South Asia has always had to deal with water scarcity, especially in its arid and semiarid areas. But rapid urbanization and industrial development have made the problem more acute. Farmers, cities, and industry—the three main sources of water demand—now routinely vie for the same water supplies. Irrigation systems, once the preserve of farmers, are now often tapped to supply factories and urban areas, because new water systems are costly to develop.

By 2025, the amount of water needed to meet municipal demand in India is expected to double, while the water going to industry and energy generation is expected to more than triple. Municipal and industrial water use will account for 27 percent of total withdrawals in India by 2025, compared to 17 percent in the mid-1990s. Similar trends are evident in other parts of South Asia. The greater competition for water among extremely diverse groups with very different types of water needs has made water management an ever more complex task.

• The agriculture sector is still by far the largest user of water, but much of its needs are met during the rainy season, when water is relatively abundant, and most cropping systems are adapted to somewhat unreliable water supply.
• Increasing municipal demand for water comes not only from a growing population, but, more importantly, from urbanization: as people move to cities and incomes rise, lifestyle changes boost per capita water demand. Moreover, this demand is for high-quality water, year round.
• Growing industrial production is accelerating the demand for water even more rapidly. Industries often require the most reliable supplies of water—not just throughout the year, but around the clock.

Each water user not only takes water out, but also puts something back into the water supply: agrochemicals, municipal wastes, and industrial effluents. Very little municipal sewage is treated, but many farmers use it anyway for farming. The sewage provides nutrients for crops, but the accompanying pathogens and heavy metals can harm human health. Improperly treated industrial effluent is even worse for ecosystem and human health. The Noyyal basin of Tamil Nadu, India, for example, has become a "dead river" because of discharges from textile factories. Over 10,000 acres of irrigated area have become unproductive, and drinking water has to be brought in from outside the basin.

In addition to having different water needs, the three groups of water users have competing power bases. Many industries exercise strong economic power, and can argue that they need water to generate employment and foreign exchange. The image of "thirsty cities" is evocative (even though only a relatively small share of municipal water goes for drinking purposes), and large cities have considerable political power. Farmers can also be well-organized, particularly when it comes to demanding water.

Many analysts, looking only at total quantities of water used by each group, argue that relatively small transfers from irrigation water could meet the growing demand from industry and the cities. Moreover, because irrigation is often seen as an inefficient use of water, and agricultural output prices are now relatively low, these analysts see such transfers as going to "higher value" uses.

The crux of the matter comes down to competition for stored water, especially during the hot dry season, when demand peaks in all sectors. Supplying cities and industries at this time of the year often means cutting back on irrigation year-round.

A recent IFPRI study of the impact of water transfers on livelihoods in South Asia found that in Nepal's Kathmandu valley, many farmers were selling their land for urban development or moving into nonfarm occupations, thus benefiting from or at least gaining some compensation for the shift to nonfarm water uses. But this kind of transition does not always take place. In the Bhavani basin of Tamil Nadu, irrigation water has been transferred in increasing amounts to two cities and a growing textile industry. Each transfer was small relative to total irrigation water use, but the cumulative effect on farmers was negative, particularly during dry years. Farmers at the tail end of the irrigation system rarely got water, but they adapted by diversifying their livelihoods. Farmers with the most senior water rights, those whose families had irrigated their land for centuries, suffered badly when rainfall levels fell below normal.

Interestingly, the Bhavani farmers did not object to water transfers to cities, because they placed a strong value on providing "drinking water." All they asked in return was that municipal uses be "reasonable." Water given to industry, however, sparked a groundswell of opposition, despite the creation of thousands of jobs. Much of this opposition hinged on the pollution caused by the factories. A local civil society movement, the Bhavani Basin Environmental Protection Group, mobilized protests and even initiated court cases that shut down a major textile plant for failing to control its effluent.

When water transfers dry up or pollute rural landscapes, rural people whose livelihoods are at stake are likely to protest. To avoid such conflicts, rural people need to be part of the decisionmaking process and share in the benefits. Currently there is little consultation with farmers when irrigation water is transferred. Some programs have been put in place to compensate farmers who give up water for other uses. These negotiated approaches offer promising ways of dealing with the increasing competition for water among agricultural, industrial, and urban water users in South Asia.