Economic growth and water pollution

While water is a renewable resource, its availability in time and space is limited, being largely determined by the climate, geography and other bio-physical conditions of a particular region as well as a set of technologies that permit the rate at which water is conserved and used (TERI 2000). India's economy, with its opening to the outside world in 1991, has entered a new development stage. It has brought progress to the country in many aspects. India's economy is currently growing at between 7% and 8% per annum, making it one of the fastest growing economies in the world. The driving force behind this has been the reform program undertaken in the wake of the balance of payments crisis in 1991. The reform program that followed marked a new willingness to allow market forces the freedom to work.
It included significant industrial and trade liberalization, financial deregulation, improvements to supervisory and regulatory systems and policies more conducive to privatization and foreign direct investment (Aggarwal 2003). These reforms gave a sharp boost to economic growth in the country. However the benefits of this impressive growth have been accompanied amongst other problems by severe environmental degradation. Environmental pollution is one of the serious problems being faced by the people in the country. The rapid growth of population is aggravating the problem by putting more pressure on natural resources. India is the second most populous country in the world after China. One of the biggest challenges that the country faces today is to provide safe drinking water to its ever increasing population.

A number of empirical studies suggest that when a country is in its early stage of economic development, environmental degradation is inevitable. The relationship between economic growth and environmental degradation is explained by an inverted U-shaped curve called Environmental Kuznets (EKC) curve. The EKC hypothesis states that pollution levels increase in the early stages of development, but decrease as income rises beyond a certain point. This relationship was first observed by Grossman and Krueger (1995) in their investigation of the possible environmental impacts of a North American Free Trade Agreement (NAFTA) and they found that any economic growth accompanying Mexico's inclusion in NAFTA would ultimately benefit Mexico's environment (Nahman 2005). Since then a number of empirical studies have been conducted to test the validity of the environmental quality-income relationship (Arrow 1995; Grossman 1995; Panayotou 1995; Stern 2004).

Most empirical studies on the EKC hypothesis use cross-sectional data consisting of several countries for their empirical estimations. In this study we have taken a single country approach i.e. to study water pollution problem in different states of the same country instead of a cross-country analysis. A national level study assumes that all regions in a nation will follow the same pattern, thus overlooking the regional disparities. But for a country like India regional differences can be very significant. This is because of sharp and increasing regional variations among India's states in terms of per capita income, poverty, population, and socioeconomic development. One factor that binds these diverse states together is the legal institutions. The central pollution control board (CPCB) has oversight powers over the various state boards. It sets emission standards and lays down ambient standards (Maria 2003). The implementation of the national environmental laws and enforcement of the standards set by the CPCB is decentralized at the level of each state, with the state pollution control board in charge of the state-level implementation (Maria 2003). Therefore, the levels of pollution may also differ due to disparity in the implementation level of these policies in different states of India. Thus, the environment--income relationship may not only differ across nations, but also across regions of the same country (Borghesi 1999).