureirrigation water for members and sell excess in the open market to maximize wealth.Cooperatives are common among landless or functionally landless groups (Wood &Palmer-Jones, 1991). In some villages, group wells and tube well cooperativesemerged because individual landholdings were small and the investment require-


ment was too high (Dubash, 2002). However, where there are large landholdings,individual ownership is prominent. Further, access to credit required land as collat-eral and thus well ownership is often limited to well-off farmers. Institutional credit,subsidized inputs, power pricing policy, marketing facilities, and technological inter-ventions have thus played an important role in these events. In addition, they havecontributed to the emergence of groundwater markets (Singh, 2002).

The Nature of the Water Market—Mohanty and Gupta (2002) identified several uniquecharacteristics of the informal water markets including groundwater markets inIndia. First, an informal water market is localized and fragmented over shortdistances and periods. Unlike in Australia, there is no concrete legislation orregulatory mechanisms to ensure efficient water trade in India. Second, it is drivenby excess supply. In other words, the water market is dependent on rainfall andgroundwater supply where the sellers are often wealthy farmers owning deepwells.7 Third, it is a monopoly market where buyers have virtually no bargainingpower and are tied down to sellers due to their geographical location. Fourth, thetransactions are sometimes influenced by agrarian relations between the buyers andsellers. For instance, in Bihar, the buyer’s social status rather than their ability to paydetermines the access to water (Wood, 1995, quoted in Mohanty & Gupta, 2002). InGujarat, there is evidence that many water transactions are inbuilt into existinglandlord-tenant relations (Dubash, 2000).

Fifth, the payment mode is diverse: cash payments are made on the basis of time,volume, or area irrigated and noncash payments typically take the form of share-cropping.8 There is a variety of pricing arrangements for groundwater transactions.Pricing arrangements vary from fixed payment per unit of land (Uchhak) to hourlypayments and sharing of crop output. Prices are mostly dependent on crop andseason (Dubash, 2002). Under the hourly payments or time-based contracts, thesellers provide water to the buyers and charge on an hourly basis. In villages wheresharecropping is dominated, groundwater trade is based on share payments. Thenegotiated share varies from two-fifths to one-fourth of crop output (Dubash,2002). Sixth, there is evidence that the excessive and competitive groundwaterextraction has caused a decline in the groundwater table as the current propertyregime symbolizes “open access” and the scarcity value of groundwater is notreflected in prices (Mohanty & Gupta, 2002).

Contrary to earlier claims, there is evidence that small and medium landholdingsalso operate wells (Singh, 2002). The ability of large farms to engage in watertrading is due to a result of several factors. First, the large farms with wells aresurrounded by small and marginal farms that do not have their own water sources.Second, large landholders reduce their own demand and increase supply by adopt-ing less water intensive crops and selling surplus water. Third, the availability ofwater is relatively higher with larger-size farmers since they have the financialmeans to extract water from deep wells (Singh, 2002). The reasons for nonpartici-pation in water trading include lack of surplus water, high intensity of wells (major-ity having their own wells), and the difficulties in transporting water to distantholdings. Well owners are encouraged to extract and sell the maximum volume ofwater because of the existing electricity pricing, which is set at a flat rate (Singh,2002).


Problems related to groundwater governance include high extraction rates,fluctuating water tables, groundwater pollution, and equity issues. Efforts areunderway to arrest the exorbitant extraction levels of groundwater and make atransition toward a more sustainable management of groundwater resource.However, this has been a challenge because groundwater is in the hands of thou-sands of private farmers and government control over them is virtually negligible(Chaurasia, 2002). Another aspect is the availability of the electric subsidy, which hasexacerbated the extraction levels significantly. A core legislation aiming to regulategroundwater management is the creation of a Groundwater Authority under theEnvironmental Protection Act 1986 (Government of India, 1986). States are in theprocess of formulating their own groundwater legislation to control groundwatergovernance. Many states are planning to transfer groundwater governance toPanchayati institutions at the village level (Chaurasia, 2002) although this is likely toprove costly.

Check-dams

Check-dams are referred to as “community water harvesting structures.” Check-dams are constructed by building a barrier across the direction of water flow onshallow river streams for the purpose of water harvesting. The dam retains theexcess water flow behind the structure during monsoon seasons. The surfaceand subsurface water entrapped by the dam is primarily used for groundwaterrecharge. But there are other uses such as surface irrigation, livestock, and domesticneeds. One of the core benefits of check-dams is their highly effective groundwaterrecharge. Check-dams are popular among many resource-poor communitiesbecause, compared to large dams, they require minimal technology, financialresources, skilled labor, and maintenance (Development Alternatives, 1999).There are several government assistance schemes available for the construction ofcheck-dams.

Check-dams usually operate under common property institutional arrange-ments. Beneficiary farmers contribute to the construction and maintenance ofcheck-dams. The beneficiary farmers are required to pay a charge in accordancewith their size of landholding. Village Committees (Gram Samiti) with a widerrepresentation of the community have been established to construct and managecheck-dams and they are responsible for raising money for construction, selectingsuitable locations, and securing government assistance and donations. In manycases, the use of water from check-dams for irrigation purposes is strictly prohibited(Gandhi, 2004c).

Institutions Under Extreme Conditions

Unique institutional arrangements have emerged to deal with extreme physical,climatic, and geographical conditions. Over time, people have developed systems tomaximize the use of water from these sources as depicted by the physical layout of theirrigation system and in the customary rules and rights that govern the distributionof water. The community often has intimate knowledge of these norms and rules asthey are passed down from generation to generation. There are inbuilt sanctions and


self-monitoring systems, which conform to local customs, to determine access andprevent outsiders from appropriating the resource. These traditional, indigenousirrigation systems characterize more or less homogenic communities with strongsocial institutions such as mutual cooperation and reciprocity, polyandry, and right ofprimogeniture (Gupta & Tiwari, 2002). A good example can be found in Ladakh,which is located in a remote part of northern India.9 One unique water allocationrule, which is based on a principle of impartiality, recognizes the need to fulfill thewater requirement of every field. This approach can be seen as a lottery system, bywhich each household’s turn for receiving water is randomly determined. Thissystem is followed more stringently when the water is scarce, especially at thebeginning of the agricultural season. Once water is diverted into channels, fields atthe tail end are irrigated first, and then the ones above, and so forth. This effectivelyeliminates the head-enders versus tail-enders conflicts. An appropriator (Chud-pon)to oversee the entire village water allocation system itself is an institution. Thechud-pon is appointed at the beginning of each agricultural season by collectivedecision and on the basis of common consent or by rotation from among the originalnumber of nonfragmented households by turn. There is a written contract (Kamgya)between the chud-pon and the village community outlining the responsibilities of thechud-pon (Gupta & Tiwari, 2002). In the case of Ladakh, the most notable feature ofwater institutions is that the rules devised by the people have been formally incor-porated into governmental jurisdiction, which automatically eliminates any externalchallenges on the rights of the appropriators and hence it represents a successful andlong-enduring water institution.

Institutional Design Criteria Framework

The quality of the institutional design has a great impact on performance (Merrey,1996).10 Several researchers have proposed institutional design principles for effi-cient water management (Goodin, 1996; Merrey, 1996; Ostrom, 1992). Theseinstitutional design features essentially focus on what institutional conditions anddesign principles are most conducive to achieving and sustaining high performanceof various irrigation systems. Ostrom (1992) developed design principles of long-standing, self-organized irrigation systems. They include clearly defined bound-aries, proportional equivalence between benefits and costs, collective choicearrangements, monitoring, graduated sanctions, conflict resolution mechanisms,external recognition of rights to organize, and nested or federated organizations.The following institutional design features, which are consistent with low transac-tion and transformation costs, are proposed to be of key importance: clear objec-tives, interconnection with other formal and informal institutions, adaptiveness,appropriateness of scale, and compliance capacity. These are discussed in detailbelow.

Clear Institutional Objectives

Clarity of institutional purpose and transparency in the process of adjustment,where the purpose changes or evolves, are vital in determining the success ofinstitutions. Institutions can have a wide range of objectives such as efficiency,


unbiasedness, sustainability, equity, and fairness (Loehman & Kilgour, 1998). Theobjective that is chosen as the principle aim of any institution will ultimately affectthe welfare of those people influenced by the institution. The straightforward aspectof good institutional design is often violated simply because there are multipleinstitutional objectives, and it is not made clear which is the key objective and whichothers should be viewed as constraints on the pursuit of that objective. It is worthnoting that a potentially perverse relationship exists between the desirability ofhaving clear objectives and another desirable feature discussed below, adaptiveness.The higher the clarity and specificity of the objectives, the lesser the capacity todeviate from these goals.

A transparent process of adjusting institutional objectives is relevant because ofthe role that “power” plays in setting institutions. Transparency limits the exerciseof power used by individuals and groups to influence institutional objectives in waysthat are inconsistent with community objectives. To quote North (1990, p. 16),

Institutions are not necessary or even usually created to be socially efficient; rather they, orat least formal rules are created to serve interests of those with the bargaining power todevise new rules. In a zero-transaction-cost world, bargaining strength does not affect theefficiency of outcomes, but in a world of positive transaction costs, it does.

Transparency process mitigates the potential use of bargaining power to effectinstitutional change that is not in the interests of the broader group governed by theinstitution, by ensuring that feedback is provided to the broader group. This lessensthe incentives to political actors to make inconsistent changes in objectives.

Interconnectedness With Other Formal and Informal Institutions

It is widely believed that bringing about a change in the way a social system operatesrequires changes in the formal and informal institutions of society (e.g., Dovers,2001; Ostrom, 1993; Williamson, 1985). However, the only group of rules overwhich there is direct control are the formal institutions. In addition, there are claimsby some that informal institutions play a crucial role. For example, North (1990)claims that the relative success of the U.S. economy through modern history incomparison to countries with similar formal institutional structures has beenbecause the underlying informal institutional framework of the United States haspersistently reinforced incentives for organizations to engage in productive activity(whereas the informal institutional framework in some other countries has not).Therefore, the nature of the relationship between formal and informal institutionsand the influence of each in determining overall institutional performance in themanagement of any system is of key interest.

The cultural values and governance system of a society to a large extent deter-mines the internal values of organizations, and these in turn rule the organization(Ruys, van den Brink, & Semenov, 2000). In the same way, the informal institutionsof society can be seen as determining or constraining the scope of actors withpolitical power to alter the formal governing institutions (of society broadly or someother social organization). The evidence suggests that existence of formal andinformal institutions matter in determining the attitude of people in terms of risk,fairness, trust, cooperation, self-interest, and altruism (Ensminger, 2000). Con-


versely, there is also research evidence that informal institutions can substitute forformal institutions in particular circumstances (Greif, 1994; North, 1990).

Adaptiveness

Institutions associated with the management of natural resources need to be adap-tive because of the inherent complexity of natural systems. This creates uncertain-ties in relation to the adequacy of management actions to address specific issues,and produces uncertainty with respect to the consequences of these actions on otherparts of these complex dynamic systems. All institutions need adaptive capacitybecause changes in technology, and private and political tastes and preferences, willgenerate pressures for institutional change. Dovers (2001) identified the followingprinciples for adaptive institutions: persistence, purposefulness, information-richness and sensitivity, inclusiveness, flexibility, and scale appropriateness.

Adaptive management allows resource managers to continue to manage despiteinherent complexity and uncertainty (Holling, 1995). There is a range of differentforms of adaptive management. Evolutionary adaptive management describes atrial and error approach to management while passive adaptive management useslessons from the past to develop a single best policy to adopt in practice. Activeadaptive management is learning focused and uses policy and its implementation astools for learning. Active adaptive management is also participatory and uses policyimplementation to test hypotheses (Allan & Curtis, 2003).

The above would appear to indicate that the increased experimentation andlearning, which is key to effective adaptive management, will necessarily havepositive institutional and management performance outcomes. Unfortunately, theexistence of dynamic costs of change, and specifically intertemporal transaction andtransformation costs, creates perils from the adoption of broad-scale institutionalexperimentation. Challen (2000) concluded that these dynamic costs might in factfavor conservative decision making, which ensures institutional inflexibility is main-tained. This implies that caution is required with institutional experimentation.This may be particularly true with innovative but risky institutional variations,because the long-term costs caused by path dependency outweigh the benefits. Theopposing view to the cautious approach is that while the cost of poor institutionalinnovations may be magnified when viewed in the real (dynamic) environment, it isalso true that the opportunity costs of not undertaking good institutional innova-tions are also magnified through path dependency. The key would appear to lie inmaximizing the level and effectiveness of institutional learning, without compro-mising institutional flexibility. This requires adoption of “active” adaptive manage-ment approaches, and a thorough evaluation of the potential dynamic costs andbenefits of institutional experimentation, not just the static benefits and costs.

Appropriateness of Scale

The spatial and administrative scales that institutions are based upon are extremelyimportant to their success (Dovers, 2001). Spatial scale refers to the physical areaover which the institution operates and to the basis by which the boundaries of thisarea are determined. For example, a spatial scale could be determined on the basis


of a river catchment or habitat type (ecological), state, local government, or elec-torate areas (political), the people living in a particular village or town or membersof a particular organization (social).

The boundaries of natural resource institutions are occasionally based on catch-ment areas. However, as institutions are the constraints that shape human interac-tions, it is also important that the social context is considered in the process ofdetermining an appropriate scale over which to construct institutions. Curtis et al.(2002) claim that the establishment of local groups using social boundaries is key tothe success in sustaining water management groups over time. This is because of theeffects on community cohesion and sense of purpose that are generated whengroups are established on social and not just catchment boundaries. It could beargued that the potential for success of these groups is raised because they are basedon a scale that reflects their shared informal institutional foundation. The admin-istrative scale of an institution refers to the group who is responsible for its imple-mentation. This may be some level of government, a small or large social group, orthe community in general.

Compliance Capacity

North (2000) identifies enforcement as a key issue in understanding how to developbetter institutions, and claims that there is imperfection in the enforcement of allformal and informal institutions. The reasons for these differences in enforcementof formal rules and informal norms are not well understood. Ostrom (1993) alsoidentifies compliance as being central to the design of long-enduring irrigationinstitutions.

The reason why compliance and enforcement are important is because there arecosts involved in the making of a contract. These costs mean that contracts willrarely be comprehensive in covering all conceivable outcomes (i.e., they are incom-plete). This incompleteness creates the incentive for parties to spend resourcestrying to capture the unallocated potential for benefit under the contract. Inaddition, compliance capacity is required to deal with violations of contractualelements that are specified.

The research indicates that there are strong links between the enforcementcapacity specified in particular contracts and the success of particular institutionalforms. Appropriate enforcement arrangements exhibit themselves through thepersistence and success of particular contractual arrangements within the samesector and within the same institutional environment.

There are two forms that compliance mechanisms can take: self-enforcement andthird-party enforcement (Barzel, 2000). They are also referred to as internal andexternal compliance measures. The essence of both of these enforcement mecha-nisms is the ability to punish. The costs of punishment can be imposed in a varietyof ways, falling into two broad categories:

• by third parties reducing the level of valuable long-term relations between theenforcement and others (e.g., by tarnishing the enforced’s image); and

• when there is no enduring relationship between the enforcer and theenforced, by imposing harm, generally through violence. Violence is defined


as impersonal means of imposing costs. This includes the threat of physicalviolence such as incarceration, and the confiscation of valuable assets. (Barzel,2000)

While a range of individuals and groups can provide third-party enforcement, thestate generally has a comparative advantage because of its ability to impose imme-diate large costs. Self-enforcement works well where there is positive value to allparties from maintaining a contract. Where the value of a venture is believed likelyto become negative to one party during the period of a contract, third-partyenforcement is likely to be required. Significant differences exist in the transactioncosts of different enforcement arrangements.

Comparative Assessment of Water Institutions

This section offers a broad comparative assessment of selected water institutionsusing the internal institutional design criteria described in the third section. Waterinstitutions differ greatly in their physical attributes, geographical location, prop-erty rights structure, institutional attributes, sociopolitical, and cultural contexts.However, we contend it is plausible and desirable to make a comparative assessmentbased on key design criteria. The assessment developed here is predominantlybased on secondary literature. However, in some instances case studies conductedin several states of India and personal communication have been employed. Asummary assessment of water institutions is presented in Table 2.

Assessment of Canal Institutions

Clarity of Objectives—A range of objectives is attributed to WUAs in general. Theyinclude securing an adequate and reliable water supply for irrigation, water distri-bution, conflict resolution, equitable access to irrigation water, O&M activities, andthe like. The PIM Act empowers WUAs to prepare and implement rotational waterdistribution for each season (in line with operational plans approved by the Dis-tributary Committee or Project Committee), assist in collection of water charges,maintaining accounts, and conducting general body meetings as required.

The degree of institutional clarity among government-induced WUAs variesfrom moderate to low. According to a study of 22 WUAs in Madhya Pradesh, thereis evidence that the membership of WUAs has a clear knowledge related to theprovisions of the PIM Act, how members should be elected and returned, waterdistribution, and other collective choice rules (Marothia, 2002). Moreover, the studyreported that there was total transparency in the functioning of WUAs and anexistence of a well-specified work plan for maintenance and repairs of canal infra-structure (Marothia, 2002).

Compliance Capacity—Most government-sponsored WUAs suffer from erratic waterdistribution, theft, and tail-ender problems (Kurian, 2001). Poor compliance due tothe elected representative not wanting to impose regulation in view of reelection isanother problem. Water theft and tampering with irrigation structures are common.One of the key criteria that can test the compliance by the membership is the payment


Tabl

e2.

Des

ign

Feat

ure

Ana

lysi

sof

Wat

erIn

stitu

tions

inIn

dia

Inst

itutio

nC

lari

tyof

obje

ctiv

eIn

terc

onne

cted

ness

with

othe

rin

stitu

tions

Ada

ptiv

enes

sA

ppro

pria

tene

ssof

scal

eC

ompl

ianc

eca

paci

ty

Can

alIr

riga

tion

a.G

over

nmen

tin

duce

dW

UA

sL

ow,M

oder

ate1

Mod

erat

eL

ow2

—Po

or3

b.Fa

rmer

-initi

ated

WU

A4

Hig

hH

igh

Ver

yhi

gh—

Mod

erat

e5

Tank

Irri

gatio

na.

Trad

ition

alco

mm

unity

owne

dan

dm

anag

ed6

Hig

h7—

Hig

h7—

Hig

h8

b.G

over

nmen

tow

ned

and

man

aged

9L

owL

owL

ow10

——

c.Pa

ncha

yati

Uni

onm

anag

ed11

Low

——

——

Gro

undw

ater

Irri

gatio

na.

Priv

ate

owne

dan

dm

anag

ed(S

ingl

eow

ners

hip)

Hig

hL

owM

oder

ate

Var

yH

igh

(sel

f-en

forc

ed)

b.C

omm

unity

owne

dan

dm

anag

ed(C

oope

rativ

esan

dco

llect

ive

owne

rshi

p)H

igh

Hig

hV

ery

Hig

hH

igh

Hig

h

c.Pu

blic

tube

wel

ls(G

ovt.

owne

d&

man

aged

)12—

——

——

1.In

the

case

ofpa

rtia

laut

onom

yin

IMT

(Dep

artm

ent

ofIn

tern

atio

nalD

evel

opm

ent

(DFI

D),

2001

).2.

Mos

tlydu

eto

poor

asse

ssm

ent

ofre

sour

cene

eds

prio

rto

turn

over

(DFI

D,2

001)

.3.

Prio

rity

wat

erri

ghts

hono

red

byfa

rmer

s,be

nefic

iari

esm

eet

allO

&M

cost

s,vi

olat

ors

ofru

les

are

prom

ptly

pena

lized

(DFI

D,2

001)

.4.

Bas

edon

Cen

tre

for

Civ

ilSo

ciet

y(2

003)

.5.

Lac

kof

trus

tbe

twee

nW

UA

and

Irri

gatio

nD

epar

tmen

tan

dpo

orpr

oced

ures

toco

llect

fees

.6.

Kud

imar

amat

husy

stem

s.7.

Sakt

hiva

dive

land

Gom

athi

naya

gam

(200

4).

8.Se

ese

ctio

non

com

plia

nce,

disc

usse

dun

der

Ass

essm

ent

ofT

ank

Inst

itutio

ns(S

akth

ivad

ivel

etal

.,20

04fo

rm

ore

deta

ils).

9.Fo

rex

ampl

e,th

epu

blic

wor

ksde

part

men

tco

ntro

lled

tank

s.10

.T

hego

vern

men

t-m

anag

edsy

stem

sst

rugg

lein

wat

erdi

stri

butio

ndu

ring

scar

city

peri

ods

due

toin

flexi

ble

rule

sen

forc

edby

corr

uptib

leag

ents

(Bar

dhan

,200

0).W

hen

rule

sar

ecr

afte

dby

the

gove

rnm

ent,

ther

ear

em

ore

viol

atio

nsan

dle

ssco

mpl

ianc

e.11

.B

ased

onPa

lani

sam

i&B

alas

ubra

man

ian

(199

8).

12.

Publ

ictu

bew

elli

nitia

tive,

crea

ted

toex

ploi

tth

esc

ale

econ

omie

san

dim

prov

eth

eeq

uity

inac

cess

has

mor

eor

less

faile

din

alls

tate

s(M

ukhe

rjia

ndK

isho

re,2

003)

.


of irrigation service fees. A World Bank evaluation of PIM projects revealed that costrecovery was unsatisfactory in 68% of projects (World Bank, 1994, quoted in Kurian,2001). This implies low compliance on irrigation service fee payments. Much can beattributed to the fact that most members are not aware how the collected money isbeing spent and there is a sense of mistrust among membership. For example, a canalirrigation study carried out in Madhya Pradesh reports 91% of WUAs evaluated hadlow awareness of financial status of their organization and performed poorly onfinancial management (Marothia, 2002). Another key criterion to test the degree ofcompliance is the level of water supply since the adequacy of water supply is positivelyrelated to the degree of rule conformance (Marothia, 2002). The adequacy of watersupply is arguably the most critical aspect of water governance. However, Marothia(2002) notes that only 5% of WUAs had adequate water supply while 41% and 55%had moderate and scarce water supply, respectively.11 The same study reports thatthe voluntary labor contribution and efforts for water saving, social audit, and fundgeneration were poor (Marothia, 2002).

Due to very low collection turnover of water charges, there are instances wherethe government and the WUA together collect water charges from the farmers.Traditionally, the revenue department collects water charges using their adminis-trative machinery. In this joint collection process, the irrigation department, therevenue department, and WUA jointly inspect the area irrigated and the type ofcrops grown are noted and accordingly a cess will be collected from the farmers. Asan incentive to WUAs to participate in this cess collection process, a share of thewater cess collected will be given to the WUA (Nikku, 2002).

Interconnectedness With Other Institutions—Inadequacy and erratic water supply haveoften been quoted as reasons for not establishing strong links within the PIMgovernance hierarchy illustrated in Figure 1. Marothia (2002) reports moderate-level performance for organizational linkages between WUAs and other relatedinstitutions. Some studies report that the leadership often reside with higher castemembers (Nikku, 2002), indicating the tendency to follow the deeply rooted socialnorms.

Adaptiveness—Given the universally applied institutional design under the PIM Act,the adaptiveness and flexibility of WUAs is restricted. For most WUAs, there is awell-specified work plan for O&M and each WUA has to submit their work plan forapproval and release of funds of which WUAs receive compensation according tothe irrigation revenue sharing formula. In these situations, the flexibility of theorganization and the ability to change plans quickly may be limited.

The performance of WUAs and farmer participation in irrigation management ismixed (Meinzen-Dick, Raju, & Gulati, 2000). In some areas they have worked butin others not. It is often echoed that it requires a complete paradigm shift to achieveeffective implementation of WUAs. To sustain PIM requires a substantial politicaland bureaucratic will to share power with farmers. Numerous observes have notedthat PIM has not delivered to the extent envisaged (Marothia, 2003). Performanceappears to depend in large part on whether the WUAs are strong enough to assumemanagement. There have been numerous instances where the additional direct andindirect costs, including intangible transactions costs, are involved and are not


balanced by benefits resulting in farmers nonparticipation (Meinzen-Dick et al.,2000).

One of the most common problems with the farmer-managed irrigation schemesare the flawed water delivery systems where the tail-enders do not receive water atall (World Bank, 1994, quoted in Kurian, 2001). With this in mind, the sustainabilityof the WUA heavily depends on their capacity to provide an adequate waterdelivery. Although spelled out as an objective of PIM, the lack of equity and reliablesupply of irrigation water managed by WUAs points to the failures of transparencyand the absence of an adjustment process. Although WUAs have succeeded inincreasing the area irrigated predominantly with wet crops, such as rice, they havefailed to ensure an equitable water distribution between head-enders and tail-enders. Another criticism is the degree of equity prevalent when increased avail-ability of water arises in the system (IIMI, 1997). Compliance with irrigation servicefees is another issue that emerged from an evaluation of 208 World Bank projects,which showed that 68% of the projects failed to recover costs satisfactorily (WorldBank, 1994, quoted in Kurian, 2001).

Assessment of Tank Institutions

Tank institutions can be classified into three distinct categories in terms of theproperty rights regime: community owned and managed (Kudimaramathu systems),government owned and managed, and panchayati managed systems. Communitieshave managed tank systems as common property despite the presence of manyadverse external conditions. Government owned and managed tanks have usuallyundergone rehabilitation and tank WUA is the predominant institutional type.

Clarity of Objectives—Traditional tank institutions have well-defined, clear objectivesand specific rules, including operation of sluice gates, allocation of water to varioussegments, and rationing rules amidst water scarcity (Sakthivadivel & Gomathinaya-gam, 2004). Tanks have multiple functions including low-cost surface irrigation,12

capturing rainwater and reducing soil erosion, recharging groundwater, reducingthe intensity of flash floods and droughts, and cultivating tank beds.13 This multi-purpose nature of tanks is often associated with conflicting priorities of tank stake-holders,14 which traps them in a low-level performance equilibrium (Shah & Raju,1999, quoted in Sakthivadivel et al., 2004).

Interconnectedness With Other Institutions—Traditional tank institutions have stronglinkages to the sociocultural aspects of rural life (Sakthivadivel et al., 2004) andhence are well connected with other institutions. For example, in some traditionaltank systems in Tamil Nadu, there are landholders from differing religious back-grounds such as Christian, Hindu, and Muslim religions and the respective reli-gious leaders appoint the irrigation functionaries. Moreover, the office bearers ofthe farmer associations are also elected from the representatives of these religionsin rotation (Sakthivadivel et al., 2004).

Compliance—It appears that each tank system has its own institutional arrangementsto acquire water and maintain feeder (supply) channels, which are critical for


performance. A high compliance capacity is evident where it is mandatory for theusers to participate in cleaning the feeder channels and those who are unable to arerequired to pay wages of laborers. In some tank systems in Tamil Nadu, there areexclusive field-level functionaries called kaval agents or neerkattis (common water-man) to facilitate water supply to the tank, organize and coordinate tank mainte-nance, mobilize resources for tank maintenance, and lobby with governmentdepartments for better maintenance of tank structures (Palanisami & Balasubrama-nian, 1998; Sakthivadivel et al., 2004). Usually, these functionaries are paid for theirduties from a common fund of the tank institution.

Compliance in rapidly deteriorating tanks seems declining. Rapid expansion oflift irrigation has threatened the sustainability of some tank systems in India. Withthe availability of diesel pumps and cheap electricity, lift irrigators can pump waterdirectly from the tanks or canals. In some extreme cases where the well densityhas exceeded one well per hectare of tank command area, the tanks have becomedefunct (Palanisami & Balasubramanian, 1998). The lack of water into tanks hasencouraged people to encroach the tank bed (“petta” farmers or tank-bedfarmers) for cultivation (Palanisami & Balasubramanian, 1998). In certain cases,supply channels are encroached as well. The legality of tank-bed cultivation is acontentious issue and varies with states. In Madhya Pradesh, the state governmenthas a policy of leasing tank beds to the poor although people with political powercontrol the access and allocation of tank beds (Satpathy et al., 2002). There aremany conflicts between tank-bed farmers and command-area farmers regardingdesilting, timing of emptying the tank, and rehabilitation of the canal system (Shah& Raju, 2001).

In some tank institutions participation in decision making is compulsory formembers. For example, in the Pudukkottai district of Tamil Nadu, if anybody isabsent for a meeting without prior notification, the absentee has to pay a fine of 100rupees (Sakthivadivel et al., 2004). In high-performing tank institutions sluice gateoperation is usually entrusted to a nonmember or to a person on hereditary basisfor a defined period of time (Sakthivadivel et al., 2004). In some instances, thesepositions are entrusted to people based on skill and managerial ability rather thancaste-based criteria. Penalties for noncompliance include stern warning, impositionof fines, ceasing water supply, and so on. In these situations, more than the level ofpunishment involved, the social stigma attached to the punishment acts as a pow-erful disincentive.

Adaptiveness—Adaptiveness measures the tank institution’s ability to make plansaccording to water availability so as to provide social safeguards against waterscarcity. Tank water allocation mechanisms show great adaptability in the face ofwater scarcity. Water allocation during drought periods is governed by the principleof equity and rotational irrigation. When the entire command area cannot beirrigated due to water scarcity, different systems of proportional water allocation ismade by village leaders and it ensures that everybody receives minimum irrigationto sustain the livelihood. When faced with water scarcity, farmers with up to 1 acreof land in the command area are permitted to cultivate their entire holding, farmersowning land between 1 and 5 acres in the command area are permitted to cultivatehalf of their holding, and farmers owning more than 5 acres are permitted to


cultivate only one third of their extent of holding (Sakthivadevel et al., 2004). Whenthe water level of the tank is very low, the tank association may decide not to supplywater for that season at all.

There is a range of innovative mechanisms to raise funds for tank institutions.Many tank institutions raise funds from selling fishing rights, sale of usufructs, andcollecting fines and fees from the members (Sakthivadevel et al., 2004). If thesefunds are inadequate, some levy a tax based on landholding. This tax is alsoimposed on well owners as they rely on the tank to recharge their wells. Some tankinstitutions use collective marketing arrangements and auctions for agriculturalproduce to raise funds for tanks (Sakthivadevel et al., 2004).

Assessment of Private Groundwater Institutions

Private groundwater institutions are often classified under an informal watermarket. A considerable discrepancy exists on how they are perceived in a widerinstitutional context. There are two distinct groups of groundwater sellers: tubewell farmers and tube well businessman (Mukherji, 2004). Tube well farmers arepredominantly interested in self-irrigation while the latter group is motivatedby profit and is more interested in water trade. On the other hand, buyersare predominantly characterized by small and marginal farmers (Mukherji,2004).

A study carried out in North Gujarat, where a large number of groundwaterirrigation organizations are functioning, shows that these organizations display thecharacteristics of strong and effective institutions for managing shared resources, interms of the rules and regulations, member’s awareness, transparency in decisionmaking, conflict resolution mechanisms, degree of equity in access, and efficiency inresource use (Kuman, 1995). Moreover, it can be seen that groundwater institutionsare well interconnected with traditional institutions such as sharecropping. Theyalso show a greater adaptability as well.

Institutional Clarity—Groundwater rights are tied with land rights and are notregulated. It is difficult to articulate a single objective for private groundwateroperations because there may be other objectives than profit. For instance, pricediscrimination in groundwater in favor of kith and kin and perceived social statusattached to “water-lords” suggest that there are multiple objectives. However, own-ership of water pumps and other groundwater extracting machinery (“pumpcapital”) has significantly shifted from large, upper class farmers to medium andsmall-scale, backward caste and other schedule caste farmers (see Pant, 2003).However, self-interest and profit motives dominate the private tube wells becausethey are virtually independent from any form of regulation. Landholders have theright to extract groundwater freely for own consumption as well as to sell it to otherpotential users. Tube well partnerships have clear operational rules and mecha-nisms for changing rules when the need arises. The property regime of the ground-water is complex; it is neither common property, because it lacks an identifiablegroup of individuals having equal user rights, nor genuine open access, because theability to access groundwater is limited by well ownership.


Interconnectedness With Other Institutions—Private tube wells have very low interactionwith other formal government agencies. The only agency that the well ownerinteracts with is either an electric utility or a public bank. However, the fieldevidence suggests that the participation in the groundwater market by varioussegments of the population (small, medium, and large farmers) is high (Sharma &Sharma, 2004). A survey conducted in semiarid Rajasthan revealed almost 66% oftotal farm households participate in water trade either fully or partially (Sharma &Sharma, 2004).

Adaptiveness—The evidence indicates that the tube well partnerships have a highresilience to adverse situations. For example, when the groundwater table lowers,the members renegotiate a new plan of operation in terms of either constructing anew tube well or buying a high-capacity water pump in order to sustain theinstitution (Gandhi, 2004a).

A closer look at the nature of the transaction involved in the private groundwatermarket reveals that there are several types of contracts in terms of mode ofpayment. They can range from monetary payment to payment in kind or noexplicit payment in the case of mutual exchange of water by water sellers (Mukherji,2004; Sharma & Sharma, 2004). The predominant types of contracts are outrightsale of water for cash, in-kind, or a mix of both, either at hourly or seasonal ratesand tenancy agreements to lease in or lease out land for cash, in-kind, or for a shareof produce. Reasons for the existence of multiple modes of transactions and whyone type dominates the other are one of the grey areas in the groundwater market.Tube wells are operated by individuals as well as partnerships.

Scale—The evolution of private tube well partnerships suggests that most of theinstitutions have taken an adaptive management approach in determining the scaleof operation. A case study conducted in Gujarat revealed that the membershipincreases as the partnership ventures into a greater capacity borer well, reflectingthe greater need for pump capital (Gandhi, 2004a). This exemplifies Hardin (1968)and Sandler’s (1992) argument that both the size of the group and the nature of thecontract affect the outcome of collective action.

Discussion

Analyses of water institutions have generally followed two broad approaches. Onegroup of researchers have placed a greater emphasis on internal institutionaldesign principles and criteria as elements of governance while the other focuseson identifying the external institutional conditions under which the water insti-tution performs better. One weakness of the former approach is that it assumesaway the local political dynamics of the institutional evolution and operation.Moreover, there is tremendous variability in water availability, climate, soil fertil-ity, crop prices, and other political and cultural practices. These factors invariablyaffect the success of a particular institution and separating out these effects frominternal institutional criteria is not an easy task. A study from Kerala revealed thatthe alternative institutional choices of farmers are determined or constrained by


factors related to location, land-crop particulars, and personal characteristics(Neetha, 2004).

Reorienteering WUAs

PIM has been tried out to improve the performance of surface irrigation systemswith mixed success. The conditions inherent to large-scale irrigation projects(settler farmers with diverse origins and farming backgrounds and different tenur-ial conditions) make the formation of WUAs an uphill task. For example, in theRajasthan Canal Project, secure tenure for farmers is nonexistent. Change of tenurepatterns or relaxing the restrictions on tenure is needed to stimulate collectiveaction leading to WUAs.

Irrigation Agency Reform

The devolution of power to the lower levels of government to establish participatoryvillage-level institutions with a clear charter and sound legal backing is essential forthe effective functioning of WUAs. There is a huge challenge posed by the PIM tolarge, public irrigation organizations such as state irrigation departments in termsof power and authority and the job security of public servants. The relationshipbetween the public irrigation officials and water users has become increasinglyuneasy. However, there may be a role for these public entities with a reformedmandate of responsibility (see Johnson, Sam, Svendsen, & Gonzalez, 2002, fororganizational options in irrigation agency reform).

The tank systems assessment provides some interesting insights. It appearsthat traditional tank institutions rate highly on most design feature criteria yet allavailable evidence suggests that traditional tanks are on the decline. This shows thatalthough traditional tank systems appear to have some elements of success, at leastin the medium term, they do not guarantee the long-term sustainability of theinstitution. Breakdown of traditional social institutions and lack of formal institu-tions are seen as a catalyst for degradation of the traditional irrigation infrastruc-ture (Singh, 1994). Disintegration of traditional institutions due to a changingeconomy and globalization has hampered the performance of tank systems. Animportant point to note here is that traditional institutions functioned under atotally different sociopolitical set-up dominated by feudal or semifeudal productionrelations (Reddy, 1998). There is also evidence that elements of social and economicheterogeneity and mutual trust heavily influence the emergence and sustenance ofinstitutions (Kahkonen, 1999). Hence, the importance of external and or contex-tual factors to the performance of water institutions cannot be overlooked.

Amid this backdrop, the groundwater institutions have revolutionalized theIndian irrigation sector in terms of the area irrigated. Despite the virtual absence ofconcrete regulation (in reality) and consequential environmental problems, thegroundwater institutions have embedded well into the existing institutions andhave been able to improve the welfare of millions of farmers in India. However, therecent research indicates that the current rate of groundwater use is not sustainableand is harmful to the environment, causing irreversible damage to aquifers. There-fore, in a holistic sense, current groundwater institutions cannot be regarded assuccessful institutions at all.


Path Dependencies

It is evident that some of the institutional reforms in the past have been forced bythe requirements of the donor agencies. The concept of path dependency explainshow past institutional arrangements strongly influence future institutional set-ups.The traditional tank irrigation systems have a different set of institutional arrange-ments compared to large-scale irrigation systems or groundwater institutions. It isimportant to examine the transaction and transfer costs of institutional reformbefore rushing into new governance arrangements. The public sector owned andmanaged irrigated systems have created inefficient and bureaucratic processes thatundermine the progress of irrigation management transfer and participatory irri-gation management. Without giving adequate time for WUAs to adjust and mature,blanket promotion of WUAs elsewhere might not yield desirable results.

Conclusion

Indian water institutions portray a complex mosaic of socioeconomic, cultural, andpolitical realities in concert with numerous environmental degradation dilemmas.This article presented a rough assessment of Indian water institutions using ageneric set of institutional design criteria. Comparative studies, testing hypothesesabout institutional performance using quantitative data, are needed to generateconcrete conclusions and recommendations. Nevertheless, the assessment providesa useful point of departure for detailed institutional analyses. The analysis indicatesthat there is a variety of formal and informal institutions operating collectively aswell as in isolation. The large irrigation schemes face continued physical deterio-ration, siltation of dams, lack of O&M, poor cost recovery, and disintegration ofinstitutions. Additional water to meet new urban, industrial, and environmentaldemands must be derived from the already developed water resources for agricul-ture. The RBOs may be a step in the right direction. It is obvious that there is nota simple recipe for a winning water institution. Most institutions have at least severaldesirable design qualities. How these qualities influence the performance of a waterinstitution is explored in this article to a certain extent. However, it is difficult togeneralize such propositions across all types of water institutions and across allgeographical regions. Moreover, it is apparent that informal institutions in the formof social norms and cultural and religious practices also significantly influence thewater institution. The analysis reveals the complex nature of institutional arrange-ments and their interrelationships and these insights can be used in the institutionalreform of water management. Crafting winning institutions poses even a greaterchallenge because their performance depends not only on the embedded designcriteria but also on the ability to adapt and respond to changing socioeconomic,political, and cultural challenges.

Notes

1 Water institutions can be decomposed into three distinct components: water law, water policy, andwater administration (Saleth & Dinar, 1999).

2 Cultural theory emphasizes the role of culture in common property resources by signifying thepresence (or absence) of rules about uses of commons (McCay & Acheson, 1987).


3 Alternatively, transaction costs are defined as costs associated with the creation and use of institutions(Crase, 2000).

4 PRIs have conferred constitutional status through the 73rd Constitutional Amendment Act of 1992.5 Water charges are collected by the revenue department.6 This is common in earthen irrigation canal systems.7 As noted earlier, groundwater irrigation often needs a significant amount of private capital, which is

not readily available for small farmers (Vakulabharanam, 2004).8 In sharecropping, a proportionate share of the output is given to the supplier of the input (water, in

this case).9 Ladakh is characterized by unique cultural, climatic, and physical features including lofty ranges,

glaciers, and snowfields. Irrigation institutions in Ladakh use natural water bodies entirely governedby the season, such as water from glaciers and snowmelt used for agriculture. This is complementedby water from springs and marshes in the village.

10 There is a strong positive correlation between the institutional design and performance with fourbroad categories of performance indicators identified in the literature: technical impact, productivityimpact, financial impact, and environmental impact (Meinzen-Dick, Mendoza, Sadoulet, Abiad-Shields, & Subramaniun, 1994).

11 It should be noted, however, out of the WUAs surveyed in this study, water availability variedconsiderably among them (55%, water scarce; 40%, moderate; and 5%, adequate) due to a numberof factors including size of the command area, total number of farmers covered, and so on.

12 Most tanks have only unlined earthen canals (kuchcha).13 Tank-bed cultivation is locally known as petta cultivation.14 Tank stakeholders include command area farmers, tank-bed farmers, fishermen, and the village

community.

About the Authors

Dr Jayanath Ananda is a Lecturer at the School of Business, La Trobe University, WodongaCampus, Australia. He specialises in institutional economics, ecological economics andapplied decision analysis and his articles have been published in several internationaljournals.

Dr Lin Crase is a Senior Lecturer and Head of the Business School at the Albury-Wodongacampus of La Trobe University. His research interests have centred on water resourcemanagement and the design of water policies in Australia. In addition to publishing exten-sively in this field, he has published numerous articles and books on the economics of localgovernment.

Phillip G. Pagan is presently a PhD candidate at the Centre for Resource and EnvironmentalStudies at the Australian National University, and a Policy Economist with the NSW Depart-ment of Primary Industries. His PhD research focuses on the evaluation of institutionalarrangements for the interstate trading of water entitlements. In his role as a policy econo-mist he has extensive experience dealing with policy processes, policy research and projectevaluations related to irrigation sector and structural adjustment.

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A Preliminary Assessment of Water Institutions in India: An Institutional Design Perspective

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