The cost of Cauvery

A new approach to solving the river water sharing problem.

The dispute over the sharing of the waters of the Cauvery river has been a Damocles’ sword threatening inter-state relations in South India. Despite the setting up of a river authority and tribunals, there remains an underlying tension that erupts into violence as it did in 1991 and 2002. While Kerala and Pondicherry are among the users, Karnataka and Tamil Nadu are the most acutely affected, with the former being the upper riparian and the latter as the largest user, lying downstream.

In both these states, the agricultural communities that depend on the river for their livelihoods constitute powerful interest groups influencing both electoral and street politics.


While the Cauvery Water Disputes Tribunal (CWDT) set the norm for water sharing through its award in 2007, after 16 years of deliberations, there remains a palpable lack of consensus among the river users. The lingering dissatisfaction with the water sharing mechanism worsens whenever there are poor monsoons and fears of drought.

The second half of 2012 witnessed agitation by farmers and litigation in the Supreme Court by their governments even as the water levels in the reservoirs has declined. There is a risk that the tensions over water sharing between Karnataka and Tamil Nadu will erupt, once again, into violence this year.

Worse the generally poor stewardship of groundwater resources at every level suggest that the situation will deteriorate in the future. To protect the stability and growth of among India’s dynamic and prosperous regions, it is incumbent that sustainable water sharing mechanism is put in place. The solution must also transform the issue from an highly charged emotional matter to an important but quotidian one.

The heart of the Cauvery water sharing problem is that the utilisation of a natural resource is taking place without any reference to its economic costs. This leads to the waters being used inefficiently and wastefully. From farmers who grow water-intensive crops in unsuitable lands to households in Bangalore and other cities that use grossly underpriced water for washing their cars, the presumption that water is almost free of cost causes demand to be  insatiable. It is not just people in Karnataka and Tamil Nadu who enjoy the Cauvery ‘subsidy’—to the extent that the price of the agricultural produce grown in its basin does not include the cost of water, the indirect beneficiaries include consumers across India.

Unless there is a ‘price’ attached to drawing water from the river, it will be impossible to arrive at a solution to the dispute. The CWDT award in itself is insufficient as a basis for addressing water sharing—it offers a static solution to a dynamic problem. It assigns fixed quotas for states, but both the river flow and patterns of usage change over time. Furthermore, the CWDT award does not create any incentives for efficient, sustainable and fair use.

It is time for the Cauvery River Authority (CRA), which is chaired by the prime minister and has chief ministers of the four states as members, to consider setting up a Cauvery River Livelihood Protection System that incorporates a pricing mechanism and a market for water to protect the livelihoods of farmers and the interests of other water users.

Such a system would involve states being assigned basic quotas of water and be required to purchase additional water from a river resource fund set up for the purpose. Payments by state governments to the river resources fund during the good times are akin to insurance premiums.

The basic quotas would be tradeable, allowing states to exchange water for money. This will allow states the flexibility to expand their agriculture or acquire additional fiscal resources to reform their agriculture sectors.

During droughts and bad monsoons, states will be compensated for the water deficits below their basic quotas, effectively acting as the insurance payout.

States would be able to purchase water above their basic quotas through an auction. Each state would form a bidding committee, chaired by the water resources minister and comprising of the members of the legislative assembly from the concerned constituencies. The states will thus be able to put an objective measure on how much they are willing to pay for the water they demand.

When states choose to receive compensation, the funds would flow into the state’s treasury allowing the state government to use the additional budgetary resources in accordance with its priorities. They could use it to compensate farmers directly, invest in water resource management projects or indeed, transition their rural areas to be less dependent on agriculture. Leaving it to the states to decide how they should spend their income is in accordance with federal and democratic principles.

The proper institution of the river resources fund is a crucial element in this scheme. It must be adequately capitalised, professionally managed and act as an independent steward of the river resources. The Union and the four state governments could jointly hold the equity, with New Delhi being the largest shareholder. The fund could be underwritten by the Union government and international development agencies like the World Bank. It would be ideal if the the fund be allowed to adopt an investment strategy that would hedge against the risks to the river economy.

This essay intentionally avoids numbers so as not to cloud the idea with contentious details at this stage.

This month, the Tamil Nadu government moved the Supreme Court seeking compensation from Karnataka for not releasing water that the lower riparian was entitled to. In doing so, it has implicitly recognised the principle that there is an economic cost attached to the water from Cauvery river. Instead of loading the already overloaded judiciary with claims and counter-claims, and loading our overloaded societies with more rancour, it is far better to institutionalise a system where states can participate in a market for water, creating incentives for sustainable use of a precious resource and securing the livelihoods of the communities that currently depend on it.

Photo: Ram Reddy