Measuring irrigation subsidies in Andhra Pradesh and Southern India: An application of the GSI method for quantifying subsidies – A paper by the International Institute for Sustainable Development (IISD)

 The objectives of the study included: i) assessing the application of a common method for measuring irrigation subsidies in order to develop accurate, replicable and reliable subsidy estimates and ii) providing policy advice aimed at improving and standardizing the reporting of data on irrigation subsidies. 

The GSI method for quantifying subsidies—which uses the Net Cost to Supplier approach (GSI, 2009)—has been used in the study. Using the GSI method, the cost of providing irrigation water in Andhra Pradesh was estimated using capital costs (interest and depreciation), operation and maintenance (O&M) expenses and the opportunity cost of electricity supplied to the irrigation sector. The benefits—such as the sale of irrigation water, hydropower, fishing rights and water pollution cess—were aggregated. The total aggregate subsidy was estimated by calculating the difference between the aggregate cost of irrigation water and aggregate benefits. 

The study concluded that greater sharing of information and the adoption of agreed methodologies for storing information for calculating subsidies are warranted. The report provides a number of policy suggestions are provided for government, including an overall reduction in the scale of subsidies in order to reduce consumption levels of irrigation water and use of electricity for groundwater abstraction.

It also suggests that this is a way of minimizing the financial burden on the government. This could be achieved either by increasing water charges marginally or increasing revenue generation and levels of cost recovery. Instituting management systems that involve the periodic review of subsidy policies is also important. Accordingly, changes in pricing norms can be incorporated into government policy and their effects monitored over time.

The study also recommends that information on subsidies should be increasingly transparent. It is important that all sectors of society understand the level of subsidy and who benefits from it. This would help address any inequities concerning the distribution of subsides among different groups. The study finally suggests that state and national governments should aim to accurately quantify subsidies (in terms of type and quantum) so their full costs and benefits can be compared.