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Managing Watershed Externalities in India: Theory and Practice

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Abstract

Watershed development is the focus of poverty alleviation programs in rural India. Watershed projects aim to solve problems of externalities, but they also create their own externalities, which cause uneven distribution of costs and benefits that undermine project objectives and harm the poor. Numerous approaches exist to internalize externalities, including awareness creation, moral suasion, investment subsidies, regulatory limits and fines, indirect benefits, mergers, and recent innovations like payment for environmental services and cap and trade. These can be judged on several criteria; the best approach would solve the problem cost effectively and help or at least not hurt poor people. Watershed projects in India were examined to identify the approaches taken to internalize watershed externalities. Investment subsidies and indirect employment benefits are the least effective approaches theoretically, but they are the most commonly applied, most likely because they are easy to administer and bring popular short term gains. Some theoretically favorable approaches that have been used elsewhere, such as payment for environmental services, may not work as well in India due to high transaction costs. However, one key innovation that easily could be applied in India is to make investment subsidies contingent on performance. Legal support and property rights reform would be needed for other favorable approaches.

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Abbreviations

ICDP:

integrated conservation and development project

IWDP:

integrated watershed development project

JFM:

joint forest management

NGO:

nongovernment organization

NLBA:

nonland-based activity

PES:

payment for environmental services

RUPES:

rewarding upland producers for environmental services

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Acknowledgements

This paper is based on a World Bank-funded study entitled ‘Managing Watershed Externalities in India’. The paper and the report on which it is based draw on both the literature and on original case studies in Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Orissa, and Rajasthan. These case studies were prepared by Rahul Bannerjee, Sheeba Choudhury, Pranab Choudhury, David Gandhi, P.J. George, Kundan Kumar, G.P. Tewari, and Mukesh Tripathi. The literature review was written by Vasudha Chhotray. The authors also thank Stefano Pagiola and James Smyle for their helpful comments on an earlier draft.

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Authors and Affiliations

  1. Michigan State University, 151 Natural Resources Building, East Lansing, MI, 48824, USA

    John Kerr

  2. World Bank, Washington, DC, USA

    Grant Milne

  3. University of Manchester, Manchester, UK

    Vasudha Chhotray

  4. Independent consultant, Rome, Italy

    Pari Baumann

  5. Independent consultant, Gurgaon, India

    A.J. James

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  1. John Kerr
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  2. Grant Milne
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  3. Vasudha Chhotray
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  4. Pari Baumann
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  5. A.J. James
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Correspondence to John Kerr.

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Kerr, J., Milne, G., Chhotray, V. et al. Managing Watershed Externalities in India: Theory and Practice. Environ Dev Sustain 9, 263–281 (2007). https://doi.org/10.1007/s10668-005-9022-3

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