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In this section we summarize the main insights about the
economic impact of dams offered
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by the case-study literature on Indian dams, and provide a
simple conceptual framework to
understand the likely economic impact of dams.
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2.1
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Literature Review
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The main purposes served by dams are irrigation, hydropower and
flood control. Irrigation
is the primary purpose of over 95% of large Indian dams, and
dams built for this purpose
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form the focus of our discussion.3
Most irrigation
dams in India are embankment dams. That is, an artificial wall is built
across a river valley, and water is impounded behind this wall
in a ‘reservoir’. A system of
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spillways and gates conveys normal stream and flood flows over,
around, or through this wall,
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and artificial canals channel water from the reservoir to
downstream regions for irrigation.
The area upstream from which water and silt flow into the
reservoir, and the area submerged
by the reservoir, form the catchment area. The area downstream from the reservoir that is
covered by the dam’s canal network makes up the command area.
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Dam construction may
increase economic activity in the catchment area. Reservoirs
may provide a source of fishing, and are often developed as
tourism sites. However, the
main economic benefit of dams has been realized in agriculture,
and this benefit accrues
in the command area (here we draw upon the review in Thakkar
(2000)). By 2000, dam
irrigation accounted for 38% of India’s irrigated area. Between
1951 and 2000 India’s food
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grain production nearly quadrupled. Two-thirds of this increase
was in irrigated areas. The
most optimistic calculations suggest that roughly a quarter of
India’s increased food grain
production over the last half century can be attributed to
dam-irrigated areas. The main
channels through which dam irrigation increases productivity are
greater multi-cropping and
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the cultivation of more profitable water-intensive cash crops
such as sugarcane (Singh 2002).
Clearly, the benefits
linked to irrigation should not be entirely attributed to dams, since
without them some areas would have been irrigated by other
means. The fraction of increased
food production in dam irrigated areas that is attributable to
dam irrigation rather than, say,
the concurrent uptake of mechanized agriculture also remains
controversial, with estimates
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varying from 10% (World Commission on Dams 2000b) to over 50%
(Gopalakrishnan 2000).
In defense of large
dams, authors such as Biswas and Tortajada (2001) and Dhawan
(1989) argue that other forms of water harvesting, such as
ground water and small dykes,
are relatively cost ineffective and incapable of meeting the demands
of large and growing
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populations in countries with highly seasonal rainfall. Another
major benefit of dams, not
shared by other means of irrigation, is their ability to prevent
floods and droughts by reg-
ulating the flow of water downstream. For very large dams, the
flood control effect may
extend thousands of miles downstream. There is, however, a
trade-off between using dams
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for flood control (which requires emptying the reservoir) and
their use for irrigation or elec-
tricity (which requires filling the reservoir). Another potential
benefit of a large dam is
seepage from its canals which recharges the aquifers that
provide groundwater (Dhawan
1993). However, the extent of such groundwater recharge remains
controversial.
In fact, critics of
large dams argue that the more important consequence of such water
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seepage is waterlogging, and increased soil salinity; both of
which make land less productive.4
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The Indian Water Resources Ministry estimated that, in 1991,
about 2.46 million hectares
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of the command area of dams suffered from waterlogging, and 3.30 million
hectares from
salinity/alkalinity (World Commission on Dams 2000b). This is
roughly a tenth of the area
irrigated by dams. The other main costs of dam irrigation are
land submergence for con-
struction of the reservoir and the displacement of people living
on this land. The reservoir
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of a large dam can submerge up to 10% of an Indian district’s
total area. The World Com-
mission on Dams (2000b) estimates that dam construction
submerged 4.5 million hectares
of Indian forest land between 1980 and 2000. Using data for 140
large dams, they estimate
that the average dam displaces 31,340 persons and submerges
8,748 hectares. These figures,
however, remain controversial. A World Bank review in the
mid-1990s, for instance, esti-
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mated that each new large dam dispaced, on average, 13,000
people (Cernea 1996)). Total
displacement figures vary from 16 million to over 40 million
people. It is also widely agreed
that the historically disadvantaged tribal populations who are
more likely to live in uphill
areas in river valleys have borne the brunt of displacement. Official figures for 34
large dams
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show that Scheduled Tribes, who make up 8% of India’s
population, constituted 47% of
those displaced (World Commission on Dams 2000b).
The Land Acquisition
Act of 1894, which empowers the government to acquire any land
for public purpose and to pay cash compensation, has formed the
the basis for rehabilitation
of dam-displaced populations. Resettlement and compensation is,
typically, the responsibil-
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ity of the relevant project authorities, and is based on project-specific
government resolutions.
A number of studies suggest that actual compensation depends on
the displaced population’s
political power and organizational abilities (Thukral 1992).
Rights of the landless and those
without formal land titles to compensation have typically not
been recognized. Further, as
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the compensation is typically insufficient for the displaced to replace lost
land by its equiv-
alent in quality and extent elsewhere, the payment is often used
as a temporary means of
subsistence (J.Dreze, M.Samson, and S.Singh 1997). Finally,
while an individual receives
compensation after being displaced, development activities and
land prices in the dam vicin-
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ity often decline as soon as a dam is planned, and the
compensation rarely reflects takes this
into account.
Another often-cited
consequence of dam construction is adverse health consequences for
those living near the reservoir. A reservoir provides a natural
ground for vector breeding,
and hence for diseases such as malaria, schistosomiasis, filariasis
and river blindness (see
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Sharma (1991)).
The role of dams in
increasing irrigation is largely undisputed. However, whether this
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increase in irrigation has, relative to a reasonable
counterfactual, translated into substantial
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productivity gains remains controversial. As the discussion in
this section should make
clear, a distinctive feature of large dams is that the costs and
benefits associated with
dam construction vary by area. The benefits from irrigation
accrue mainly to those living
downstream to the dam site, but within its command area. In
contrast, those living in the
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vicinity of the reservoir and immediately upstream (the
catchment area) obtain no irrigation
benefits.5 Moreover, schemes
that divert water upstream of the dam are often banned so
as to ensure sufficient water flow to the dam (TehriReport 1997). This may further
reduce
irrigation potential in the catchment area. Finally, the
displacement costs are largely borne
by those in the catchment area of the dam. It has been suggested
that compensation to
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those displaced has been inadequate.
Our objective is to
provide a rigorous analysis of these claims. While investigating all
the channels through which dams affect productivity and welfare is beyond
the scope of this
paper, we will evaluate the impact of dams on aggregate
agricultural production, poverty,
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disease and a range of related outcomes.
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2.2
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Conceptual Framework
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We provide a simple framework which summarizes the economic
implications of dam con-
struction. Assume that agricultural output is a function of
labor inputs L, land surface
K, land quality A, inputs such as fertilizer, seeds and
electricity I, climate r (rainfall and
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temperature), farmer’s ability u and a productivity shock . Denote the production function
for land without access to an irrigation system (via pump or
canal) as
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y = F1
(L, K, A, I, r, u, )
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and the production function for land with access to an
irrigation system as
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y = F2
(L, K, A, I, r, u, )
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Farmers pay a one time fixed cost c for access to irrigation. This is the cost of a well or
tube-well in a region with no dams, and the cost of accessing
canal irrigation in a dam’s
command area.6
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Evenson and McKinsey (1999) estimate these production functions
using Indian data,
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and find that irrigation mitigates the effect of rainfall shocks
and temperature on farm
net revenue for all crops. Further, irrigation and agricultural
inputs, such as fertilizer,
electricity and seeds for High Yielding Variety (HYV) crops are
complements. HYV seeds
are highly sensitive to water timing and require regular and
controlled irrigation. Finally,
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multi-cropping and irrigation are also complements, which
suggests that labor inputs are
also likely to be complementary to irrigation.
We assume farmers can
obtain the optimal set of inputs. Each farmer will compute her
expected profit with and without irrigation. She will invest in
irrigation if its cost is less
than the long-run difference between the value function with
irrigation and that without
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irrigation. The decision process follows a threshold rule: if
the productivity shock exceeds
some threshold in a given period, the farmer switches in that
period.
As the costs and
benefits of dam irrigation vary by region, we separately discuss the
effects of dams on the catchment and the command areas.
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In the command area,
which is downstream to the dam, a dam lowers the fixed cost of
irrigation. A farmer who has already paid the sunk cost of
accessing ground water irrigation
will not switch to canal irrigation. However, the set of farmers
who would have chosen ground
water irrigation in this period will now choose dam irrigation.
Further, of the farmers who
would have otherwise not irrigated their land, some will opt for
dam irrigation. Demand for
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labor, fertilizer and seeds will increase and dependence on
rainfall will decrease. Wages and
profits will increase, and this will increase consumption and
lower poverty.
Until now, we have not
allowed for differences in farmer characteristics. However, the net
impact of a dam on agricultural productivity is sensitive to differences in these. For instance,
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if farmers only differ in their cost of accessing ground
water irrigation then, dams will have a
large positive effect on productivity by making irrigation accessible to productive
farmers. If
instead, farmers face the same cost of irrigation but differ in their
(idiosyncratic) productivity
then the marginal farmer’s productivity will be below that of
the average farmer. In this case
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the effect of dams on agricultural productivity will be muted. The
distribution of farmer
characteristics will also affect the implications of dam construction
for inequality.
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The catchment area,
which lies upstream from, and in the vicinity of, the dam, has
three types of land. First, there is the land that is submerged
by reservoir construction.
Production on this land will stop, as will input and labor use.
Second, there is land in the
immediate vicinity of the reservoir. This will see more
waterlogging and salination, and a
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worsening of land quality. Irrigation on such land is less profitable
but fertilizer use may
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increase, since poorer soil requires more nutrients. Finally,
some land in the catchment
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area will be physically unaffected. If restrictions on water use
upstream from the dam are
enforced then such land may see irrigation costs increase. On
balance, in the catchment
area, we expect a decline in cultivated land, and, potentially,
a reduction in irrigated area
and yield. This suggests a fall in wages and profits (and,
therefore, higher poverty).
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Data on the geographic
extent of the catchment and command area is unavailable for
most Indian dams. Our analysis uses data on the administrative
unit within the Indian state
– the district. We know the district in which a dam is located,
and the districts downstream
from it. A dam’s catchment area usually falls in the district in
which it is built, while its
command area may include parts of the district in which it is
located and parts of neighboring
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downstream districts (to identify the extent of the average
dam’s command area we will also
examine its impact on non-neighboring downstream districts in
the same river basin). The
estimated effect in the district where the dam is built combines the effects in catchment,
command and unaffected areas, and is a priori ambiguous. In contrast, part of the dam’s
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command area may fall in the downstream district. Hence, the
economic impact of a dam
in the downstream district will reflect the effect of the dam on the
command area.
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by Esther Duflo and Rohini Pande
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