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DRAFT

Towards Accelerating Adoption of DripIrrigation in Madhya Pradesh

International Water Management Institute

Centre for Environment and Development Studies, Jaipur

December, 2011


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Contents

Executive Summary ...................................................................................................................................... 3

1 The Study : Rationale and Scope ........................................................................................................... 6

1.1 Methodology ................................................................................................................................. 7

2. The Drip Irrigation Technology in India: Setting, Growth and Potential................................................... 8

2.1 Drip Irrigation in India: Current Status and Potential of Usage .......................................................... 9

2.2 Impact of Drip Irrigation ................................................................................................................... 13

2.3 Factors constraining uptake of drip irrigation by farmers ................................................................ 15

3. Drip Irrigation in Madhya Pradesh: A Status Report ............................................................................... 16

3.1 Market development for drips in Madhya Pradesh .................................................................... 19

4. Subsidies for Drip Irrigation Technology ................................................................................................. 20

4.1 The Rationale .................................................................................................................................... 20

4.2 The Evolution of Subsidy Program for Drip ....................................................................................... 21

4.3 Current Status of Subsidies on Micro Irrigation in India ................................................................... 23

4.4 Subsidy on Drip in Madhya Pradesh ................................................................................................. 25

4.5 Process of Subsidy Disbursal ............................................................................................................. 28

4.6 Madhya Pradesh : Extent of subsidy available and Uptake of Drip Technology .............................. 30

4.7 Availability of Subsidy and Uptake of Drip ........................................................................................ 33

4.8 Towards an alternative model of delivery of Subsidies .................................................................... 38

4.8.1 Direct Delivery of Drip Subsidy - An Alternative Model for Subsidy Delivery ............................ 39

4.9 Subsidy Regime and Development of Low Cost Innovative Drip Technologies........................... 44

5. Summing Up ............................................................................................................................................ 45


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Towards Accelerating Adoption of Drip Irrigation in Madhya Pradesh

Executive Summary

Rising demand for irrigation water in the face of its inefficient use amid concerns of growing water

scarcity has brought in to renewed focus the need for conserving water and improving water use

efficiency. Given the difficulties and political compulsions associated with bringing about effective policy

reforms to achieve the objective of water conservation, the emphasis has generally focused on

technological solutions. Micro irrigation technologies such as those based on Drip and Sprinkler systems

are being increasingly propagated as ideal technological solutions for achieving water conservation. Of

the two technologies, drip irrigation, in its various forms, has been a relatively more important mode of

micro-irrigation in India. However despite the numerous advantages and water saving potential the drip

technology offers, it has failed to capture the kind of market that would have been expected of such a

technology. The present study attempts to enquire into some of the possible reasons for the slow

uptake of this otherwise high potential water conserving technology and suggest some interventions

that could help contribute towards accelerating the pace of adoption of drip technology. Given that themain driver for the promotion of drip irrigation in India has been the provision of financial subsidies

from the government, the study employing a partial analytical framework, specifically assesses the

efficacy of instrument of subsidies in promoting uptake of drip technology by the farmers. While the

present case study focuses primarily on the Indian state of Madhya Pradesh, the evidence drawn upon

and the conclusions drawn from the study expectantly will have general applicability for other regions of

the country as well.

The evidence available suggests that almost all the drip equipment sales in the study area of Madhya

Pradesh are subsidy driven. Manufacturers and market estimates suggest that more than 95 per cent of

the drip sales in Madhya Pradesh are subsidy linked. Given that substantial government subsidy to the

tune of 70 to 80 per cent of the cost of the system is available for purchase of drip system, it is butnatural that no farmer would like to invest in a drip irrigation system without availing of the subsidy.

The linkage between uptake of drip systems to availability of subsidy has killed both - the inertia of

developing aggressive marketing strategies on the part of the manufacturers to push and promote sales

of unsubsidized systems, and any attempts at bringing down the manufactured cost of the drip system

through alternative/innovative product designs or technological innovations. All efforts of

manufacturers, dealers and other stakeholders are focused on making the most of the available

government subsidy through sale of their brand products. The system has thus made the manufacturers

subservient to government favours and has led to loss of their enterprise spirit. Similarly the insistence

on the drip products to carry ISI mark as a seal of guarantee, and more so as a pre- condition for

qualifying to become eligible for availing of government subsidy on drip, has led to adoption of corrupt

practices.

Our careful analysis of the prevailing subsidy regime of the government together with the procedures

set and manner in which subsidy disbursal takes place suggest a strong nexus between manufacturers

and government departments entrusted with the administration of the subsidy program. The subsidy,

meant for the farmers, as currently being administered, is actually going to the manufacturers who of

course claim it all in the name of the farmers. The manufacturers have adopted competitive strategies

to create a sustainable competitive advantage for promotion of their business. The actual business
http://www.quickmba.com/strategy/competitive-advantage/http://www.quickmba.com/strategy/competitive-advantage/


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model followed by companies is governed more by the State subsidy system. Companies operate more

like a cartel to benefit from the subsidy provisions of the program. Producers and the chain of sellers

involved in marketing of the micro irrigation technology emphasize building contacts with government

officials at different levels in order to get maximum share out of the subsidy kitty. At the farm level, the

attempt is to convince the farmer that he/she would get a high cost product without having to pay the

full amount for it. Rather than emphasizing the benefits that the farmer might get from use of the

technology or on details about maintenance etc. the focus is entirely on getting the necessary papers

prepared for release of subsidy amount from the government. Even the decision about the choice of

product and of the company is determined by the agent who succeeds in approaching the farmer and

getting his papers cleared. The farmer is a passive participant in the entire process. The presence of a

number of companies leads to competition among firms producing varying quality of equipment and

services. The subsidy system is also responsible for unhealthy competition. Generally in any business,

revenue is generated by the companies through sales and support system, cost structure of the product,

and targeted profit. But in case of micro irrigation systems the adoption of high cost drip equipment is

directly related with the provision of subsidies.

Given the strong nexus that has developed over a period of time between different players involved in

disbursal and receivers of the available drip subsidies, in shaping the subsidy delivery system of thegovernment to their advantage and indirectly constraining the spread of drip irrigation technology, one

often wonders is the government, by providing subsidies, trying to promote a specific kit of drip system

or the concept of drip system in general? Why should eligibility condition for availing subsidy bind a

farmer to a specific configuration of the drip system and not let farmer use his imagination to choose

components which in his view could serve the same purpose but at a somewhat lower cost without the

use of all the pre specified components? Is there a way out of exiting this nexus and use the available

government subsidies to achieve the goals that these subsidies are intended to achieve? We premise

that if the government were to dispense with completely the existing mechanism of subsidy delivery to

the manufacturer/ intermediary in the name of giving subsidy to the farmer, and arrange to make direct

delivery of drip subsidy to the beneficiary farmers themselves, the scenario of market prices and uptake

of drip by farmers may change considerably.

Based on feedback from different stakeholders we postulate that if the subsidies on drip in its present

form were to be withdrawn by the government, it is very likely that the open market (unsubsidized)

prices of the manufactured drip systems will fall by at least 40 percent. Increased open market

competition may reduce further the cost of a system by another 5-10 percent or so. The net result is a

likely reduction in prices of manufactured drip systems by about 50 per cent in free (unsubsidised)

market. This perception is shared by almost all the market players including some of the leading

manufacturers and sellers of the drip systems. This is also evidenced by the open market prices of drip

systems being sold by the manufacturers/ assemblers of non- BIS marked drip systems in the study

region, though admittedly there may be some difference in quality of performance between the two

types of drip systems.

Based on the above premise and possibilities of a likely reduction in open market prices of a drip system

in the event of government withdrawing the current capital subsidy scheme for drip systems, we

propose an alternative subsidy delivery model. In the proposed subsidy delivery model, we propose that

rather than giving a one- time capital cost subsidy for investing in a drip system, the government gives

interest cost subsidy to farmers willing to invest in a drip system. Under the scheme the government

gives interest free loans for the entire cost of a drip system to all farmers- small, large, belonging to

general/SC/ST category, willing to buy a drip system. These loans can be administered through the


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existing financial institutions available in rural areas. The government provides interest free loans with

capital repayable after five years. The farmer is free to buy drip system from any dealer/manufacturer,

choose desired configuration of the drip system (such as to include or not to include venturi etc),

negotiate a price and after sales service conditions with the dealer. The farmer does not need to visit

government offices to obtain approval, clearances or no objection etc before buying the system. The

government does play its facilitative role in ensuring that only good quality products are sold in the

market and farmers are not cheated by manufacturers.

With a given amount of funds available for subsidy, the proposed model, in comparison with the existing

subsidy delivery system, can provide subsidy to a much larger number of farmers, can bring in much

larger area under drip irrigation resulting in lower subsidy outgo per hectare of drip irrigated area,

would still incentivise the farmers to invest in drip systems, lower the cost of subsidy outgo, be more

transparent, less prone to corruption, easy to manage and govern, less prone to interference and

whims and fancies of officials, and lead to more efficient use of available subsidy, without distorting the

market for sales of drip systems. Thus on all indicators, the proposed subsidy scheme of direct delivery

of drip subsidy to farmers outweighs the existing subsidy scheme of subsidising the manufacturers/

providers of drip systems in the name of subsidy to the farmers.


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1 The Study: Rationale and ScopeRising demand for irrigation water in the face of its inefficient use amid concerns of growing water

scarcity has brought in to renewed focus the need for improving water use efficiency and raising crop

water productivity. Large scale emphasis is being made to achieve water conservation through various

demand side management interventions encompassing technological options and/or policy measures.

Given the difficulties and political compulsions associated with bringing about effective policy reforms to

achieve the objective of water conservation, the emphasis has generally focused on technological

solutions backed by soft policy interventions to aid and facilitate adoption by farmers of such

technological solutions.

Micro irrigation technologies such as those based on Drip and Sprinkler systems are being increasingly

propagated as technological solutions for achieving water conservation. Of the two technologies, drip

irrigation, in its various forms, has been a relatively more important mode of micro-irrigation in India.

Some of the available evidence suggests that drip technology not only saves water but is also cost

effective and has significant economic and social benefits. It results not only in saving of water but also

of electricity for pumping water, uses less labour and leads to higher crop productivity.

These water conserving irrigation systems, however, do not come without a price. They are expensive

and require clean water to prevent the clogging of the fine delivery tubes. The systems may, if not

installed correctly or without the knowledge of the landscape or crop, not give any boost in production

or reduction in water use and may ultimately be a waste of time. The plastic above ground lines of

surface irrigation systems have also been known to break down in extreme temperatures. (

http://climatelab.org/Drip_Irrigation)

To partially offset the high capital cost of drip technology and to encourage farmers invest in this water

conserving technology, the government in India has been providing substantial financial incentives in

the form of capital cost subsidies to those farmers willing to invest in this technology. However despite

apparent economic, financial, yield enhancing and water conserving advantages of drip technology,

availability of substantial government incentives to encourage farmers invest in this technology, a

favourable benefit-cost ratio of investment, and a short payback period of the investment made therein,

the uptake of this technology by farmers has been rather sluggish.
http://climatelab.org/Drip_Irrigationhttp://climatelab.org/Drip_Irrigationhttp://climatelab.org/Drip_Irrigation


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Apart from the high cost limiting adoption of drip technology by farmers, there are, in addition,

technological factors which have also constrained adoption of this technology by small farmers. Most

common drip irrigation systems are designed to serve larger areas, and cannot be adjusted to fit small

plots cultivated by the large majority of farmers. To address both the cost and technological issues

constraining adoption of drip technology by small farmers, the International Development Enterprise

(IDE) promoted low cost solutions to drip through affordable micro irrigation technologies (AMITs)

suitable for even small parcels of land. The IDE claims to have successfully marketed this technology to a

large number of farmers in several regions of the country without government subsidy but generally

through donor supported programs for promotion of these technologies. However, available evidence

shows that the adoption of even this low cost technology has also been much lower than the potential.

The technology has failed to capture the kind of market that would have been expected given the

significantly lower financial requirements in comparison with modern drip irrigation systems.

Thus both for high cost drip technology suitable for medium to large farmers and low cost drip

technology suitable for small farmers, the drip technology has failed to capture the kind of market that

would have been expected given the numerous advantages and water saving potential the technology

offers. The present study attempts to enquire into some of the possible reasons for the slow uptake of

this otherwise high potential water conserving technology and suggest some interventions that could

help contribute towards accelerating the pace of adoption of drip technology. Given that the main driver

for the promotion of drip irrigation in India has been the provision of financial subsidies from the

government, the study employing a partial analytical framework, specifically assesses the efficacy of

instrument of subsidies in promoting uptake of drip technology by the farmers. While the present case

study focuses primarily on the Indian state of Madhya Pradesh, the evidence drawn upon and the

conclusions drawn from the study expectantly will have general applicability for other regions of the

country as well.

1.1 Methodology

The study is based on extensive interviews with manufacturers/ sellers/ retailers/ promoters (NGOs,

extension agencies etc) of both high end and low cost drip technology in two selected regions of

Madhya Pradesh (MP). Officials of MP Horticulture Department responsible for administering the

subsidy program for drip irrigation were interviewed. Individual farmers and farmer groups of adopters

of drip technology were interviewed to ascertain their experiences. Opinions of non- adopter farmers

were also taken to understand the constraints for adoption of drip technology. The field survey was


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conducted in three locations, viz., Sagar, Dhar and Indore districts of Madhya Pradesh. A total of 40

farmers (22 from Sagar , 10 from Dhar and 8 from Indore) were interviewed in addition to dealers and

government officials in the respective districts. Since identifying villages and farmers was not easy, as

the number of drip users are few and spread over a very wide area, these were selected purposively

depending upon the ease of operation and availability of cooperation from the users.

2. The Drip Irrigation Technology in India: Setting, Growth and PotentialFarmers in India generally practice flood irrigation resulting in low water application and use efficiency.

The estimated irrigation water use efficiency in India is of the order of about 35-40 percent. With

deteriorating surface water infrastructure and rapid decline in ground water tables in large parts of the

country, in the face of increasing demand for water from all sectors of the economy, there is a

widespread concern for using the available water more efficiently. Micro irrigation system (MIS),

comprising drip and sprinkler technologies, has emerged as an effective tool for water conservation and

improving water use efficiency. While drip irrigation is ideally suited for horticulture crops such as

pomegranate, grapes, mango, banana, guava, coconut, amla, and cash crops such as sugarcane, it is

being used for cultivation of some other crops as well. Sprinklers are generally useful in undulating land

with cereals crops. Despite substantial efforts having been made in promoting these demand side

management (DSM) technologies, in practice, these have been slow to be accepted and adopted by the

farmers. Of the two, drip irrigation is a relatively more preferred technology by the farmers in India.

Drip irrigation, is anirrigation method which enables saving of water by allowingwater to drip slowly to

the roots of plants, either onto the soil surface or directly onto the root zone. Drip irrigation methods

range from simple bucket kit systems for small farms to automated systems linking release of water to

soil moisture conditions measured continuously by tensiometers. Broadly drip Irrigation technologies

can be categorized into two groups based on their technical, economic and social attributes. These are

low-cost drip irrigation technologies and the commercialized, state-of-the-art drip irrigation systems.

The low-cost drip irrigation technologies include the pepsee1, easy drip, various kinds of affordable

drip irrigation systems designed by IDE, and micro tube drip systems. The latter class of drip irrigation

technology includes the conventional high end drip systems.

1Pepsee systems: Grassroots innovation under groundwater stress :Shilp Verma, Stanzin Tsephal and Tony Jose
http://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Irrigationhttp://en.wikipedia.org/wiki/Waterhttp://en.wikipedia.org/wiki/Waterhttp://en.wikipedia.org/wiki/Irrigation


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While drip technology in its various manifestations has been in use since ancient times, however it is

only with the advent of modern plastics that major improvements in drip irrigation have become

possible. Water in a modern day drip system is delivered through a network of valves, pipes, tubings

and emitters. Most large drip irrigation systems also employ some type of filters to prevent clogging of

the small emitter flow path by small waterborne particles. These modern day drip systems, also permit

delivery of liquid fertilizers and other nutrients along with the water in a process known as fertigation.

Fertigation and chemigation use chemical injectors such as piston pumps or venturi pumps. Fertilizer

savings of up to 95% have been reported from some of the recent field tests using drip fertigation and

slow water delivery as compared to timed-release and irrigation by micro spray heads. (

http://en.wikipedia.org/wiki/Drip_irrigation). Drip systems have been shown to achieve up to 95%

water use efficiency.

In addition to helping conserve water and fertilizers, drip irrigation can also help reduce the problems of

salinization and waterlogging.Additionally, in water scarce environments, drip irrigation may allow for

agriculture in areas where furrow or flood irrigation would not be possible.

2.1 Drip Irrigation in India: Current Status and Potential of Usage

In the initial stages of introduction, most of the MIS were introduced for horticlutural crops- mango,

banana, orange etc but their use has subsequently been extended to a variety of crops- cotton,

vegetables, sugarcane, groundnut etc. It is now possible to use drip and/or sprinkler irrigation to a wide

variety of crops. Various estimates of potential and actual area under micro irrigation technologies have

been made available by different researchers/ institutions.

The use of drip irrigation in India starting from the time of initial testing at Tamil Nadu Agricultural

University in Coimbatore in 1970, increased rapidly to 55,000 hectares by 1992 (Pollock and Sivanapan,

). The technology in India was introduced on a commercial scale only during the Eighth Five Year Plan

(1993-98) and during the one decade period 1993-2003 about 0.35 million hectares was brought under

drip irrigation (Table 1 )2.

2In addition to this area it has been estimated that an additional 100,000 hectares of area has also been brought

under micro irrigation outside of the government schemes. Thus by the end of 2003 approximately 0.5 million

hecatres had been brought under drip irrigation (GOI, 2004).


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Table 1 : Annual coverage of Area under Micro Irrigation in India

Year Area (000 hectares)

1992-93 13.49

1993-94 14.05

1994-95 14.59

1995-96 39.80

1996-97 46.50

1997-98 45.15

1998-99 53.08

1999-2000 53.19

2000-2001 25.44

2001-02 15.20

2002-03 27.10

Total 347.59

Source: GOI (2004)

Thus out of the 69 MH net irrigated area in the country, only 0.5 MH had been brought under drip and

0.7 MH under sprinkler irrigation by 2003 (GOI, 2004). Of the total area under drip irrigation in the

country, almost 46 per cent of the drip area was in Maharashtra. Karnataka, Tamil Nadu, and Andhra

Pradesh were the other important states in the country for drip irrigation accounting respectively for 21,

14 and 12 per cent of the drip irrigated area in the country. In terms of the use of drip irrigation for

different crops, the use was limited to banana (11%), grapes (10%), mango (9.4%), citrus (7.9%) and

pomegranate (6.2%), with all other remaining crops contributing to less than 5 percent of the drip

irrigated area (GOI, 2004). The task force on micro irrigation, set up by Government of India, suggested

a target of 2 million hectares to be brought under drip and 1 million ha under sprinkler irrigation by the

end of Tenth Five Year Plan (2002-2007), and by about 17 MHa under micro irrigation by the end of the

XI Plan period (2007-12) (Table 2 ) and hoped to cover the entire potential area by 2030. Of the about

69.5 million hectares that can be brought under micro irrigation in India, 39 per cent is through drip3and

the remaining about 61 per cent by sprinkler (Table 3). From amongst the area amenable for drip

3The Indian Committee on Irrigation and Drainage (ICID) estimates a potential of 10.5 million hectares for drip

irrigation in India.


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Table 3: Theoretical potential area for drip and sprinkler irrigation in India (Million Ha)

Crop Drip Sprinkler Total

Cereals - 27.6 27.6

Pulses - 7.6 7.6

Oilseeds 3.8 1.1 4.9

Cotton 7.0 1.8 8.8

Vegetables 3.6 2.4 6.0

Spices and Condiments 1.4 1.0 2.4

Flowers and Medicinal and Aromatic Plants - 1.0 1.0

Sugarcane 4.3 - 4.3

Fruits 3.9 - 3.9

Coconut and Plantation Crops, Oil Palm 3.0 - 3.0

Total 27.0 42.5 69.5

Source: GOI (2004)

Table 4 : Estimated potential of drip and sprinkler irrigation under three crop categories

S.

No.

Category Crops Estimated

potential

area (mha)

1 1 Widely spaced tree crops suitable for Drip irrigation (including

fruit crops, nuts, plantation crops, oil palm, rubber, forest crops)

6.90

2 2 Closely spaced crops suitable for Drip irrigation (including

cotton, vegetables, tea, coffee, spices, sugarcane, tobacco,

vanilla, mulberry, medicinal and aromatic plants, flowers, some

extent of oilseeds and pulses)

201.0

3 3 Crops suitable for sprinkler irrigation (including cereals, some

extent of oilseeds, pulses, vegetables, tea, coffee, spices,

medicinal and aromatic, flower and fodder

42.50

Total 69.50

Source: GOI (2004)


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As per more recent data available, during the period between 2005-06 and 2008-09 (up to December

2009) about 1.72 million new area had been brought under micro irrigation, of which drip accounted for

about 0.84 million hectares and the remaining by sprinkler. The pace of area under drip has increased

substantially in recent years. The annual average area under drip which was around 3100 hectare

between 1990 and 2005, has almost trebled and stood at 9300 hectare during the more recent period

(2005-December 2010) (Raman and Palinisami, 2010).

2.2 Impact of Drip Irrigation

Various studies undertaken to assess the impact of drip irrigation have shown encouraging impacts on

various farm variables Drip irrigation has helped bring in crop diversification from rainfed crops to

horticultural crops and bringing in cultivable waste lands under horticultural crops. Water saving4

expected from use of MIS has motivated the beneficiary farmers to shift from low duty crops to high

duty crops. Savings in water due to use of drip varied amongst horticultural crops have been in the

range of 40-65 percent and in vegetables from 30-40 percent. Use of drip has also led to significant

reduction of labour in irrigation, weeding, harvesting and aided convenience by eliminating drudgery in

farm management (irrigating crops during irregular and odd hours of power supply). Saving in irrigation

water due to MI has resulted in direct reduction of power consumption due to reduced hours of

pumping. Adoption of MI has also been associated with increased level of crop yields- the level of

increase varying from place to place and crop to cropincomparison with conventional irrigation. Some

improvement in crop quality (such as uniform pod filling in case of groundnut, better shine in sweet

orange, uniform bigger sized bananas) has also been reported leading to higher output realisation from

the produce. Use of MI has also been reported to have led to reduction in cost of cultivation and

4On the question of water savings impacts of drip irrigation, the opinions differ. While a majority of the studies

agree that adoption of drip leads to significant savings in water application and use others say not necessarily so. It

has been argued that while drip does reduce evaporative losses, is often associated with a switch to high value crops,

and reduces fertilizer use when liquid fertilizer is added to the mix and delivered precisely to the root of the plant.

While these productivity gains are often seen yet it is not as simple as that. It usually works for the farmer but can

encourage an expansion or intensification of cultivation that often leads to an increase in water used. Thus with use

of drip major gains are possible if drip is used as part of a program to build a restriction on individual consumption

in combination with increasing farm productivity (Julia Bucknall inhttp://blogs.worldbank.org/climatechange dated22 March 2010). It has also been argued that improving the efficiency of irrigation systems by itself does not

translate in to real world savings in the hydrological cycle. Often, these improvements lead to an increase in water

consumption and reductions in aquifer recharge/return flows. (Rita Cessti in

http://blogs.worldbank.org/climatechange dated 24 March 2010).
http://blogs.worldbank.org/climatechange%20dated%2022%20March%202010http://blogs.worldbank.org/climatechange%20dated%2022%20March%202010http://blogs.worldbank.org/climatechange%20dated%2022%20March%202010http://blogs.worldbank.org/climatechange%20dated%2022%20March%202010http://blogs.worldbank.org/climatechange%20dated%2024%20March%202010http://blogs.worldbank.org/climatechange%20dated%2024%20March%202010http://blogs.worldbank.org/climatechange%20dated%2024%20March%202010http://blogs.worldbank.org/climatechange%20dated%2022%20March%202010http://blogs.worldbank.org/climatechange%20dated%2022%20March%202010


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increase in gross value of output. The magnitude of these changes have however varied from crop to

crop and state to state. The financial rate of return have reported to have varied from about 30 percent

to more than 50 percent. The payback period on investment under MI was reported to vary between 0.5

years to 1.17 years in the case of such crops as groundnut, potato, cotton while in the case of

horticultural crops it was somewhat higher (Source: Evaluation study of the CSS).

Table 5 and 6 below give illustrative information about the impact of using drip on crop yields and in

improving water use efficiency in studies reported by INCID. Yield increases varying from 30-200 percent

have been reported for different crops alongwith improvement in quality of the produce. Doubling of

irrigated area from the same amount of available water has also been reported with the use of MIS.

Table 5 : Yield increase with Drip IrrigationCrop Yield (MT/ha)

Conventional Drip % Increase

Banana 57.5 87.5 52

Grapes 26.4 32.5 23

Sweet lime 100.0 150.0 50

Pomegranate 55.0 109.0 98

Papaya 13.4 23.5 75

Tomato 32.0 48.0 50

Water Melon 24.0 45.0 88

Okra 15.3 17.7 16

Chillies 4.2 6.1 44

Sweet Potato 4.2 5.9 39

Sugarcane 128.0 170.0 33

Cotton 2.3 2.9 26

Source : INCID (1994)


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Table 6: Water Use Efficiency with Drip Irrigation

Crop Yiled Increase % Water Saving % Increase in WUE %

Banana 52 45 176

Chilly 45 63 291

Grapes 23 48 136

Groundnut 91 36 197

Sweet Lime 50 61 289

Pomegranate 45 45 167

Sugarcane 33 56 204

Tomato 50 31 119

Water Melon 88 36 195

Source : INCID (1994)

Based on the impact of drip irrigation on such parameters as water savings, increases in crop yileds,

fertiliser savings etc, a number of authors have demionstrated that inmvestment in adrip irrigation

system is a financially viable5investment with a short pay back period.

2.3 Factors constraining uptake of drip irrigation by farmers

Despite the very favourable demonstrated impact of drip systems on water conservation, on crop yields,

on other farm variables and financial viability of investment in drip why is it that only a few farmershave so far invested in drip irrigation? The uptake of drip systems by farmers has been far too lower

than the potential this technology commands. Why is that many farmers are not coming forward to

invest in a drip system? What is constraining farmers from investing in drip systems? The available

literature and our primary survey of farmers in the selected regions of Madhya Pradesh point to some of

the following factors that could be constraining farmers from investing in a drip system :

5Based on farm level impacts (often derived on the basis of data collected from either a small number of drip using

farmers or data available from experimental plots)of drip irrigation on crop yields and crop production, some

authors have attempted to derive benefit-cost (B-C) ratios and pay back periods for recovery of invested capital.Some of the available estimates show a B-C ratio varying between --- to--- depending upon the crop/region of the

study and a payback period ranging between ---- to --- years. However as pointed out by Dhawan (---) most of the

available estimates of B-C ratio are flawed because these do not take in to consideration either the life of the

equipment and stream of benefits emanating over the life of the equipment and/or do not evaluate the benefits of

drip as the difference between with and without scenario. If one were to undertake financial analysis of

investment in drip in a more systematic way the B-C ratio and payback period may undergo some change but still

make investment in drip a financially viable option. Narayanamoorthy (1996,1997,2001) shows that if one were to

take account of life of the drip systems over which the benefits occur the B-C ratio for Banana, Sugarcane and

Grapes still were as high as 2.16, 1.91 and 1.76 respectively.


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Lack of awareness about the technology

Non- availability of drip systems in market

Small size of holding

Unreliable technology

Water source related constraints

The hassels associated with the use of technology (the laying of pipeline, its storage during the

period of non -use, choking and cleaning of emitters etc)

Drip system not amenable for cultivation of crops which the farmers are cultivating

Water availability for irrigation not a problem- enough water available for growing crops and no

need for water conservation

Subsidies on surface water and/or free electricity for irrigation pumping

Non- access to government subsidy, difficult process to avail of government subsidy

High upfront cost of investing in a drip system even after availability of subsidy

Lack of access to institutional finance/ cost of finance

Poor quality of the system supplied

Unreliable and spurious spares and non-availability of standard parts

Ignorance of the users regarding the maintenance and operation of the system

Non-availability and uncertainty of power/energy supply

Lack of access to technical support for running and maintenance of the system.

While all/ most of these factors affect to varying extent the uptake of drip irrigation systems in various

locations/ underlying conditions one of the most important factors constraining uptake of this

technology by farmers who are aware of this technology and willing to invest in the system nevertheless

has been the high upfront cost of the technology.

3. Drip Irrigation in Madhya Pradesh: A Status ReportAgricultural policy of Madhya Pradesh emphasizes increasing area under horticultural crops and

promotion of agro-processing industries. Encouraging cultivation of medicinal crops and floriculture in

each district is also part of the policy. Achieving the objectives of the policy requires efficient water

management as an integral part of the policy. Like other states , Madhya Pradesh is also implementing


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the central government program for promotion of drip irrigation in the State but its implementation is

contingent upon availability of central funds.

The adoption of drip program in Madhya Pradesh is of relatively recent origin. Appendix Table 1

provides district wise number of beneficiaries who have adopted drip irrigation during the last four

years. Five of the --- districts in the state account for almost 73 percent of the total drip users in the

state in the last four years (Table 7 ). Although incentives for investment in drip are available for all the

districts in the state, the State Government has been pushing the drip irrigation more vigorously in these

five districts. All these five districts are located in the south- western part of the state bordering

Maharashtra and Rajasthan and are in the two agro climatic zones namely; Nimar Plains and Malwa

Plateau and are experiencing severe shortages of groundwater (Figure 1).

Table 7: Important Districts for uptake of drip irrigation in Madhya Pradesh : Number of Users

Adopting Drip Irrigation in Recent Years

District

2006-07

Beneficiaries

2007-08

Beneficiaries

2008-09

Beneficiaries

2009-10

Beneficiaries

No

Per

cent No

Percen

t

No Percen

t

No

Percent

Badwani 39 8.7 205 8.4 932 9.4 1253 10.0

Burhanpur 142 31.7 315 13.0 1309 13.2 1593 12.7

Dhar 12 2.7 333 13.7 1884 19.0 2231 17.8

Khargone 0 0.0 423 17.4 2278 23.0 2750 21.9

Ratlam 121 27.0 282 11.6 854 8.6 1309 10.4

Other

Districts 134 29.9 873 35.9

2656

26.8

3397

27.2

Total State 448 100.0 2431 100.0 9913 100.0 12533 100.0


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AGRO CLIMATIC ZONES

1. Chattisgarh Plain Balaghat

2. Northern Hill Region of

Chattisgarh

3. Kymore Plateau Satpura Hills

4. Central Narmada Valley

5. Vindhya Plateau

7. Bundelkhand

8. Satpura Plateau

9. Malwa Plateau

10. Nimar Plains

11. Jhabua Hills

6. Grid Region

Agro Climatic Zones in Madhya Pradesh

Figure 1; Agro-Climatic Zones of Madhya Pradesh


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3.1 Market development for drips in Madhya Pradesh

The drip irrigation equipment market is fairly well developed in Madhya Pradesh. A number of large,

medium and small companies provide irrigation equipment that includes drip and sprinkler sets. The

available record shows that there were 51 registered companies in the state engaged in the business of

irrigation equipment. Most companies were involved in the business of sprinkler sets (45 percent),

followed by both sprinkler and drip irrigation (43%) and exclusively drip equipment (12 percent) (Table

8).

Table 8: Number of companies providing irrigation equipment

Type of

Equipment

No. of

Companies

Distribution

%

Distribution of Companies %

Within the State Outside the State

Drip & Sprinklers 22 43 27 73

Sprinklers 23 45 22 88

Drip 6 12 8 82

All 51 100 24 76

One-fourth of the total companies are based in Madhya Pradesh and the remaining are from other

states viz., Delhi, Maharashtra, West Bengal, Rajasthan and Gujarat. Competition among these

companies is strong. The range in terms of quality and cost is quite substantial. A few companies such

as, Jain Irrigation and Netafim Irrigation are recognized for maintaining the quality of their products.

Other products are considered lower in quality but the range is large.


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4. Subsidies for Drip Irrigation Technology

4.1 The Rationale

While the decision of a farmer to invest or not in a new technology such as drip irrigation system is

dependent on a large number of factors, the two factors that play a relatively more important role in

this decision making process are the financial viability of investing in the technology and the ease with

which the technology can be used. Once a farmer is convinced of the economics of investment, the next

important consideration is looking at the factors which could either constrain or facilitate the adoption

of the technology. Availability of good quality equipment and access to financial resources6for meeting

the upfront cost of investing in the technology are some of the important factors that could influence

technology uptake and adoption.

Adoption of drip technology by farmers in India has been constrained by both set of factors which

influence its uptakenot too sure about the financial viability of the investment in the technology and

lack of access to resources to invest in a high cost technology. While some studies have demonstrated

the financial viability of investing in a drip technology the available evidence is too sparse, based on

either experimental data or too few observations, or is location/ situation/ farm size/ crop specific.

Often the methodology employed to derive financial viability of drip in some of these studies suffers

from serious limitations (Dhawan, ) and therefore do not instil the level of confidence that is required

to encourage spontaneous and widespread adoption of such a technology by the farmers. For similar

reasons farmers do not want to invest either their own money or borrow money, either from financial

institutions or other sources, to invest in the technology.

6 Similar views have been expressed by the industry. Jain Irrigation, one of the leading players in the

manufacture of drip irrigation products opine that The major obstacle we are facing in promotion

of drip irrigation concept is availability of credit flow / finance to the farmers. Though the

governments are subsidizing the cost of drip irrigation systems by about 50%, the farmers need

funds to meet the balance 50% cost of the system. Hence availability of credit for meeting thebalance 50% cost of the systems becomes a limiting factor.... The governments and the banking

sector need to look at this concept more pragmatically and increase their credit flow

substantially. The banks should offer attractive interest rates and increase the allocation forfinancing drip systems.


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Given the pressing need for adoption of water conserving measures in the face of high upfront cost of

the technology and not- too- certain private (and often social and water saving7) returns from its

adoption, the government has been using the capital cost subsidy as the primary vehicle for promoting

uptake of drip technology by the farmers in India. The dual logic behind providing capital cost subsidy is

to reduce the high upfront capital cost of the technology and thereby make it possible for the farmer to

invest in the technology with minimum personal investment; and to improve the financial viability of

private investment8. Although the percentage of drip cost eligible for subsidy, the total quantum of

finances allocated by the central and state governments for disbursal of subsidy, the institutional

arrangements employed for subsidy disbursal, the eligibility criterion and other conditionalities attached

with availing of subsidies by farmers have varied over time, yet subsidies have continued to be the main

driving force for promoting investments in and uptake of drip technology.

4.2 The Evolution of Subsidy Program for Drip

The subsidies for micro irrigation were introduced by the central and state governments as early as

1988-1991. A Centrally Sponsored Scheme (CSS) on use of plastics in agriculture was launched during

the VIII Five Year Plan (1992-97) of government of India (GOI) with an outlay of Rs 2500 million of which

an outlay of Rs 2000 million was earmarked for promoting efficient method of irrigation through

drip/micro irrigation in the country. During 1994-96 the government of India was giving subsidy at the

rate of 50% of the cost of equipment to all categories of farmers. From 1997 to 1999-2000, for

facilitating installation of drip systems, the GOI provided assistance at the rate of 90% of the cost of the

system or Rs 25,000 per hectare, whichever was less, for small and marginal farmers, SC/ST farmers, and

women farmers. For other categories of farmers the amount of assistance was limited to 70% of the

total cost or Rs 25000 per hectare, whichever is less. Assistance was also provided for drip

demonstrations at the rate of 75% of the system cost or Rs 22500 per hectare whichever is less.

Following the above formula, the government disbursed subsidy uniformly irrespective of the size of

the farm, the nature of crop cultivated, or the amount of plant spacing. A Cost Committee constituted

by the Ministry of Agriculture in 1997 suggested following modifications to the subsidy disbursal

program for drip irrigation:

7A number of studies have shown that adoption of drip technology does not lead to any savings in water

8Some studies however suggest that investment in unsubsidised drip system is also viable (see, e.g.,

Naryanamoorty, )


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1. Differential unit cost of system for different plant spacing. The unit cost based on less than one

hectare norms will be higher as compared to the unit cost for one hectare. It therefore also

worked out cost norms for 0.4 hectare, 1 ha and 4 ha

2. Components such as sand filter and venturi assembly are to be included as optional items

because of its restricted use by the farmers coupled with high cost

3. The cost of drip irrigation system needs to be charged from the farmers based on free

competition as per market forces

4. The assistance needs to be lowered from 90% to 50% for SC/ST, small and marginal and women

farmers whereas it may be reduced from 70% to 35 % for other categories of farmers subject to

a ceiling of Rs 25000 per hectare.

5. The assistance may be restricted for a maximum of 4 ha against the existing unlimited area

restriction6. The registration of companies/manufacturers supplying imported as well as indigenous drip

irrigation components needs to be done centrally at NCPA

7. Only those companies which manufacture at least 2 components of DIS i.e laterals and emitting

devices need be registered.

Based on the recommendations of the Committee, the pattern of assistance for micro irrigation was

revised during the IX Five Year Plan (1997-2002) as per the details given below:

Table 9 : Pattern of Assistance for Micro Irrigation in IX Plan

State Category Maximum Ceiling for Small,

Marginal, SC/ST and Women

Farmers (Rs/ha) (50% of Cost) for

a crop spacing of 1.5X1.5 m

Maximum Ceiling for other

categories of farmers (Rs/ha) (35%

of cost) for a crop spacing of

1.5X1.5m

A 22500 16000

B 26000 18200

C 28500 20000

A Category States- Developed States

B Category States- Other States other than those in the Himalayan Region

C- All states in the Himalayan Region except those in NE Region


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The above pattern of assistance continued till the end of IX Plan (2001-02). Thereafter with effect

from 2002-03 during the Tenth Plan, the assistance was reduced to 25% of the cost of the system for

all categories of farmers.

4.3 Current Status of Subsidies on Micro Irrigation in India

Continuing with the past approach of promoting use of micro irrigation through the provisioning of

financial subsidies on the cost of the equipment, the Government of India launched in 2005-06 and

subsequently during the XI five year plan (2007-12) upscaled it for implememntation at the national

level a National Mission on Micro Irrigation (NMMI) as a Centrally Sponsored Scheme (CSS) for

promotion and uptake of minor irrigation through provision of financial subsidies9. Under this CSS 40%

of the cost of the micro irrigation system is borne by the Central Government, 10% by the State

Government and the remaining amount is borne by the beneficiary either through his / her own

resources or through loan from financial institutions. Additional assistance of 10% of the cost of the MI

system is borne by the Central Government in respect of small and marginal farmers. Many state

governments are providing even higher than the required minimum subsidy of 10 %.

Some of the eligibility requirements and the institutional arrangement for the delivery of subsidies as

per the NMMI scheme are10

:

All categories of farmers are eligible to avail assistance under this scheme.

Assistance to farmers is limited to a maximum area of five ha per beneficiary.

Assistance is available for both drip and sprinkler irrigation for wide spaced as well as close

spaced crops. However, assistance for sprinkler irrigation system is available only for those crops

where drip irrigation is uneconomical. All types of drip irrigation systems such as on line drip

irrigation systems, in line systems, sub surface drip systems, micro jets fanjets etc are eligible.

9Components of drip and sprinkler irrigation systems are at present also included in some other CSS such as

National Food Security Mission (NFSM), Integrated Scheme of Oilseeds, pulses, oil palm and maize (ISOPOM) and

Technology mission on cotton (TMC). These programs however also conform to the same norms and pattern of

assistance as stipulated under NMMI.10

Source; Government of India. 2010.National Mission on Micro Irrigation: Operational Guidelines. New Delhi:

Ministry of Agriculture, November 2010


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Assistance is available for irrigation systems for protected cultivation including greenhouses,

polyhouses and shadenet houses.

Assistance is available for implementation of advanced technology like fertigation with fertilizer

tank / venturi systems, sand filters / media filters, hydrocyclone filters / sand separators and

other different type of filters and valves required for MI system.

The NMMI has also suggested for implementation by states an elaborate institutional arrangement and

prescribed a set of procedures for disbursal of subsidies. The NMMI has also provided the estimates of

the nominal cost of a MI system for different crop spacing and for different sizes of farms for use by

states to calculate the eligible amount of subsidy. For the purpose of fixing the nominal price of a drip

system and therefore for determining the amount of eligible subsidy, the states have been categorized

into three categories, viz. Category 'A', 'B' and 'C' depending upon their level of development withrespect to drip irrigation. States where more than 20,000 hectares have been brought under drip

irrigation come under category A for which the costs have been worked out by NMMI. This include

the States of Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra and Tamil Nadu. All

the States except those covered under Category A and those falling in the Himalayan belt come under

Category B. All the North Eastern States, Sikkim, Himachal Pradesh, Jammu & Kashmir, Uttarakhand

and Darjeeling District of West Bengal come under Category C. Keeping in view the level of awareness,

proximity to the manufacturing units, distance involved in transportation, potential for drip irrigation,

the cost of drip system in Category B States is estimated to be 15% higher than Category A States

while for Category C States it is estimated to be 25% higher than Category A States.

We present in Table 10 cost of drip irrigation systems, in respect of a few of the farm sizes-crop spacing

combination, that is used for calculating the amount of eligible subsidy in Category A states.


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Table 10: Indicative Costs of Drip Irrigation Systems for subsidy calculation for different sizes of farms

and different lateral spacing (Costs in Rs)

Lateral

spacing

(mxm)

Spacing Farm Size

0.2 ha 0.4 ha 1.0 ha 2.0 ha 3.0 ha 4.0 ha 5.0 ha

12x12 Wide 8057 13785 18820 29928 46467 57809 73611

8x8 Wide 8673 15088 22028 36217 56087 70893 89964

4x4 Wide 11177 18621 31793 55725 86926 113812 135459

2x2 Wide 18319 31616 63598 123441 179332 249134 305797

1.2x0.6 Close 24063 43818 97598 185565 280886 378946 474070

4.4 Subsidy on Drip in Madhya Pradesh

In its endeavour to promote adoption of drip irrigation by farmers, the Madhya Pradesh government,

like many other state governments, has also been providing financial subsidy to farmers to help

moderate the capital cost of the system and make investment in drip irrigation by farmers more

attractive, affordable and economic. Under the prevailing subsidy regime in the State of Madhya

Pradesh, the extent of subsidy varies between 70 and 80 per cent of the cost of the drip system. As

discussed above this burden of subsidy is shared between Central and State governments. While the

Central government provides for 50 per cent of the equipment cost as subsidy in the case of small and

marginal farmers (belonging to both general category as well as SC/ST category), the extent of subsidy is

40 per cent in the case of other category of farmers. The State government additionally provides

between 20 and 30 per cent of the cost as subsidy. The total subsidy as per cent of the cost of

equipment thus varies between 70 and 80 per cent for different category of farmers (Table 11).


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Table 11: Subsidy on Micro Irrigation in Madhya Pradesh (effective 1 January 2011)

Sr No Category of

Farmers

Caste Percent Subsidy

Central Govt State Govt Total

1 Small and

Marginal

SC/ST 50 30 80

2 Others SC/ST 40 30 70

3 Small and

Marginal

General 50 20 70

4 Others General 40 30 70

Source : Office of the Micro Irrigation Committee, Bhopal

The indicative cost, for the purpose of calculation of eligible amount of subsidy, for different farm sizes

and different crop spacing, are the same as suggested by NMMI and presented in Table 10 above. Table

12 shows the various components that form the standard drip irrigation system for two of the

illustrative farm sizes- crop spacing combinations. These are the components which go in to determining

the cost of drip irrigation as given in Table 10 above and thus for estimation of eligible amount of

subsidy.


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Table 12: Components and material requirements for a standard Drip Irrigation System11

Wide Spaced Crops 0.2 Hectares Wide Spaced Crops- 5 Hectares

PVC Pipe 75 mm; Class II ; 4kg / cm2 PVC Pipe 90 mm; Class II ; 4kg / cm2



Lateral 16 mm Class II ; 2.5 kg / cm2 Lateral 16 mm; Class II; 2.5 kg / cm2

Lateral 12 mm Class II ; 2.5 kg / cm2 Lateral 12 mm; Class II; 2.5 kg / cm2

Emitter 4 / 8 lph Emitter 4 / 8 lph

Microtube 6 mm Microtube 6 mm

Control Valve 75 mm Control Valve 90 mm



Flush Valve 63 mm Flush Valve 75 mm

Flush Valve 50 mm Flush Valve 63 mm

Air Release Valve 1" Air Release Valve 1.5"

Non Return Valve 1.5" Non Return Valve 1.5"

Throttle Valve 1.5" Non Return Valve 2.5"

Screen Filter 10 m3 / hr Throttle Valve 1.5"

By-pass Assembly - 2" Throttle Valve 2"

By-pass Assembly1.5" Throttle Valve 2.5"

Venturi & Manifold 2" Screen Filter 20 / 25 m3 / hr

Venturi & Manifold 1.5" Screen Filter 10 m3 / hr

By-pass Assembly2.5"

By-pass Assembly - 2"

By-pass Assembly1.5"

Venturi & Manifold 2.5"

Venturi & Manifold 2"

Source: Government of India (2010)

11Requirement may vary depending upon lateral to lateral dripper spacing


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4.5 Process of Subsidy Disbursal

As per the prevailing process for availing the subsidy, the subsidy administering department (the

Horticulture Department) in the State government has issued detailed procedures and timelines for

each stage, from submission of application to disbursal of subsidy. The detailed procedure right from

collecting the form for applying for availing of subsidy, roles, responsibilities and duties of different

agencies involved in the process, timelines for different stages, etc is reproduced in Appendix 1. To what

extent these laid down procedures and indicated timelines are actually adhered to in practice is difficult

to comment upon, though several farmers and agents we spoke to suggested wide differences between

the two. The salient features of the process are summed up in the following diagram. The complicated

procedures prescribed for availing of subsidy nevertheless entails filling up of several forms, attaching

several documents/ documentary evidences, obtaining no objection and clearances from different

agencies, shunting of documents between different agencies/ government departments, visiting

different offices/agencies etc - strong enough disincentives to put off an otherwise enthusiast to

consider applying for subsidy on his own without taking the assistance of an intermediary or an agent.

Figure 2 below provides a glimpse of the step by step process for subsidy application and approval


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Estimation of area and cost on basis of received applications, formulation of District Action Plan and

forward DMICs sanction lan to State Micro Irri ation Committee SMIC

Preparation and approval of state level Action Plan by SMIC. Forward to Central Governments

Department of Agriculture and Cooperation (DAC), New Delhi

Field visit to the farm with Village Horticulture Extension Officer for information verification. Sendapplications in an ordered list to District Horticulture Officer

MEMBER SECRETARY, DISTRICT MICRO IRRIGATION COMMITTEE (DMIC)

Receipt and registration of Gram Sabha approved applications with documents on first come first

serve basis from farmers through Village Horticulture Extension Officer, Horticulture Extension

Officer and other sources like regional workers/dealers of Micro Irrigation (MI) Companies

BLOCK DEVELOPMENT OFFICER

MEMBER SECRETARY, STATE MICRO IRRIGATION COMMITTEE (DMIC)

Sharing of information received about district wise Action Plan approved by DAC with DMIC


Forwarding of block wise applications to MI Companies selected by farmers for survey drawing/design

etc. along with bank loan application approved by bank for further action

MICRO IRRIGATION COMPANY

Survey drawing/designing etc. and sending it to BDO and Senior Horticulture Development Officer

BLOCK DEVELOPMENT OFFICER

Physical verification of irrigation water and energy for purposed MI system and sending documents

with recommendations to Member Secretary, DMIC


Issue of administrative approval and work orders to MI Company

MICRO IRRIGATION COMPANY

Establishment of irrigation system, training of farmer along with Hindi manual. Sending Satisfaction

Certificate obtained from farmer and bills to Member Secretar , DMIC

NOMINATED GROUP OF OFFICERS

Physical verification & inspection of system installed. Processing of payment to MI Company

BENEFICIARY

Submission of Affidavit with documents to Assistant Director, Horticulture and Joint Secretary, DMIC

stating system installed will not be transferred or sold. Give in written that no benefit has been drawn

before from any similar govt. scheme


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4.6 Madhya Pradesh : Extent of subsidy available and Uptake of Drip Technology

The performance of implementation of Drip Irrigation Program in the State in recent years can be

observed from Table 13 that shows the status with respect to physical and financial targets and their

achievement in the last five years.

Table 13: Year wise Physical and Financial targets and achievements

(Physical in hectares and financial in Rs. lacs)

Year Physical Financial

Target Achieve

ment

Achieve

ment

%

Allocation Expenditure

Total Proportionate

share of

Total Proportionate

share of

Expenditure

as percent

of funds

allocated

Centre State Centre State

2006-07 3528 875 25 704 82 18 165 82 18 23

2007-08 7486 7846 105 2677 41 59 1508 68 32 56

2008-09 30153 38146 127 8534 54 46 7516 58 48 88

2009-10 33308 35604 107 7407 47 53 8791 49 51 119

2010-11 42166 9382 22 6580 56 44 2333 76 24 35

Total 116641 91853 79 25903 52 48 20313 57 43 78

Source: Presentation in Annual meeting 2010-2011, of Department of Horticulture, M. P.

The data presented in the table shows that there is no consistency in allocation of funds and the physical

targets. The program is significantly dependent on availability of central funds that may or may not be

released on time due to several administrative reasons such as non-availability of previous years

utilization and audit certificates or for deficiencies found in implementing the program according to

central government guidelines. Except in 2009-10 when utilization was more than funds allocated, in all

other years utilization varied between a low of 23 percent in 2006-07 to a high of 88 percent in 2008-

09. Government officials during discussions accepted that there is potential for realising improved

physical targets for micro irrigation but lack of funds at the required time was constraining in achieving

these.

In terms of the number of new adopters of drip irrigation, during the year 2006-07, 448 new farmers


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Table 14: Uptake of drip irrigation in important districts of Madhya Pradesh: Number of Beneficiaries

adopted drip irrigation which number increased to 12533 new users during 2009-10 as a result of larger

availability of subsidies (see Table 14). A majority of the drip sales are concentrated in just five of the ---

districts of the state. During the year 2009-10, 73 percent of the new users of drip were located in these

five districts- Badwant, Burahampur, Khargone, Dhar and Ratlam (Figure 3).

District

2006-07

Beneficiaries

2007-08

Beneficiaries

2008-09

Beneficiaries

2009-10

Beneficiaries

No Per cent No Percent No Percent No Percent

Badwani 39 8.7 205 8.4 932 9.4 1253 10.0

Burhanpur 142 31.7 315 13.0 1309 13.2 1593 12.7

Dhar 12 2.7 333 13.7 1884 19.0 2231 17.8

Khargone 0 0.0 423 17.4 2278 23.0 2750 21.9

Ratlam 121 27.0 282 11.6 854 8.6 1309 10.4

Other Districts 134 29.9 873 35.9 2656 26.8 3397 27.2

Total State 448 100.0 2431 100.0 9913 100.0 12533 100.0


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Figure 3 :Location of Districts with Highest number of Beneficiaries of Drip Irrigation Subsidy 2009-10

%

12.7%

.8%

1.9

10.4%


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4.7 Availability of Subsidy and Uptake of Drip

Almost all the drip equipment sales in the study area of Madhya Pradesh are subsidy driven.

Manufacturers and market estimates suggest that more than 95 per cent of the drip sales in Madhya

Pradesh are subsidy linked. It is therefore premised that if subsidy on drip were to be withdrawn at this

stage it is quite possible that the sales of drip may nosedive and there may not be many new takers for

this technology. This line of reasoning is being advanced to not only justify continuing with the existing

subsidy regime but also to possibly increase per cent subsidy to encourage more farmers invest in drip

technology. This argument is also being advanced to encourage and persuade governments to increase

the total kitty of annual financial allocations for subsidy disbursal for drips so that at the prevailing

subsidy levels, more and more farmers could be benefitted. To support this line of argument all the

intermediaries involved in manufacturing and selling of drip systems show a long list of pending farmer

demand which indicates that a farmer has to sometimes wait for one to two years before his turn for

subsidized drip system matures. Given that substantial government subsidy to the tune of 70 to 80 per

cent of the cost of the system is available for purchase of drip system, it is but natural that no farmer

would like to invest in a drip irrigation system without availing of the subsidy.

The linkage between uptake of drip systems to availability of subsidy has killed both - the inertia of

developing aggressive marketing strategies on the part of the manufacturers to push and promote sales

of unsubsidized systems, and any attempts at bringing down the manufactured cost of the drip system

through alternative/innovative product designs or technological innovations. All efforts of

manufacturers, dealers and other stakeholders are focused on making the most of the available

government subsidy through sale of their brand products. The system has thus made the manufacturers

subservient to government favours and has led to loss of their enterprise spirit12. Similarly the insistence

on the drip products to carry ISI mark as a seal of guarantee, and more so as a pre condition for

12Shah and Kellor ( ) note that 15 years ago when drip irrigation came to be commercially marketed for

the first time, some of the leading playersespecially, Jain Irrigationinvested heavily in marketdevelopment and were beginning to reap the benefits. But in the 1990s, GoI introduced subsidy in dripsystems. The major industry playerslike Jain irrigation-- are frustrated by the distortions caused by thesubsidy. In reality, it has also increased competition for them. The subsidy has attracted a large number(40-50 companies are registered) of shady players in the drip business who peddle low quality products,and often claim subsidy without selling systems. Getting the ISI registration involves a one time bribe ofRs 6-8 lakh; but then the manufacturer becomes entitled to market his products under the subsidyscheme. This has made big players uncompetitive; it has also created quality problems and impededmarket growth due to diminishing farmer faith in the technology.


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qualifying to become eligible for availing of government subsidy on drip, has led to adoption of corrupt

practices13.

Our careful analysis of the prevailing subsidy regime of the government together with the procedures

set and manner in which subsidy disbursal takes place suggest a strong nexus between manufacturers

and government departments entrusted with the administration of the subsidy program . The subsidy,

meant for the farmers, as currently being administered, is actually going to the manufacturers who of

course claim it all in the name of the farmers14

. Since subsidy is provided as a per cent of the price

(which earlier used to be capped by the government department for the purpose of calculating the

maximum amount of eligible subsidy but is no longer the case now) the higher the quoted price, up to

the normative prices fixed by the government for the purposes of subsidy calculation, the higher is the

amount of subsidy. It is therefore in the interest of the manufacturer to jack up the prices of drip sets inthe name of higher manufacturing cost and claim higher amount of subsidy without any commensurate

benefit of higher subsidy going to the farmers.

The manufacturers have adopted competitive strategies to create a sustainablecompetitive advantage

for promotion of their business. Companies follow various methods for delivering water saving

technology at farm level, such as demonstrations using outreach material and establishing personal

contacts between farmers and company representatives and dealers. Demonstrations of the technology

on the farms of progressive and influential farmers are organized. This has had an unintended negative

effect of excluding the small farmers and thus depriving them of knowledge about the technology. The

13Quoting the views of a dealer, Shah and Kellor ( ) refer this to ISI mark + subsidy = fraud.

14Shah and Kellor ( ) also refer to the strong nexus between the subsidy regime and siphoning off of

the subsidies by both the manufacturers and the government officials involved in subsidy delivery. They

opine that Governments are now cutting subsidies on drip irrigation; and this is creating a newgeneration of problems for the industry mainstream which has got hooked onto the opiate of subsidiesover several years. Until last year when the subsidy was as high as 90%, the marketing dynamic of thedrip system was fired by the subsidy culture. Indeed, the manufacturers and dealers including theleading brands--were after the unearned profit in the form of subsidies than manufacturing and

marketing margins from serving satisfied customers. Since ISI-marked product enjoyed a degree ofmonopoly in the form of subsidy access, their manufacturers hiked their prices pretty much to levelswhere they and the bureaucrats empowered to approve subsidies claimed the bulk of the subsidy.However, since claiming the subsidy involved between 1-3 years and 15-20% bribe money, there wasalways a market for non-subsidy drip system and products. Now that the subsidy has been reduced to30%, the profits in ISI marked drip systems have taken a plunge. All players with major names in the ISI-sector are facing declining fortunes; they have been progressively cutting their prices to stimulate theirnon-subsidy sales; but here they face stiff competition from the non-ISI players who sell unbrandedproducts at rock bottom prices.
http://www.quickmba.com/strategy/competitive-advantage/http://www.quickmba.com/strategy/competitive-advantage/


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actual business model followed by companies is governed more by the State subsidy system.

Demonstrations on big farms strengthen the nexus between dealers, companies, officials and farmers.

Companies operate more like a cartel to benefit from the subsidy provisions of the program. Producers

and the chain of sellers involved in marketing of the micro irrigation technology emphasize building

contacts with government officials at different levels in order to get maximum share out of the subsidy

kitty. At the farm level, the attempt is to convince the farmer that he/she would get a high cost product

without having to pay the full amount for it. Rather than emphasizing the benefits that the farmer might

get from use of the technology or on details about maintenance etc. the focus is entirely on getting the

necessary papers prepared for release of subsidy amount from the government. Even the decision about

the choice of product and of the company is determined by the agent who succeeds in approaching the

farmer and getting his papers cleared. The farmer is a passive participant in the entire process. Extra

economic factors such as social and local political influence, rapport with the government officials, andrelation with the company agent play a more important role than the techno-economic considerations

necessary in choice of technology and product. The deciding factor for the amount of subsidy sanctioned

is linked to the margin of service charges and profit of the dealer. Dealer margin in good quality

products is relatively small. Therefore the agents/middlemen promote lower quality products with

higher value of pro-forma invoice in order to increase the margin. This nexus pressurizes farmers to

choose equipment of poor quality by offering them different incentives including fast processing of files

and some discount, ultimately lending up to pay much more than his expectation.

The presence of number of companies leads to competition among firms producing varying quality of

equipment and services. The subsidy system is also responsible for unhealthy competition. At present,

there are only two companies viz., Jain Irrigation and Netafim Irrigation that are known for high cost

good quality product. The IDE supplies a low cost alternative which in any case is outside the subsidy

regime. Between the two - high and low cost products - there are a number of companies providing

equipment of varying quality. Most, if not all, systems are locally available and location of source of

supply is not a constraint for obtaining technology. In the business of irrigation equipments, the nexus

among the participants is shown below in Figure 4. This is the result of the subsidy system. The

facilitators are middlemen for speeding up the bureaucratic process/procedures involved in availing the

subsidy.


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On the suppliers side, there is a chain of producer, dealers and sub-dealers. Their objective is to

increase sale and maximize the share in subsidy. The chain also includes facilitators and mediators who

manage the links among dealers, government officials and farmers.

Generally in any business, revenue is generated by the companies through sales and support system,

cost structure of the product, and targeted profit. But in case of micro irrigation systems the adoption of

high cost drip equipment is directly related with the provision of subsidies. Socio-political factors also

play an important role in allocation of subsidies because of indirect political involvement in decision

making and the prescribed differential rates of subsidy.

Looked at from another perspective the subsidy regime indirectly incentivises - both the

manufacturers/sellers of the drip systems as also the government agencies administering the subsidyprogram - to target mainly the medium and large farmers for sale of drip systems. We illustrate this by

an example. With an annual assumed government subsidy budget (combined budget of central and

state government) of Rs 50 crores for drip installation, this amount can provide subsidy to about 64000

farmers to install drip on 0.2 hectares of land, cultivated with wide spaced crops with lateral spacing of

4mX4m, resulting in an area of 12781 hectares being brought under drip irrigation. In contrast the same

amount of subsidy can be exhausted by installing drip system on 5273 large farms of 5 hectares each

leading to 26365 hectares of land being brought under drip irrigation. The implicit subsidy per hectare

of drip area in the former case at Rs 39120 is more than two times the per hectare subsidy cost of Rs

18964 in the latter case (Table 15). Thus by focussing on a small number of relatively well informed and

financially better-off farmers belonging to medium and large size groups of farmers for subsidy

disbursal not only the manufacturers/ sellers gain by saving on much marketing efforts and advertising

of their product, the officials administering the subsidy disbursal also gain by a significant reduction in

their overseeing efforts, including need for visiting a much smaller number of farmers for physical

verification, while at the same time getting the applauds for bringing a much larger area under drip and

in meeting their targets with a given amount of subsidy.


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Table 15 : Illustrative estimates of beneficiaries from a drip subsidy of Rs 50 Crores for wide spaced

crop lateral spacing (4mX4m)

Farm Size Drip Cost (Rs) Subsidy (70%) Number of

Farmers

benefitting

Area brought

under drip

Per ha subsidy

cost

0.2 11177 7824 63907 12781 39120

5.0 135459 94821 5273 26365 18964

Figure 4: Subsidy Delivery : Nexus between different players

Diagram I

Promotion/ Adoption of

water saving technologies

Manufacturer of Drip

Irrigation EquipmentGovernments: Centre

and State

Dealers Department of

Horticulture

Sub-Dealers Block Development

Agriculture Supervisor

& Revenue Officer

Facilitators &

Mediators

Instrument of

implementation:

Subsidies

State-30%/40%

Union Government-40%

Farmers


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4.8 Towards an alternative model of delivery of Subsidies

Given the strong nexus that has developed over a period of time between different players involved in

disbursal and receivers of the available drip subsidies, in shaping the subsidy delivery system of the

government to their advantage and indirectly constraining the spread of drip irrigation technology, one

often wonders is the government, by providing subsidies, trying to promote a specific kit of drip system

or the concept of drip system in general? Why should eligibility condition for availing subsidy bind a

farmer to a specific configuration of the drip system and not let farmer use his imagination to choose

components which in his view could serve the same purpose but at a somewhat lower cost without the

use of all the pre specified components? Is there a way out of exiting this nexus and use the available

government subsidies to achieve the goals that these subsidies are intended to achieve? We premise

that if the government were to dispense with completely the existing mechanism of subsidy delivery to

the manufacturer/ intermediary in the name of giving subsidy to the farmer, and arrange to make direct

delivery of drip subsidy to the beneficiary farmers themselves, the scenario of market prices and uptake

of drip by farmers may change considerably.

A comparison of the prices of some of the components used in the high end drip systems, as prevailing

in the open market and as accounted for their product costing by some of the reputed drip

manufacturers in the manufactured/assembled drip systems, point to the scope for price reduction

possible. To illustrate, the manufacturers of drip system cost an important component of the system,

Venturi, at around Rs 4800-5000 while in the open market this component is available for around Rs

2400 or so. Similarly the filter is valued at around Rs 11000 in a manufacturer assembled system while it

is available at around Rs 5000 in the open market. The wholesale prices of these components would still

be lower than the quoted retail prices and to that extent indicate the scope for further reduction in

prices of the final product. Similar differences in prices exist in other components of the drip system. If

the subsidies were therefore to be withdrawn by the government it is very likely that the open market

(unsubsidized) prices of the manufactured drip systems will fall by at least 40 percent15. Increased open

market competition may reduce further the cost of a system by another 5-10 percent or so. The net

15This level of price reduction is possible and is based on the opinion shared by several dealers and

manufacturers we spoke to during our field visits in the study area. Shah and Kellor ( ) also point to

similar or larger level of price reductions possible when they say non-ISI marked products which are

nearly as good as the best available in the market but selling at 60- 70% lower price.


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result is a likely reduction in prices of manufactured drip systems by about 50 per cent in free

(unsubsidised) market. This perception is shared by almost all the market players including some of the

leading manufacturers and sellers of the drip systems. This is also evidenced by the open market prices

of drip systems being sold by the manufacturers/ assemblers of non- BIS marked drip systems in the

study region, though admittedly there may be some difference in quality of performance between the

two types of drip systems.

4.8.1 Direct Delivery of Drip Subsidy - An Alternative Model for Subsidy Delivery

Based on the above premise and possibilities of a likely reduction in open market prices of a drip system

in the event of government withdrawing the current capital subsidy scheme for drip systems, we

propose an alternative subsidy delivery model which would still incentivise the farmers to invest in drip

systems, lower the cost of subsidy outgo, be more transparent, less prone to corruption, easy to

manage and govern, less prone to interference and whims and fancies of officials, and lead to more

efficient use of available subsidy, without distorting the market for sales of drip systems16.

In the proposed subsidy delivery model, we propose that rather than giving a one time capital cost

subsidy for investing in a drip system, the government gives interest cost subsidy to farmers willing to

invest in a drip system. Under the scheme the government gives interest free loans for the entire cost of

a drip system to all farmers- small, large, belonging to general/SC/ST category, willing to buy a drip

system. These loans can be administered through the existing financial institutions17

available in rural

areas. The government provides interest free loans with capital repayable after five years. The farmer is

free to buy drip system from any dealer/manufacturer, choose desired configuration of the drip system

(such as to include or not to include venturi etc), negotiate a price and after sales service conditions

with the dealer. The farmer does not need to visit government offices to obtain approval, clearances or

16 Poulok and Sivanapan ( ) also plead for change in subsidy regime system on drip irrigation. Without

elaborating on the details of an alternative subsidy delivery model they nevertheless suggest the need for an

alternative subsidy delivery mechanism. They opine that to stimulate its wider adoption, the Government of India

has provided subsidies for drip irrigation in the sixth, seventh, and eighth five year plan. While the subsidy has

encouraged some farmers to install drip systems, it has had paradoxical results. For example, delays as long as one

year in releasing subsidy payments to manufacturers produce paradoxical price increases for subsidized

equipment. . Changing the design of effective drip systems so that they can be sold profitably by the private sector

at a price lower than the existing subsidized price opens up the possibility of replacing subsidies with an alternative

that produces the intended impacts without the disadvantages.

17Financial institutions are even currently providing loans to farmers to meet their share of capital cost of the drip

system i.e total cost minus the amount of eligible subsidy.


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no objection etc before buying the system. The government does play its facilitative role in ensuring that

only good quality products are sold in the market and farmers are not cheated by manufacturers.

Table 16

drip irrigatn

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