Water and Federalism: India's Institutions Governing Inter-State

Executive Summary The paper analyzes the process of resolving interstate water disputes. Indian water-dispute settlement mechanisms are ambiguous and opaque. A cooperative bargaining framework suggests that water can be shared efficiently, with compensating transfers as necessary, if initial water rights are well-defined, and if institutions to facilitate and implement cooperative agreements are in place. The paper also emphasizes the role of complementary investments, and the need to expand the scope of bargaining to include these where feasible. Delayed agreement over water can encourage inefficient, non-cooperative investments in dams, irrigation, and agriculture and industry more generally. Additionally, we distinguish between situations where cooperation is possible, and situations where the initial allocation of rights is at stake, where there is pure conflict rather than potential gains from trade. In the pure conflict situation, which seems very relevant for Indian interstate disputes, a search for a negotiated solution may be futile, and quick movement to arbitration or adjudication may be more efficient. However, in the Indian case, not only is this process slow, but, effectively, binding arbitration does not exist. The threat point of no agreement has been the outcome in several major disputes (e.g., Cauvery; Ravi-Beas). This can result in inefficient levels of investment by the individual, non-agreeing 2 states, generating a diversion of scarce investment resources, as well as inefficient use of the water itself. This in turn can have negative impacts on economic growth. The problems are compounded by the entanglement of interstate water disputes with more general center-state conflicts, and with everyday political issues. We argue that these impacts can be reduced by a more efficient design of mechanisms for negotiating interstate water disputes. We present some of the possibilities, including a national water commission independent of daily political pressures, a federated structure incorporating river basin authorities and water user associations, and fixed time periods for negotiation and adjudication.