On privatising water

What about privatising water? Should India move to do it? What tips the scales in its favour, and what doesn't? In 2003, two editorials in Down To Earth tried to tackle such questions (see: "The true cost of water", Down To Earth, April 15, 2003 and "What about privatisation, then?", April 30, 2003). Many people wrote back to us on the issue. This is what some of them feel:

Published: Thursday 15 January 2004

On privatising water

-- Wherever they exist

India's urban elite splash on subsidies

B Ashok
a regime of pro-rich subsidies have ensured India's urban elites happilly benefit from organised water supply and sewage treatment services, wherever they exist.

Water tariffs in India are among the lowest. Let us compare. In the us-- another country where water is heavily subsidised -- the average price of drinking water is us $0.5 per cubic meter. This translates to Rs 3, as per purchasing power parity of Indians. Down To Earth has revealed that in India, only in Bangalore does the operator charge more. The price in the country's capital is a ridiculous 35 paisa per unit. In fact, a study done on urban state-owned utilities across the country shows the highest water tariffs collected in any region are less than 0.4 per cent of the average annual income of the target population. This is far less than the maximum limit of 3.3 per cent set by the World Bank.

Subsidising water leads to enormous wastage and provides little incentive to introduce conservation technologies (be it roof water harvesting or waste water recycling). It acutely strains already stretched aquifers, and results in huge investments in inter-basin and distance transfer technologies. Subsidies are a luxury; the rich are availing it at the cost of the poor and our future generations.

How does one rectify this? Studies show that in countries where metering and a scientific pricing structure were introduced, water consumption went down by at least 30 per cent. But how does one price water? The theory of water pricing recommends long run marginal costs in pricing fresh supplies. The price should reflect the relative scarcity of the natural resource at the point of supply. The government should also incentivise proper and efficient use of water and subsidise household conservation measures. In addition, a country's water policy must impress upon commercial consumers the need for effluent treatment. Even if water for drinking purposes is considered a fundamental right, all that a citizen is entitled to is 20 cubic meters per day. Any use over and above this must be charged at full cost recovery.

Who should provide drinking water? Privatisation will only help a state that can regulate a clear balance between need for efficiency and equity. The private sector has clear advantages in time-bound project management, meeting quality standards, resource mobilisation and in ensuring speedy cost recovery. The state can harness this resource without necessarily sacrificing the social common good by better-targeted and rationalised subsidies.

Legal instruments necessary to engage the private sector need further sculpting in India. At the same time, the country should not treat the sector as an untouchable. This is also important: it will help reduce the fiscal deficits of poorer state governments.

B Ashok is executive director, Kerala rural water supply and sanitation scheme agency, Trivandrum, Kerala

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