Groundwater Depletion in India: Social Losses from Costly Well Deepening

We develop a dynamic groundwater model that incorporates both groundwater pumping and investment in deeper wells and apply the model to the arid, alluvial aquifer region of Northern India that is experiencing rapid depletion. We compute the potential benefits of regulating groundwater use by comparing the net benefits of groundwater under optimal management to the net benefits under a common pool regime with two different cost structures: one with flat electricity tariffs, which are widespread in India, and a second with full marginal cost electricity pricing. Using numerical simulation, we find that the opportunity to invest in deeper wells significantly exacerbates the common pool problem and suggests the potential for large benefits (66% of common pool benefits) from optimally managing groundwater use or new drilling. Flat tariffs exacerbate the problem, but large gains (almost 23%) remain even if farms are charged the full marginal cost of electricity