How Local Authorities Can Prevent Groundwater Extraction

Urban planning in India and other South Asian countries is often done without much emphasis on curtailing air and water pollution or giving much thought to depleting water levels. This is especially true of urban planning in satellite towns such as Gurgaon and Noida. As the demand for piped water is much higher than the supply, many private builders in these cities often resort to groundwater extraction. Even though this leads to depletion of water, private developers and firms benefit from groundwater extraction. This is a clear case of negative externalities that real estate developers impose.

The National Green Tribunal (NGT) recently issued notices to 14 builders in the Delhi-National Capital Region (NCR) for flouting norms governing ground water extraction. After the NGT drew their attention to the issue, local authorities have constituted inspection groups in Delhi, Gurgaon, Noida, Greater Noida and Faridabad. A resident of Noida had registered a complaint with the NGT against real estate developers, who extract groundwater instead of using water from sewage treatment plants.

Supply of piped water influences the price of residential real estate in Delhi and surrounding regions. Many parts of Delhi-NCR do not have sufficient supply of piped water, and this has primarily three effects:

1) The supply of developed land in Gurgaon, Noida, Faridabad and such areas would be low. This creates an urban land shortage in the national capital region. The supply of residential units in these satellite towns would be low. This would drive up the price of apartments in Delhi.

2) Builders and other private firms in areas without piped water supply will violate environmental norms to extract ground water.

3) As many private firms are now located in Gurgaon and Noida, this would raise the average commute because many people would still live in Delhi, where there is piped water supply and other supporting infrastructure.

A look at how the government may handles it:

A. Authorities may lower rents in central Delhi through rent control. This would lead to a shortage of homes in Delhi and surrounding areas.

B. Authorities can punishing builders by not giving fresh licenses or revoking licenses, like they did in Gurgaon.

C. But, authorities can use a cross sectoral approach. If the government builds water mains to suburbs, this would contribute to solving the shortage of homes.

The cross sectoral approach is likely to be more successful. Why?

Builders extract ground water because they face genuine constraints that cannot be easily solved through private action without the co-operation of local-urban authorities. As water is necessary for construction activities, punishing errant builders would merely lower the supply of residential units in these areas. This would raise residential prices and rents further. But, this would not address the underlying problem.

Real estate developers are expected to connect their projects to existing water networks, if they exist at all. But, in many cases, existing water networks are far from their projects. To deal with the problem without violating the norms, developers have to build and off-site infrastructure linkage between their project and centralized water networks. This is very expensive. The developer will have to bear the entire costs while the benefits will be captured by everyone in the locality. So, developers often build infrastructure for their own projects. In the long run, this is very costly, and leads to depletion of ground water. To solve the underlying problem, local authorities need to build a city wide infrastructure network. Punishing builders would be a temporary, and extremely costly decision because increasing the supply of developable land is inexpensive relative to the benefits.