Quantifying Water s Impact for the Finance Minister

Transcription

1 Quantifying Water s Impact for the Finance Minister Ramesh Bhatia and R.P.S.Malik (On Behalf of Study Teams on Multiplier Effects of Dams and Tamil Nadu Water, Economy and Poverty Study )

2 Purpose To Highlight that Water Projects and Water Policies have Region-wide Impacts on Economic Growth Income Distribution, Poverty Reduction and Environment.

3 Purpose To show: Why such Impacts, particularly Indirect Impacts are important How to Quantify these Impacts? Are there trade-offs between Growth and Income Distribution? What Policies can Improve such Impacts How to Incorporate these Impacts in Project Analysis?

4 Messages Multipliers of large water infrastructure projects such as dams can be large ranging between hence indirect economic impacts should be quantified and taken into account in the ex-ante and ex-post evaluation of projects Growth and income distribution impacts of Water Policy Options can be significant and should be analyzed in detail

5 Scope Water Projects: Multi-purpose Dams; Irrigation & Drainage Projects; Tubewell Irrigation Schemes; River Linking Projects; Water Conservation Water Policies : -Priorities in Allocation: Fixed Allocation vis-a-vis- Flexible Allocation - Water Prices and Subsidies - Electricity Subsidies for Pumping

6 Structure Why are we interested at looking at multiplier effects (direct and indirect)? How can we measure multipliers? What are our preliminary findings? Are there policies that improve growth as well as income distribution and environment

7 Why are we interested in looking at multipliers? Dam project assessment has become more comprehensive --consideration of environmental, cultural and other impacts Yet, indirect economic effects have not been explicitly taken into account A multiplier analysis may suggest project s impacts not quantified in a traditional Cost Benefit Analysis (CBA)

8 As noted by the Operations Evaluation Department of the World Bank dams providing water for irrigation also produce, in general, substantial benefits stemming from linkages between irrigation and other sectors of production. Unfortunately, there are no estimates available on the indirect benefits of the projects reviewed in the OED report (1996)

9 The World Commission on Dams Report also recognizes the importance of indirect impacts A simple accounting for the direct benefits provided by large dams the provision of irrigation water, electricity, municipal and industrial water supply, and flood control often fails to capture the full set of social benefits associated with these services. It also misses a set of ancillary benefits and indirect economic (or multiplier) benefits of dams projects. World Commission of Dams Report (2000), p. 129

10 Definition Indirect economic effects Those derived from linkages between sectors of production directly affected by the project and the rest of the economy Those derived from expenditures by households out of extra income generated by project Multipliers Summary measure of relative importance of direct vs. indirect economic effects, expressed as a ratio of total to direct impacts

11 What are we doing to learn more about multiplier effects of Water Projects and Evaluation of Water Management Policies? As a part of the World Bank World Commission of Dams Report Action Plan Multiplier Effects of Dams Study* (2003) of Three Large Dams in India, Brazil and Egypt and a small check dam in India Applying economy-wide, multi-sector modeling techniques to assess direct and indirect impacts and Evaluation of Policy Options (Tamilnadu Water, Economy and Poverty Study) * Study Team:Ramesh Bhatia, Monica Scatasta, Rita Cestti, R.P.S.Malik and the IFPRI Team (Sherman Robinson, Ken Strzepek, Moataz El-Said and Hans Lofgren). Advisor: Alessandro Palmieri

12 How can we measure multipliers? Circular income flow provides a good analytical framework to trace indirect economic effects

13 Circular Income Flow Factor Markets INCOME IMPACTS Wages & Rents Households & other Institutions (Inter-institutional Transfers) INCOME IMPACTS Factor Payments Sectors INTER-INDUSTRY LINKAGES Intermediate Input Demand OUTPUT IMPACTS Sale Revenues INTER-REGIONAL IMPACTS Demand for Region s Exports Product Markets Rest of the Nation / World EXPENDITURE IMPACTS Regional Final Demand INTER-REGIONAL IMPACTS Region s Demand for Imports

14 Water for irrigation services and Hydro-power.. Higher demands for intermediate and capital goods, e.g., fertilizers, tractors, fuel Farmers produce more oil seeds, sugar cane and fruits that are sold to agro- processing industries, leading to additional investments New industries using power are established Income to urban and rural households increases, increasing their demand of goods

15 Available tools to capture multipliers. Input-output (I/O) or Semi I/O models Social Accounting Matrices (SAM) - Based Multiplier Models Computable General Equilibrium Models

16 What are our findings? Sizeable indirect economic impacts Multipliers range between 1.4 and 2.0 Significant impacts on low-income households, including landless, agricultural labor and rural nonagriculture, and urban households

17 Bhakra Multipurpose Dam, India Gross storage Gross irrigated area Hydropower capacity 18 BCM 6 million ha 50% from groundwater 2.9 GW 14 billion KWh

18 Outputs and Impacts Food grain production, 30 million tons per year About 20 million tons available to million urban poor or 25% of urban population (fair-price shops) Poverty ratios are lower 6%-8% in Punjab and Haryana, compared to 28% all-india Large number of migrant labor from poor states Bihar and Uttar Pradesh 400, ,000 Remittances to poor areas amounted US$75 million/year Flood protection, 100% water supply to all cities, and 100% electrification double average of all- India

19 Multiplier Analysis Analysis uses a SAM-based model ( ) for the State of Punjab based on existing I/O studies It accounts for the following sectors directly affected by the dam: agriculture, electricity and water supply Total value-added estimated under with and without project situations at the state level

20 Multiplier Analysis Results VALUE-ADDED (billion Rupees) With project Without Project Difference Directly impacted sectors Total value-added Multiplier = For every 100 paise of direct economic benefits there were 90 paise of indirect economic benefits The multiplier will be higher if indirect benefits of water use for industrial purpose and remittances by migrant labor to other regions were included = 1.9

21 Multiplier analysis also tells us something about income distribution impacts In billion Rupees % Self-employed (inc. farmers) Without project With project 65% Agriculture labor Indirectly affected sectors contribute to household income 17% Urban 100% 80% 60% 40% 20% 0% Average household income gains 30% Self-employed (inc. farmers) Direct Agriculture labor Indirect Urban

22 Percent Increase in Incomes of Various Groups With and Without Bhakra dam Landowners Agr Labor Rural Non Agr Rural Others Urban

23 Social Impacts Resettlement Bhakra dam: 32,000 person, 7,200 families 5,000 given cash compensation for land and 2,200 given land in command area plus cash Pong dam: 100,000 persons, 16,000 families Rehabilitation in command area, far away. Many returned to native areas Health Water for million of household in urban and rural areas positive health benefits

24 Environmental Impacts Sedimentation 10% lost of storage, 0.5 million ha affected by water logging, 0.7 million ha affected salinity Groundwater pollution Fertilizers, pesticides, nitrate levels higher than permissible in drinking water for 33% of areas Greening of deserts Stopping Thar desert in Rajasthan Net increment in forest cover Greenhouse gas emissions Reduction due to hydro, increased methane from paddy fields

25 Estimates of Multiplier Values for other case studies For the case study of Sobradinho Dam in Brazil multiplier values are close to 2.0 implying that indirect impacts are as large as the direct impacts For Aswan High Dam, multiplier values range between 1.22 to 1.4 Multiplier value for the check dams in the Bunga village (India) is estimated as 1.41

26 Multipliers should not be misinterpreted. A large multiplier indicates large indirect impacts relative to direct impacts, but a small multiplier does not mean bad dam, if direct benefits are relatively high The important thing is to understand the process through which direct and indirect economic benefits are generated Appreciating the relative importance of direct and indirect benefits can help design policies that help reap the full development impacts of large projects

27 Conclusions on Multipliers Dams do provide larger economic benefits than those captured by traditional benefit-cost analysis Multipliers of hydraulic infrastructure can be large ranging between Indirect economic impacts should be analyzed, quantified and taken into account in the ex-ante and ex-post evaluation of projects Income distribution impacts can also be captured by using economic-wide models

28 Quantifying the Impacts of Water Policies in Tamil Nadu state, India Direct and Indirect Impacts on Economic Growth Income Distribution Groundwater Resources Ecology and Minimum Flows Water Policies and Management: Fixed Allocation vis-à-visflexible Allocation Additional Water From Godavari River Link Project Water conservation Programs Economic Price of Electricity for Pumping (No Subsidies)-- * Tamilnadu Water, Economy And Poverty Study Team: John Briscoe, Ramesh Bhatia, R.P.S.Malik, K.Palanisami, Smita Misra, Lindy Miller, S. Rajagopal, N.Harshdeep, C.R.Ranganathan and NarinderSingh.

29 Map of India

30 Tamil Nadu State: Economy and Water Sector Population(Mn) Per capita Income (Rs 000 at 2000 Prices) State Income (Rs Billion, 2000 Prices) Shares of Sectors (%) Agriculture 17 4 Industry Services and Transport etc 61 85

31 WATER USE AND AVAILABILITY IN TAMIL NADU Water Use (Billion Cu.M) Agriculture 87% ; Domestic 4%,Industry 4% Availability (Billion Cu.M) Reservoirs Tanks Groundwater

32 What Scenarios Have been Analyzed Fixed Water Allocation Based on Business As Usual; Current priorities in allocation; Future Use Based on shares of agriculture, domestic, industry same as in 2000 Flexible Water Allocation Based on Economic Value of Water in Domestic, Agriculture and Industry. (But keeping at least 50% area under foodgrains for livelihood/subsistence)

33 How Scenarios Have Been Evaluated Analysis Of Options Based On Two Inter-Linked Models In the first stage an Optimization Model to assess the direct impact of the inter-sectoral allocation of water and the direct impact such reallocation of water has on these water using sectors. The second stage uses a Social Accounting Matrix (SAM)-based, Fixed-Price, Multi-sector model of the Tamilnadu economy to quantify the direct and indirect impacts on other sectors of the economy and on the income distribution and poverty levels under alternative scenarios

34 Linkages Between Optimization and SAM-based Models Water D iagram 1 : Linkages Between Optimization and SAM - based Models Techn ology O P T I M I Z A T I O N M O D E L L a n d Prices Crop O u t p u t Indust. Output Domest W a ter Supply S A M - State Income H H Income Distr. Employ ment Poverty Levels Product Of all Sectors

35 Linear Programming Model For Water Allocation Among Sectors: Agriculture, Industry, Domestic Among Crops; Among Industries And Households For Different Services Inputs: Economic Value of Water in Agriculture: For each crop: Gross Value of Output minus Paid-out costs minus 50% of Family labor costs minus costs of irrigation Economic Value of Water for Households: Based on Willingness to Pay model (using Consumer surplus for 12 income groups and charges four service categories for Rural and Urban) Econ Value Water for Industry: Based on a survey of selected units

36 WATER BASINS OF TAMIL NADU WATER BASINS OF TAMILNADU

37 Economic Value of Water: Domestic Sector (by Smita Misra) Estimation of a preliminary WTP function : Analysis of 12 income categories of households in each basin Population data Existing options and charges : 140 : multiple taps in the house 110 : single tap in the house 70 : shared connection between 2-3 households 55 : public standpost - Estimation of Consumer Surplus - Estimation of the economic value of water : The sum of the maximum consumer surplus and the corresponding charge (tariff) for the preferred service option

38 Chart : Economic Value of Water for Urban Households Economic Value of Water : Urban Households 200 HH WTP (Rs/month) LPCD

39 Chart Household Preferences for Urban Households : Percent ( ) Domestic Urban Household Preferences 4 34% 5 9% 1 21% 2 3% % 5 Service Levels : 1 = 140 lpcd; 2=110 lpcd; 3=70 lpcd; 4 = 55 lpcd; 5 = Zero WTP for any option

40 Chart Household Preferences for Urban Households : Percent (2020) Chart 5 (a) Flexible Scenario: Domestic Urban Household Preferences 2020 (%HH) 4 43% 5 0% 1 21% 2 3% % Service Levels : 1 = 140 lpcd; 2=110 lpcd; 3=70 lpcd; 4 = 55 lpcd; 5 = Not willing to pay at the specified charges

41 Linear Programming Model Provides Estimates Of Water Allocation And Outputs Of Agricultural And Industrial Sectors These Outputs Are Inputted To Sam-Based Model To Get Values Of : Total Output And Value-Added Income Levels Of Different Groups

42 Benefits of Flexible Water Allocation over Fixed Water Allocation Results Highlights When Water Allocation Is Flexible Instead Of Fixed : - Less Water Is Used - Less Groundwater Is Pumped Out - More Water For Ecological Use More Output (43 %) And Incomes (20%) - Rural Incomes Increase 14% - Urban incomes increase 22 % - All Income groups benefit except one - All Income Groups have higher incomes compared to 2000 (More than doubled) - Imports of Food;Exports of Industrial Goods & Services Multiplier Value Is 1.93 Indicating For Every One Rupee (100 Paise) Direct Benefits,There Are 93 Paise Worth Of Indirect Benefits

43 RESULTS OF ANALYSES WATER COMPARISONS FOR 2020 Item Unit Fixed Water Allocation S-1 Flexible Water Allocation S-2 Change Total Water Use BCM Use in Agriculture BCM Use in Domestic Sector BCM Use in Industry BCM Others and losses BCM Groundwater Use BCM

44 OUTPUT AND INCOME COMPARISONS FOR 2020 Value of Output/Income (Billion Rs at 2000 Prices) Fixed Water Allocation S-1 Flexible Water Allocation S-2 % Change Total Agriculture Industry Elecricity Tertiary and Others Rural Incomes Urban Incomes Total Incomes Lowest Income Group Rural Lowest Income Group- Urban

45 Income Gains by Nine Income Groups by Changing to Flexible Water Allocation INCOME PERCENT OF S1- FIXED S-2 FLEXIBLE PERCENTAGE GROUP POPULATION ALLOCATION ALLOCATION CHANGE R-1 15% R2 45% R-3 13% R-4 19% R-5 9% RURAL 100% U-1 33% U-2 43% U-3 19% U-4 6% URBAN 100% RURAL URBAN

46 Percent Change in Income of Different Groups under Flexible Allocation over Fixed Allocation: 2020

47 Percent Change in Income of Different Groups under Flexible Allocation 2020 over Chart-2: Percent change in Income of different groups under Flexible allocation, 2020 over 2000 R1 R2 R3 R4 R5 U1 U2 U3 U4

48 Per capita Incomes of Different Groups under Flexible Allocation over Fixed Allocation: 2020 Chart : Per Capita Income of different groups under Fixed allocation and Flexible allocation (Rupees), R1 R2 R3 R4 R5 U1 U2 U3 U4 Fixed Scenario Flexible Scenario The income groups, represent the following occupational classification as in the survey done in 1997:R1 -Rural Self Emp in Non Agr; R2 - Rural Agr Labour; R3 - Rural Other Labour; R4 - Rural Self Emp in Agr; R5 - Rural Other HH. U1 - Urban self employed; U2 -Urban regualr wage salary; U3 - Urban casual labor;u4 - Urban other HHs

49 PER CAPITA INCOME COMPARISONS FOR 2000 AND 2020 Per capita Income (Rs in 2000 Prices) Fixed Water Allocation S Flexible Water Allocation S-2 Rural Population 34 million) Urban Population (27 million) Total (61 million) Lowest Income Group Rural-R-2 (45 % of rural population) Lowest Income Group- Urban: U-3;20 % of urban population) Population figures are for These have been adjusted for 2020 assuming urban poplation will be 50 percent and income shares will remain same as in ,147 33,817 38, , , , , , , ,486 12, , ,122 95, % Change 2020 Flexible over 2000

50 Implications of Additional Water from Godavari Link and Other Links (2200 MCM) Compared to S-2:Total Water Use %; Water for Ag+ 0.5 %; Groundwater use %; Industry water use +135 MCM Agricultural output Value + 5 percent Industrial output value percent Total Value of Output goes up by Rs 100 billion (0.5%) Total Value Added goes up Rs 40 Bn Incomes go up by 0.6 percent Everyone Benefits Lowest Income Group Income % Value of Water : Rs 18 per cubic meter? (Rs 40Bn /2.2 BCM); Surface water cost?

51 Implications of Water Conservation in Agriculture (Water use reduced by 25% in Paddy and Sugarcane) Additional Water Available 1280 MCM in Agriculture, 240 MCM in Industry Compared to S-2 Area under Paddy up by + 175, 000 ha ( 12%) Agricultural output + 30 % Industry % Total Value of output Rs 200 Bn (1.5%) Total Value Added + Rs 80 Bn

52 Implications of Water Conservation in Industry Water Use reduced by 25 % in all Industries through conservation, recycling and re-use By 1000 MCM Compared to S-2 Industry Output % Total Value of output Rs 170 Bn (1.2%) Total Value Added + Rs 53 Bn

53 Implications of Pricing Electricity at Economic Cost (Removing Subsidies) for Pumping Water Electricity Tariff: Rs 250/HP/Year (Subsidized) Economic Cost of Electricity : Rs 3.1 (7 cents) per kwh Cost of Groundwater : At subsidized Electricity ; Avg. Rs 0.3 per cubic meter Cost of Groundwater : At Economic cost of Electricity ; Avg. Rs 1.7 per cubic meter Results of replacing subsidized cost by economic cost of electricity Compared to S2, Flexible Allocation in 2000 Water Use in Agriculture is reduced by 5000 MCM; Agriculture Output is - 22 percent; Sugarcane almost eliminated;marginal change in Industry & Tertiary output Total Output Declines Rs 30 billion (-0.3%) Rural Incomes decline % Lowest Income group %

54 Simulation Results : Impacts of Drought Water in Reservoirs Less by 40 % and Tanks less by 25 % Total reduced by 6100 BCM (20 %) Flexible Allocation Increases GVO under drought by Rs 2830 Billion or by 30 % Flexible Allocation Increases GVO under normal year by Rs 4212 Billion or by 43 % GVO under drought with Flexible allocation is higher than GVO in normal year with Fixed allocation by Rs 2384 billion or 25 %. Flexible allocation provides a good cushion against drought.

55 Impact of Drought Gross Vlue of Output (Rs Billion) 2020 Normal Year Drought Year Fixed Water Allocation (S-1) Flexible water Allocation (S-2) Change Change % 43.3% 30.5%

56 POLICY IMPLICATIONS - 1 Since there are significant gains in flexibility of water allocations, the policy actions required are: To provide institutional framework for sale, transfer of water among users/sectors e.g. agriculture to municipalities, industrial units To provide technical measures for such a transfer (infrastructure )

57 POLICY IMPLICATIONS - 2 For some industries and power plants, cost and availability of water can be a significant constraint in raising outputs. Since industrial output and power can provide large direct and indirect income gains to all income groups Imperative To review priorities of water allocation. Domestic, industry, agriculture and others. Water use for industry and power should be given priority (and NOT THE LAST USER).

58 Thank you!