Every summer, Indian cities run dry. Tankers line up, borewells dig deeper and citizens rush to store what little they can. But behind this visible crisis lies a quieter one: our cities simply cannot afford their own water.
Across India, urban local governments (ULGs) are spending massively to pump, treat, and distribute water. Yet for every Rs 100 spent, cities get back just Rs 37 through user charges, according to data from www.cityfinance.in (FY 2022-23). This leaves utilities struggling just to keep systems running, with little money left for repairs or upgrades. Ageing pipes go unreplaced, pumps break down, and treatment plants are poorly maintained. Over time, the system weakens—and the quality of water services quietly declines.
Fiscal consequences are not abstract. In Gurugram, the municipal corporation spends nearly Rs 10 crore every month to procure water from the Gurugram Metropolitan Development Authority, but recovers only about Rs 5 crore from users, according to a recent tariff revision proposal. The city is writing off half its water expenditure every single month. And Gurugram is not an outlier; it is the norm.
The problem is not lack of investment. Over the past decade, India has poured unprecedented capital into water infrastructure under programmes like AMRUT, Smart Cities Mission, and the 15th Finance Commission’s grants. Pipes have been laid, treatment plants built, and new connections sanctioned. But while the infrastructure has expanded, the business model remained broken.
Most Indian cities continue to underprice water. Flat-rate tariffs are common, with little link to actual consumption. The metering picture is stark. In Maharashtra (2019-20) and Jharkhand (2020-21), only 58 per cent and 49 per cent of urban water connections were metered respectively — and these are relatively better performers. In Gujarat (2020-21) and Telangana (2017-18), metering coverage was below five per cent, according to Performance Assessment System data compiled by CWAS-CEPT. Cities flying this blind cannot know how much water they supply, how much they lose, or who consumes what.
The political logic is familiar. Leaders hesitate to raise rates for voters who have long been told that water is a “free right.” Without periodic tariff revisions or metering, utilities lack the funds to maintain systems. Citizens then spend privately on tankers and water filters, effectively paying twice, while municipal utilities sink further into debt.
Households with overhead tanks and 24-hour storage consume far more than families dependent on shared standposts or erratic public taps. Flat tariffs mean everyone pays the same — yet ironically benefits are unequally distributed. The implicit subsidy flows overwhelmingly upward.
In Mumbai, tanker water can cost up to 52 times the price of subsidised piped water (WRI, 2019). What is framed as free water for all ends up being expensive and unreliable water for those who need it most. True equity lies not in making water cheap, but in making it reliable.
At its core, the urban water finance crisis is a governance failure. The absence of a legal mandate for periodic tariff revisions effectively ties the hands of ULGs. A 2023 Janaagraha study found that 13 of 17 states do not mandate periodic tariff revisions in their municipal Acts and Rules.
When it comes to tariff setting, only six states — Assam, Andhra Pradesh, Jharkhand, Madhya Pradesh, Maharashtra, and Rajasthan — have set in place legal frameworks that explicitly link tariff setting to O&M cost recovery. In the remaining states, tariff determination is largely ad hoc—often tied to property values or left undefined—leaving little scope for cost-based pricing.
The result is a trap. Because cities undercharge, they immediately lose vital revenue. This forces them to rely on state or central grants, which often come as inflexible “tied funds” with limited local control. Unable to fund maintenance, infrastructure built with grant money degrades quickly. New pipes are laid while old ones crumble.
This trap is not inevitable. Cities can chart a path toward fiscal sustainability — but it requires deliberate action on several fronts.
Transparency: Every city should publish its cost of supplying water — electricity, labour, treatment, and pipeline maintenance — in its annual budget and even on consumer bills. Citizens deserve to know what it actually costs to keep water flowing. Transparency builds trust and helps depoliticise tariff revisions.
Indexing tariffs to costs: States should formulate comprehensive Water Supply Rules, outlining the methodology for tariff setting and computing O&M costs and mandating periodic revision of water tariffs to ensure at least 70 per cent-80 per cent recovery of O&M costs.
Linking incentives to performance: Central and State Finance Commissions can play a catalytic role by rewarding ULGs that achieve sustainable cost recovery and expand metered coverage. Today, cities that manage water well gain nothing extra; tomorrow, they should.
Looking at wastewater as revenue, not waste: Cities like Surat, Nagpur, and Indore already earn crores by selling treated wastewater to industries. This circular model not only conserves freshwater but creates a self-financing loop for urban utilities. Every litre of treated wastewater wasted is a rupee thrown down the drain.
Until ULGs can fund their own water services, they will never truly control them. India’s taps — and its city finances — will only stop running dry when we finally start pricing water honestly.
Vasu Saha is Senior Associate, Public Finance Management, Janaagraha
Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth