WATER RIGHTS AND AGRICULTURAL PRODUCTIVITY: EVIDENCE FROM INDIA

There is growing concern in the world to better manage water resources in order to sustain increased water demands. This heightened demand can be most importantly attributed to a rapid population growth and heightened development measures in the world. One way this has been tackled since centuries is by allocating water amongst the riparian parties. This dissertation examines a specific sector where water allocations are particularly vital, namely that of agriculture. I focus my analyses on two important basins in India, and attempt to estimate the causal effects of water allocations on agricultural productivity.

In my first chapter, I specifically look at the 1976 Krishna Water Dispute Tribunal that reallocated the rights of three Indian states (Maharashtra, Karnataka and Andhra Pradesh) over the Krishna River in the South of India. I exploit district-time variation in access to water to obtain causal effects of water reallocation on crop output and yield. I find that on average, the decision reduces district output by 7.7 percent and yield by 5.5 percent. I also find suggestive evidence that the decision amplified the reduction in productivity during drought periods; total production experiences an 8 percent decline and yield drops by 7.4 percent (however, the estimates are not statistically significant). The weak negative net effects of the decision are comprised of productivity gains for the most downstream state, Andhra Pradesh, that are more than offset by the productivity losses for the upstream states Maharashtra and Karnataka. The negative impacts for Maharashtra, which are especially pronounced during periods of drought, are significant at conventional levels of significance.Thus, the 1976 reallocation of state rights over water from the Krishna Basin was redistributive and weakly reduced overall efficiency.

To assess if the same results are present in other basins, I look at the Cauvery Basin, also in the South of India, in my second chapter. I evaluate the effects of the 1991 Interim Order by the Cauvery Water Dispute Tribunal on agricultural productivity in the riparian states of Karnataka and Tamil Nadu by implementing a difference-in-differences strategy. On average, the decision does not significantly affect agricultural productivity. However, I find that output declines significantly during drought periods; total production falls by 24 percent (significant at the 5 percent level of significance) and yield reduces by 14.5 percent. I vary my analyses by states to investigate as to who bears incidence of the decision. Surprisingly, I find that both states experience losses during drought periods, but Tamil Nadu’s losses are much higher than that of Karnataka’s. The estimation results suggest an efficiency loss in the region and that the harmful effects of drought are amplified after the decision.