When something is in short supply at the current price then a reasonable idea is to raise the price for it. This will, even if it doesn’t call forth more supply, at least restrain demand. It’s also worth noting that if we don’t have government trying to determine what the price will be then something in short supply will rise in price anyway. So, why shouldn’t government do what would already be done in the absence of government?
Similarly, while the need to add capacity of water reservoirs is undebatable, it is neither the only challenge nor the exclusive solution. A cursory review of research literature of Pakistan’s water economics reveals that a large part of the problem could be removed by addressing the structural inadequacies of our water pricing regime.
No, that is not to say that drinking water should be priced across Pakistan the same as tankers in DHA, Karachi. Safe drinking water is a recognized as a universal right according to Millennium Development Goals of which Pakistan is a signatory. As this column has often stressed, domestic consumption of water only accounts for 5 – 10 percent of total water consumption. The call to price water appropriately is to address its wastage in irrigation.
All of that is entirely correct. Near all freshwater availability problems come from the fact that farmers get it cheap or for free, diverting it from much more valuable uses like keeping people alive if they drink it. This is true in California – we’ve actually cases of farmers using $400 of water to grow $100 of alfalfa – as it is in Pakistan. There are cases of people growing water hungry crops in near drought areas just because they get that water too cheaply.
However, the Chief Justice is only half right here:
Chief Justice of Pakistan Mian Saqib Nisar has asked the government to generate funds for construction of future dams through water pricing and contended that 25 per cent funds required for a major reservoir could be acquired from people.
“Water pricing mechanism should be improved to get revenue for construction of dams,” the chief justice conveyed, according to minutes of a recent meeting, to the ministries of planning, water resources, energy, law and justice, climate change and the cabinet division, besides professional and technical agencies and provincial governments.
Gaining revenue with which to build dams is useful, it most certainly is. But that’s not the only function of pricing. The cash to increase supply, great, but the very fact of charging will reduce demand. And we should be charging what it costs to produce the water too. So charges should cover 100% of the costs of the dams, not just 25%.
It’s entirely possible that charging that full cost will mean that no farmers want the water. OK, then we shouldn’t build the dam, should we? For if the value of the water – measured by what people will pay – is less than the cost of its provision, then that’s value destroying, providing the water. The dam makes us all poorer, therefore we shouldn’t build it.
The point here being – and it’s an important one – that prices affect both supply and demand. They’re what brings them into balance even. So, yes, charge for water, but not just so that we can pay to increase supply, also so that we, merely by charging, reduce demand.