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Abstract

Considering the associated risks and uncertainties in agriculture in general and in groundwater irrigation in particular, financial institutions can adopt hyperbolic discounting method to compute the dues in long term groundwater irrigation loans including agriculture loans. This will reduce the loan burden on farmer borrowers and serve the purpose of equity. While amortizing investment on irrigation wells, resource economists need to consider a realistic nominal rate of interest, which is around 3 to 6 percent. However the real interest rate is negative ranging from –0.17 percent to –2.50 percent. Natural resource economists valuing contribution of groundwater irrigation on farms irrigated by wells need to use a realistic interest rate of around 2 percent considering the intergenerational equity and sustainability in groundwater use.

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