These results reinforce the need to develop a strategy for rural development that speeds up rural income growth and generates positive economywide repercussions. Model simulations confirm that, while the imposition of a higher water tariff has the drawback of hurting LSI farm households, it has the advantage of improving the government's fiscal position. If the water tariff hike is combined with farmer water sales, the impact on these farmers is cushioned while significant quantities of water are liberated for use elsewhere in the economy. The national plan for irrigation expansion, including proportional increases in irrigated areas and water supply, has a positive impact on macro indicators and household incomes, especially for the rainfed farm households who own the land that is converted from rainfed to irrigated. The benefits of the program may be measured by the increase in real factor incomes that it brings about.
Productivity growth is crucial for raising growth in production and incomes.
The gains are shared widely in the sense that no household group loses in absolute terms. However, in relative terms, urban households gain the most because they derive the bulk of their incomes from factors that are intensively used in dynamic sectors facing high income and price elasticities of demand. This distributional effect stems from the fact that these commodities, whose relative prices decline, primarily are demanded by households and producers in rural areas. The results demonstrate that, under realistic assumptions, it is possible to design a policy package and resulting development path that combine rapid and efficient growth in incomes and production throughout the economy with an improved relative position for the rural population. Download full-text discussion paper .