Abstract
Dwindling groundwater supplies threaten food security and livelihoods. Output subsidies for farmers are a ubiquitous agricultural policy tool, yet their contribution to growing groundwater stress remains poorly quantified. We show how output subsidies guaranteeing the purchase of crops at higher than market prices may have contributed substantially to declining water tables in India. Our analysis suggests that these policies may have led to a 30% over-production of water intensive crops. In the northwestern state of Punjab, rice procurement can potentially account for at least 50% of the groundwater table decline over 34 years. In the central state of Madhya Pradesh, wheat procurement adopted in the late 2000s appears to have driven a 5.3 percentage point increase in dry wells and a consequent 3.4 percentage point increase in deep tubewells. These results suggest that well-intentioned but poorly designed subsidies can impose harmful externalities on the environment and undermine long-term sustainable development.