Indian agriculture is trapped in a complex nexus of groundwater depletion and energy subsidies. This nexus is the product of past public policy choices that initially offered opportunities to India’s small-holder-based irrigation economy but has now generated in its wake myriad economic, social, and environmental distortions. Conventional ‘getting-the-price-right’ solutions to reduce these distortions have consistently been undermined by the invidious political economy that the nexus has created. The historical evolution of the nexus is outlined, the nature and scale of the distortions it has created are explored, and alternative approaches which Indian policy makers can use to limit, if not eliminate, the damaging impacts of the distortions, are analysed.

Indian agriculture is trapped in a complex nexus of groundwater depletion and energy subsidies. This nexus is the product of past public policy choices that initially offered opportunities to India’s small-holder-based irrigation economy but has now generated in its wake myriad economic, social, and environmental distortions. Conventional ‘getting-the-price-right’ solutions to reduce these distortions have consistently been undermined by the invidious political economy that the nexus has created. The historical evolution of the nexus is outlined, the nature and scale of the distortions it has created are explored, and alternative approaches which Indian policy makers can use to limit, if not eliminate, the damaging impacts of the distortions, are analysed.

Groundwater is now a major source of agricultural water supply in many parts of the world. The value of groundwater as a new source of supply is well known. However, its additional buffering or stabilization value is less appreciated and even less analysed. Knowledge on groundwater's stabilization value is advanced by developing and estimating an empirical model using the case of tank irrigation systems in Tamil Nadu, India. Unlike previous work, the model uses cross-sectional rather than time-series data. The results show that for the case-study region, the stabilization function added approximately 15% to supply value. Scenarios with surface water and electricity price were incorporated in the model. Increased surface-water supply and electricity price caused reduction in groundwater use but the percent of stabilization value of groundwater increased. The findings are used both to suggest improvements in tank irrigation systems and to further contextualize knowledge of groundwater's stabilization value.