April 8, 2024The Intersectionpublic policyenvironment

To address the water crisis, India must price water

Water conservation requires multi-dimensional action -- but only pricing will create strong incentives for it

Mint This is from The Intersection column that appears every other Monday in Mint.

A few years ago, a mayor of a Karnataka town asked me how she could prevent people from wastefully washing their yards, walls and vehicles with water from the municipal water supply. She told me she had organised awareness campaigns, promoted conservation efforts and even personally remonstrated with citizens, but to little avail. When I asked her how much they paid for the water, she replied that the monthly charge was a few tens of rupees per connection, but this was not strictly enforced. She was taken aback when I told her that was why her conservation efforts had been unsuccessful.

An underpriced resource is over-consumed. That is what is happening across the country, where underpriced water and electricity are causing people to consume more than the optimum. It is not a surprise that we are going from water scarcity to water crisis. The current approach of underpricing water is no longer tenable for the water crises will only get worse in the coming years. Water can only be conserved when it is priced at marginal cost, at the most expensive litre of water produced to satisfy a given demand.

In Bengaluru, residential piped water costs between Rs 7 and Rs 45 per 1000 litres. Houses that do not have access to the municipal water supply purchased water from tankers at around Rs 150 during normal times and up to Rs 250 during shortages. Thus the marginal cost of water is 20 to 35 times what the fortunate people with access to municipal water supply pay. If prices go up, people will adopt flow controllers, bucket showers, rainwater harvesting and other conservation measures with greater urgency.

So pricing water is a solution to the scarcity and sustainability problem. The question is how we do we get there.

There is no doubt that a water is a necessity of life and everyone should have access to a basic quantity of water for drinking and washing. The United National General Assembly has decreed that every human has a right to 50 to 100 litres of water per day from a source less than 1 km and 30 minutes from home. In a country with many poor and low-income households, this water should be available regardless of one’s ability to pay. There is a case to make the basic quantity of water free of cost to poor households.

With the availability of a robust social welfare infrastructure in the form a the Jan Dhan, Aadhaar and Mobile (JAM) it is already possible to ensure water is properly priced and at the same time, the poor are provided the money to purchase it. Indian cities must raise water prices over a period of a few years until they are close to the marginal cost, and provide digital water vouchers to the poor. Vouchers can be financed through the state government’s budget until municipal water corporations are able to cross-subsidise them from their own surpluses.

Today municipal water supply is synonymous with piped water. There is no reason why this must be so. Indeed, municipal water companies should be mandated to provide at least 100 litres per person per day regardless of the means of delivery. It should be up to them to use pipes, borewells, tankers or bottles, as long as they achieve the outcome.

Pricing can solve upstream problems as well. One reason the Kaveri water dispute has persisted for decades is that there is no reason for the claimants to moderate their claims. The more they ask the more the tribunal is likely to eventually assign to them. My colleagues at Takshashila have shown that a more efficient and less contentious allocation system is possible. States that claim over a low basic quota must pay for the excess into a Kaveri Water Fund. States that take below their quota can receive money instead. This allows State governments the flexibility to choose a wider set of policies, and gives them the financial resources to compensate farmers and others who have to change their water use pattern. Pricing will create incentives to economise on the use of water and lead to a more efficient allocation.

The policy design is not tremendously difficult and the projects can be made financially viable. The biggest hurdle is a political system that is addicted to populism. Indian politicians know how to make paid things free. They are unfamiliar with the idea of making free things chargeable. Yet there are examples — national highways, for instance — where pricing has created a bigger and better road network.

Water should be priced not because it will bring new sources of revenue to governments, but because it creates incentives for conservation. Tackling scarcity requires action at multiple fronts: increasing efficiency of use, promoting reuse, governing groundwater, harvesting rainwater, rehabilitating water bodies, building new infrastructure and so on. It is hard to implement these at the scale required because there are few incentives to do so. No government has the capacity to cajole or coerce everyone into action. Pricing provides a strong incentive for people to do the right things. There is no alternative.

(Disclosure: I am on the board of Jal Seva Charitable Foundation. These are my personal opinions.)

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