Introduction The Indian agriculture sector is heavily dependent on groundwater. Today, approximately 60 per cent of irrigated agriculture depends on groundwater resources (World Bank, 2012). More importantly, groundwater-driven agri- culture rests, to a large extent, on access to electricity. For agricultural use, electricity in most of the Indian states is provided either free of cost or at a flat annual rate, based on pump capacity. Free or highly subsidized electricity implies that the private marginal cost of extraction for the farmers is zero or nearly so. This encourages farmers signi- ficantly to turn to groundwater use. Furthermore, farmers prefer groundwater as they have better control over quantity An Enquiry into Equity Impact of Groundwater Markets in the Context of Subsidised Energy Pricing: A Case Study Sarbani Mukherjee 1 Durba Biswas 2 Abstract In India, groundwater over-extraction is often linked with subsidized electricity in the agricultural sector. Proponents of electricity subsidy argue that such a subsidy helped even the resource-poor farmers to have had access to groundwater irrigation. This article explores inter- and intra-generational equity implications of groundwater markets in the context of subsidized electricity where the market enables even non-well owners to access groundwater for irrigation. The study is based on survey data collected from two districts in the state of Madhya Pradesh, India. The sample includes farmers who use electricity- and diesel-powered pumps to lift groundwater. The structure of the existing water market is examined through the determination of the water price–cost ratio. The article finds that, in the short run, water markets improve accessibility to groundwater irrigation, particularly for marginal and small farmers. With the help of this, farmers are able to mitigate water-scarcity-related vulnerabilities. However, in the long run, electricity subsidy may have negative dynamic implications by causing over-exploitation of groundwater that reduces the volume of groundwater available for future agricultural use. In other words, this article finds that, in the initial phases of the development of the water markets, there are intra-generational equity implications. However, in the advanced phases, the unsustainable extraction of groundwater could lead to inter-generational inequities. Keywords Electricity subsidy, groundwater irrigation, water market, energy-water inter-linkage, equity. IIM Kozhikode Society & Management Review 5(1) 63–73 © 2016 Indian Institute of Management Kozhikode SAGE Publications sagepub.in/home.nav DOI: 10.1177/2277975215618329 http://ksm.sagepub.com Article and the timing of water supply (Srinivasan & Kulkarni, 2014). This results in higher yields for groundwater- irrigated crops when compared to surface-water-irrigated crops (Dhawan, 1995; World Bank, 1998). Electricity subsidy has significant long-term impacts on groundwater-resource sustainability, which, in turn, can have an impact on all farmers, especially small and mar- ginal farmers who cannot exit the agricultural sector. The availability of subsidized electricity has facilitated the development of ‘water market’, 1 thereby enabling small and marginal farmers, who do not have the economic ability to sink borewells or own wells, to access ground- water for irrigation by purchasing water in such markets. In this context, water markets can improve equity by 1 Indian Institute of Plantation Management, Malathalli, Kengunte Circle, Bengaluru, Karnataka, India. 2 Ashoka Trust for Research in Ecology and the Environment, Bengaluru, Karnataka, India. Corresponding author: Sarbani Mukherjee, Indian Institute of Plantation Management, Malathalli, Kengunte Circle, Bengaluru, Karnataka, India. E-mail: mukherjee.sarbani@gmail.com at INDIAN INST MGMNT KOZHIKODE on January 30, 2016 ksm.sagepub.com Downloaded from