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Urban Water in India: Pricing and Challenges

Article in Review of Development and Change · June 2014

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The Experience of India’s Inclusive Growth 93

Urban Water in India:

Pricing and Challenges

Rashmi Tiwari* and Sanatan Nayak**

Abstract
Provision of adequate water supply to a growing urban population is a
daunting task. This paper makes an attempt to assess the status of drinking
water in urban India, analyze the existing price structure and identify the
major issues of urban water supply. The data has been collected from various
secondary sources, viz., the NIUA Report, Data Book of Water Utilities in
India, CWC Report, TERI Report and Census. The data reveals that more
than 70 percent of households in urban India depend on municipal tap
water supply for their daily needs. It shows that the provision of piped water
supply still remains an unachieved goal in many states. At present, no state
in India has been able to ensure 24 hour water supply. On the other hand,
water is a state subject. So tariff structures used in urban water supply also
vary across states according to the institutions involved in its provision.
There is no uniformity in the principles being followed by the states for
fixation of water rates. Average tariffs in India are low relative to costs.
Therefore, revenue from tariffs is inadequate to contribute to new capital
investment. Poor cost recovery has rendered most of the water utilities
in the country as financially unsustainable. According to service level
benchmarking data, only 67.2 percent of the cost is recovered by sampled
utilities. One of the main problems in the urban water sector is the high level
of unaccountability for water (UFW). The UFW in many Indian cities is as
high as 40 to 50 percent while the acceptable level is about 15 per cent. The
study suggests that pricing of water on cost basis is essential because it not
only helps in resource generation but also results in efficient usage of water
and discourages wastage of water. Consumption based tariffs should form
the basis of charging while flat rates for charging should be discouraged
by making flat rates unattractive.

* Research Scholar, Department of Economics, B.B.Ambedkar University, Lucknow - 25.

** Associate Professor, Department of Economics, B.B.Ambedkar University, Lucknow - 25.
Review of Development & Change, Vol. XIX No.1, January-June 2014, pp.93-108
94 Rashmi Tiwari and Sanatan Nayak
1. Introduction
Water is essential for all aspects of life. As governments have the responsibility
to ensure basic human needs, they have for a long time provided water to their
citizens almost free of charge (Cech, Thomas 2010). But as water becomes scarce,
it is being argued that it should be priced. Proponents of pricing argue that water is
an economic good, an idea put forth within the United Nations in Dublin in 1992
(Rogers et. al. 2002). In urban centres, a peculiar kind of water market exists
with the possibility of market failures. Water works have the character of public
infrastructure, hence the price of water cannot be determined by the market like
other economic goods. The price of water is usually administratively determined
rather than by the market.
Today water institutions in India operate somewhere between that of a free
market and a social service. Water utilities in India are not operated independently
and are not managed on principles of accountability and transparency. The supply
of freshwater services can be met either from a fixed charge or through water
pricing. Cost recovery in the water sector has not received much emphasis in most
Indian cities. Prices for water are based on socio-political considerations and are
not determined based on economic principles (Vaidyanathan 2006). Therefore,
utilities do not have enough resources to maintain and expand the water network.
Indian urban water supply systems suffer from poor and unreliable water services,
growing urban water stress, under investment, huge wastages, poor governance and
low revenue collection (Saleth & Dinar 1997; World Bank 2009; Dinesh Kumar
2012). To overcome these problems, it is required to raise water prices so that they
meet costs and hence ensure not only that future demand is met but quality also
maintained (Saleth & Dinar 1997; Rogers et. al. 2002: Dinesh Kumar 2003; Aghte
& Billings 2003). Without adequate pricing, consumers have no signal indicating
the value of water and therefore no incentive to use the resource efficiently (Gulati
et. al. 2005; Vaidyanathan 2006; Dinesh Kumar 2010).
The paper is divided into five sections including the introductory section. The
second section analyses the status of drinking water in urban India. The existing
water rates for domestic water users for major states and Indian cities are analysed in
the third section, while the major issues of urban water supply have been presented
in the fourth section. The last section provides a summary of the present study and
its main conclusions.
The paper is an attempt to present the current status of access to drinking
water in urban India by identifying the major issues of urban water supply and
analyzing the existing domestic water price structure in India. Various reports,
viz., NIUA Report, Data book of Water Utilities in India by Asian Development
Bank, CWC Report, TERI Report and Census are used to understand the current
status of drinking water in urban India. Further, an attempt is made to highlight the
variability of urban water prices structures across states and time.
Urban Water in India 95
2. Safe Drinking Water: Access & Sources
Safe drinking water is an essential component of primary health care and
has a vital role to play in poverty alleviation. The National Water Policy has
assigned highest priority to drinking water. If a household has access to drinking
water from a tap, tube-well or hand-pump situated within or outside the premises,
it is considered to have access to safe drinking water (Lohia, S. 2006). As per
the census, 85.5 per cent households have access to safe drinking water, but this
coverage only indicates the percentage of households using potable sources for
their drinking needs. Only about 46 per cent of households have drinking water
facilities within their premises. Rural-urban differences are significant. 35 per
cent of rural households and 71 per cent of urban households get their drinking
water within their premises (Census 2011). Though providing water via public
taps and hand-pumps are important, the quality of water from such taps may not
be good, health risks high and the opportunity cost in terms of time lost significant.
(Samauel Paul et. al. 2004; Seetharam and Rao, 2009 & WSP Study 2011). Proper
access requires two conditions to be fulfilled; right to sole use and source within
the dwelling. In general, the closer water can be supplied to the dwelling the better
it would be (Bajpai & Bhandari 2001; Pushpangadan, K. 2006).
The percentage of households having safe drinking water facility in India has
increased from 62.3 to 77.9 between 1991-2001 and from 77.9 to 85.5 between 2001-
11 (Table 1). There was more variation between states in access to drinking water
in 1991 than in 2011. In 1991, Mizoram (16.2 percent) reported the lowest access to
safe drinking water while in 2001 and 2011 Kerala reported the lowest access to safe
drinking water among all states because of high reliance on wells. In 1991, Delhi (95.8
percent) reported the highest access to safe drinking water while in 2001 and 2011
Punjab reported the highest access to safe drinking water among all states. Mizoram
reported the highest increase in coverage (24.4 percent) between 2001-11.
Table 1 : Descriptive Statistics, Safe Drinking Water
Variable Mean SD Min Max
Access to Drinking
62.3 20.54 16.2 95.8
Water in 1991
Access to Drinking
77.9 20.18 23.4 97.6
Water in 2001
Access to Drinking
85.5 17.35 33.5 97.6
Water in 2011
Difference between
15.6 9.99 -6.9 29
Data of 1991-01
Difference between
7.6 5.57 -2.2 24.4
Data of 2001-11
Source : Computed from the Census of India, Various Years.
96 Rashmi Tiwari and Sanatan Nayak
Current Status of Urban Water Supply
In urban India, about 71 per cent of households obtain their drinking water
from taps and 21 per cent of households from tube-wells/hand-pumps. It can be
said that piped water is the major source of drinking water in urban areas (Table
2). There are significant disparities among all states in regard to use of sources for
drinking water in urban areas. Himachal Pradesh had the highest per cent of tap
water users while Delhi had the lowest well water users in 2011. Bihar had the
lowest access to tap water in both years, i.e. 26.4 per cent in 2001 and 20 per cent
in 2011 and highest access to hand-pumps, i.e. 64.9 per cent in 2001 and 74.7 per
cent in 2011 among all states. Kerala had the highest per cent of well-water users.
Andhra Pradesh, Goa, Mizoram and Tamil Nadu improved significantly in their
coverage of tap water between 2001-11 while most of the other states reported either
marginal or no increase. The situation in the states of Assam, Bihar, Jharkhand,
Kerala, Madhya Pradesh, Sikkim, Uttar Pradesh, Uttaranchal and West Bengal must
be considered alarming as the percentage of households having access to tap water
has declined during the 2000s. Many studies have found a positive relationship
between the level of economic development and the access to tap water (Kundu
& Thakur 2006; Zerah 2006; McKenzie & Ray 2009). A large section of the tap-
deficient households of the above-mentioned states depend on hand pumps and
tube wells for their daily water needs. Bihar and Uttar Pradesh report above 90 per
cent accessibility to safe drinking water but it may be noted that about 75 per cent
of households in Bihar and 46 per cent of households in Uttar Pradesh depend on
hand-pumps/tube-wells for drinking water. It can be said that groundwater is still
the predominant source of drinking water in less developed states. As a result water
tables are falling at dramatic rates. It is, therefore, essential that every household
has access to their own tap (Bajpai & Bhandari 2004).
As per the 2011 census, 70.6 per cent of the urban population in India was
covered with individual connections as compared to 91 per cent in China, 86 per
cent in South Africa and 80 per cent in Brazil. No city provides 24 hour water supply.
Thus, the current status of urban drinking water is not up to the mark (Twelve Five
Year Plan, Vol.2, GOI, 2010).
Table 2 : Descriptive Statistics, Drinking Water by Source to Urban Households
Variable Mean SD Min Max
Access to Tap Water in 2001 68.7 19.84 26.4 96.9
Access to Tap Water in 2011 70.6 21.41 20 95.9
Access to Hand-pump/Tube-well
21.4 15.25 0.2 64.9
in 2001
Access to Hand-pump/ Tube-well
20.8 18.00 0.1 74.7
in 2011
Access to Well-water in 2001 7.7 13.74 00 56
Access to Well-water in 2011 6.2 12.11 0.1 58.9
Source : Computed from the Census of India, Various Years.
Urban Water in India 97
3. Pricing of Water: Methods and Instruments
Water pricing is important to achieve efficient and sustainable use of water
(Saleth & Dinar 1997; World Bank 2006; Vaidyanathan 2006). Tariffs1 for water
should ideally cover not only the cost of operation and maintenance of the system
but also the capital replacement cost.
Existing methods of water pricing can be classified into volumetric and non-
volumetric methods (Tsur 2000). A volumetric method is based on the quantity of
water consumed and hence requires a water metering facility. Volumetric tariffs
could either be a uniform metered tariff or an increasing block tariff (IBT). A uniform
volumetric tariff is a single rate per kilolitre of water for the entire quantity of water
consumed per month applied uniformly to all consumers regardless of quantity
consumed. Therefore, the monthly bill is directly proportional to the quantity of
water consumed (GOI 2005). On the other hand, under increasing block tariffs (IBT)
charges are lower for lower blocks and higher for high levels of consumption. The
key feature of IBT is that it contributes to equity by allowing low-income households
to pay lower rates for water than other households. This method leads to reduction
of wasteful use of water and increases efficiency and sustainability of the water
supply system because the bill is determined by multiplying the volume of water
used in a billing period by a per unit price. But private, metered water connections
are often available only to upper and middle income households; the poor must
obtain water from shared connections, neighbours with private connections, water
vendors, or other sources and thus IBTs do not help with such households (Boland
& Whittington 2000).
A non-volumetric flat rate is usually charged in the absence of metering
wherein the monthly water bills are independent of water consumed. Flat rates
could be charged either on the basis of size of the ferrule or could be set by the
concerned authority using its own judgement (TERI 2010). This method normally
results in a water bill being generated based on the value of the concerned property,
rather than on the level of consumption. It, therefore, encourages the misuse of
water (Tsur, Y. 2000).
Three types of instruments are generally used by which water is charged.
(Mathur & Thakur 2003). The first is a connection fee or a fixed access charge. A
connection fee or charge is based on the size of the plot or holding or the size of the
connection and ferrule or a combination of the two. The second is a water tax which
is unrelated to water use or consumption. It forms a part of property taxation, is
leviable on the annual rateable value of land and property and is meant to essentially
serve as a general tax. In many small and medium size Indian cities, fixed charges are
still the most prevalent way to calculate a household’s monthly water bill, regardless
of the amount they use (Whittington, D. 2003). The third method of charging is a
water charge. The water charge could be in the form of a non-volumetric flat rate,
uniform metered tariff, metered block tariff or a combination of the above.
98 Rashmi Tiwari and Sanatan Nayak
Table 3 : State-wise Water Rates for Domestic Water Uses
State State-wise Unit Water Rate (in Rs.) Data since
applicable
Andhra Per cum / month NA 2/4/2002
Pradesh
Arunachal Per month Rs. 25 to Rs. 175 1/6/2008
Pradesh
Bihar Per tap / month 5.00 1969
Chattisgarh Per cum / month 0.32(*) 1/4/2006
Delhi Per kl upto 10 KL pm = @ 2.00+50.00sc* 01/01/2010
10-20 KL pm=@3.00+100.00sc*
20-30KL pm=@15.00+150.00sc*
>30KL pm=@25.00+200.00sc*
Goa 10,000 lt Rs. 10.00 10/5/2004
Gujarat Per kl Rs. 1.00 1/4/2008
Haryana Per 2500 cft Rs. 10.00 25/10/2007
Himachal Per connection Rural Area – 14.64 1/4/2009
Pradesh Per kl Urban Area – 5.85 1/4/2009
Per kl Bulk use – 11.70 1/4/2009
Jammu & Per conn. / month Unmetered 1/2 inch pipe: 30.00 1/4/2005
Kashmir Per conn. / month Unmetered 3/4 inch pipe:60.00 1/4/2005
Per 000 gallon Metered: 18.00 1/4/2005
Jharkhand Per 000 gallon 4.50 1/4/1998
Karnataka Per million cft 375.00 13/7/2000
Kerala Upto 5000 Lt Rs. 20.00 1/9/2008
5000 Lt to 10000 Lt Rs. 20.00+@Rs.4/-per1000lt. 1/9/2008
10000 Lt to 20000 Rs.40.00+@Rs.5/-per 1000 Lt. 1/9/2008
Lt Rs.90.00+@Rs.6/-per 1000lt. 1/9/2008
20000 Lt to 30000 Rs.150.00+@Rs.14/-per 1000 Lt. 1/9/2008
Lt Rs.430.00+@Rs.25/-per 1000 liter 1/9/2008
30000 Lt to 50000
Lt
Above 50000 Lt
Madhya Per cum 0.38 1/11/2009
Pradesh
Maharashtra Per 10 Kl 2.60 to 10.10 1/4/2010
Manipur Per gallon 0.01 N.A.
Mizoram Per litre/month up to 13 KL = 0.01 31/12/2008
13 KL to 39 KL = 0.02 31/12/2008
Above 39 KL = 0.03 31/12/2008
Minimum Rs.100/- per month = 31/12/2008
Orissa Per 10000 cft 15.00 to 30.00 18/7/1998
Punjab Per 6000 cft 12.00 13/5/2003
Rajasthan Per 1000 cft 0.80 17/5/1995
Sikkim N. A. N. A. N.A.
Tamil Nadu Per Kl. In Rs. Rs. 3.00 to 4.50 14/12/06
Tripura Per month/tap Rs. 20.00 to 100.00 19/6/2000
Uttar N.A. N.A. N.A.
Pradesh
West Per month / Household use: 30.00 2002
Bengal household

Note : S. C.: Sur Charge

Source : Calculated from Central Water Commission, 2010
Urban Water in India 99
(a) Water Pricing in India
State governments have primary responsibility for use and management of
water given that water is a state subject. State governments are responsible for
fixing urban tariff structures. The tariff structures used in urban water supply as
well as the institutions involved in delivery vary across states (GOI 2005). There is
no uniformity in principles being followed by the states for fixation of water rates.
Most states operate a mixture of measured and unmeasured tariffs (Table 3). A flat
rate is the most common form of unmeasured tariff; constant rate per kilolitre is the
most common form of measured tariff. Only three states Delhi, Kerala and Mizoram
use an increasing block tariff (IBT). In Mizoram, the water rate is very low.
The price of water is low and unrelated to the cost of delivering it in most
states of India. Moreover, water charges are fixed in nominal terms but there is no
provision to revise water rates in most of the states hence in real terms they have
been falling. There is a considerable time lag in revision of water rates in Bihar
(more than 43 years). Even in Rajasthan, Jharkhand, Odisha, Karnataka and Tripura
rates have not been revised for the last 10 years. Tariff rates are often not raised
because of an exaggerated perception of associated political cost (Uttar Pradesh
Development Report 2007).
(b) Water Tariffs in Indian Cities
Water pricing structures in India are extremely complex. At one level, price
structures distinguish between metered connections and unmetered connections
while at another level, price discrimination is common within categories of water
(Table 4). Almost all cities use non-volumetric methods for water pricing because
of unmetered connections. Ahmedabad Municipal Corporation (AMC) charges
for water at a flat rate. In 2008-09, AMC linked water and sewerage charges to
property tax. The former were 30 percent of the property tax payable by domestic
consumers (TERI 2010). In Amritsar, institutional and commercial consumers pay
according to metered use while domestic users pay a flat rate based on plot size.
Domestic connections with 5 marla are exempted from payments as of 11 July 2006
(ADB 2007). A uniform water tax is levied for all users in Mathura, which is 12.5
percent of annual rental value. This is collected as part of the property tax annually.
Different types of consumers pay according to this tariff structure with industrial
users paying more since their annual rental values are higher. In Kolkata, on the
other hand, water supply for domestic consumption is supplied free of cost. Only
bulk supply for domestic uses is charged. In Surat, only commercial, industrial, and
institutional connections, comprising less than two per cent of total connections,
are metered. Those with domestic connections pay for their water as a part of a
municipal tax (Table 4). Thus, it can be said that the fixed charge is still the most
prevalent way to calculate a household’s monthly water bill in many small and
medium size Indian cities. This finding has been confirmed by other studies as
well (Whittington, D. 2003).
100 Rashmi Tiwari and Sanatan Nayak
Table 4 : Structure of Water Tariffs in Indian Cities for Domestic Users
Rate of Water Tariff’s
City Metered Unmetered Average Monthly
Bill/connection
3
Ahmedabad Rs. 3/m Annual Prorata Charges- 3” to 4” Rs. 49.40
1/2” pipe – 879 Rs. per year
3/4” pipe – 2,424 Rs. per year
1” pipe – 4,986 Rs. per year
Amritsar Rs. 3.20/m3 Upto 5 marla – Rs. 60/month Rs. 136.86
5 to 10 marla – Rs. 90/month
10 marla to 1 kanal – Rs.120/month

Bangaluru 0-8 Rs. 6/m3 --- Rs. 297

8-25 Rs. 9/m3
25-50 Rs. 15/m3
50-75 Rs. 30/m3
75-100 Rs. 36/m3
Above 100 Rs. 36/m3
Bhopal Rs. 3.50/m3 1/2” pipe – 60 Rs. per month Rs. 42
3/4” pipe – 400 Rs. per month
1” pipe – 600 Rs. per month
Chandigarh 1-15 Rs. 1.75/m3 --- NA
15-30 Rs. 3.50/m3
30-60 Rs. 5/m3
Above 60 Rs. 6/m3
Chennai 0-10 Rs. 2.50/m3 Rs. 50 per month Rs. 85.55
11-15 Rs. 10/m3
16-25 Rs. 15/m3
Above 25 Rs. 25/m3
Coimbatore 1-50 Rs. 3.50/m3 Rs. 50/tap per month Rs. 70.95
50-100 Rs. 4/m3
100-150 Rs. 5/m3
Above 150 Rs. 6.50/m3
Indore Rs. 11/m3 1/2” pipe – 150 Rs. per month Rs. 60.36
3/4” pipe – 250 Rs. per month
1” pipe – 500 Rs. per month
Jabalpur NA NA Rs. 62.74
Jamshedpur Rs. 7.90/m3 Plot size Rs. 81.08
Upto 1600 Sq ft – 120 Rs./ month
1700-2500 Sq ft – 240 Rs./ month
2500-4000 Sq ft – 450 Rs./ month
Above 4000 Sq ft – 540 Rs./ month
Kolkata --- --- ---
Mathura --- 12.5 % of Annual Rental Value Rs. 32.66
Mumbai Rs. 3.50/m3 12.5 % of Annual Rental Value Rs. 708.46
Nagpur 1-10 Rs. 3.00/m3 15 mm”- Rs. 75 per month ---
11-40 Rs. 3.50/m3 20 mm”- Rs. 150 per month
Above 30 Rs. 4.00/m3 25 mm”- Rs. 350 per month
Nasik Rs. 3.50/m3 Based on Supply Time Rs. 102.19
Two Time- Rs. 1,080/year
One Time- Rs. 810/year
Rajkot Rs. 12/m3 10 mm”- Rs. 40 per month Rs. 50
15 mm”- Rs. 50 per month
20 mm”- Rs. 120 per month
Surat --- Rs. 240 per Annum Rs. 44.70
Varanasi Rs. 2/m3 Rs. 380 per year Rs. 104.05
Vijayawada 1-3 m3 Rs. 100 minimum Rs. 80 per month Rs. 61.09
Above 3 m3 Rs. 100 +
8.25/m3
Visakhapatnam Rs. 4.00/m3 Rs. 80/tap per month Rs. 56.12

Source : Computed from the Data Book of Water Utilities in India, 2007.
Note : 5 marla = 125 sq yards, 1 kanal = 500 sq yards. Domestic metered connections
are residences with plots of 1 kanal and above.
Urban Water in India 101
The analysis shows that only six out of 20 cities use IBTs for metered
customers. There is significant variation in the rate and size of blocks across cities
(Table 4). Delhi charges Rs 2 up to 10 kilolitres consumption while Kerala charges
Rs 4-5 for up to 10 kilolitres (GOI 2012). The size of the initial monthly block is
lowest in Vijayawada (3 m3) and highest in Coimbatore (50 m3). A large per cent
of households come in the lower blocks. The only sign of change has been in the
quantity allocated for lower payment blocks. e.g. In Hyderabad, the government
reduced the amount of water supplied in the lower payment block from 30 kilolitres
to 15 kilolitres. In Bangalore, the government reduced the quantity supplied
from15 kilolitres to 8 kilolitres while in Delhi the government reduced the amount
supplied from 10 kilolitres to 6 kilolitres (Mckenzie D & Isha Ray 2009). It is said
that under an increasing block tariff, a low rate is charged for the first few units of
water and then higher amounts of use are charged at higher rates to subsidize poor
households. But poorer households are less likely to have a metered connection, so
many poor households do not benefit from the IBT structure (Boland & Whittington
2000; TERI 2010).
There are also quite a few variations in terms of the billing period and average
monthly tariffs in different cities (Table 4). Consumers in Ahmedabad, Indore,
Jabalpur, Nagpur, Surat and Varanasi pay their water bill annually while in Rajkot
and Bhopal, domestic users pay their bill monthly. In Mumbai, Visakhapatnam and
Nasik, consumers pay quarterly. In Vijaywada payment schedules differ between
metered and unmetered connections: metered connections are billed monthly while
unmetered connections are billed every six months. Average monthly tariffs are the
lowest in Mathura. Tariffs are highest for Mumbai (Rs. 708.46).
4. Major Challenges of Urban Water Sector
(a) Poor Cost Recovery
Poor cost recovery2 is a major concern in water supply. While it is possible
to achieve cost-recovery in water supply, the fact is that almost four-fifths of the
urban centres are unable to recover even the O&M cost. This indicates that while
theoretically water can be treated as an economic good, there are practical difficulties
in implementing decisions on raising water tariffs. Water continues to be treated as
a social good and even recovering O&M cost in most cities would require political
consensus. Inadequate cost recovery is not only a function of low tariff levels but
also of low collection rates, unaccounted-for water and other operational efficiencies
addressed earlier.
(i) Extent of Cost Recovery
Water utilities recover only 65 per cent of the cost incurred for providing water
supply. However, the recovery rate is much better in Class I cities than in Class II
cities (Table 5). Tamil Nadu is the only state where cost recovery has been complete;
in fact it is124 percent. This could be due to efficient management or non-payment
of dues and deferred payments (GOI, 2005). Cost recovery is less than 50 per cent
102 Rashmi Tiwari and Sanatan Nayak
Table 5 : Cost Recovery of various states on water supply
(in percent)
States Class-I Cities Class-II Cities Total Sample
Andhra Pradesh 75.17 72.36 73.77
Bihar 63 NA NA
Gujarat 44.2 35.5 39.85
Haryana 29 38 33.5
Jammu & Kashmir NA NA NA
Karnataka 82.64 79.86 81.25
Kerala 75 NA NA
Madhya Pradesh 60.9 49.22 55.05
Maharashtra 55.07 64 59.54
Orissa 19.5 NA NA
Punjab 53.71 60.2 56.96
Rajasthan 42.25 69.5 55.88
Tamil Nadu 137 112.67 124.83
Uttar Pradesh 61.35 64.71 63.03
West Bengal 11.33 8.67 10
Average 55 44 65
Source : Calculated from the Statistical Volume I of NIUA Report, 2005.

in Gujarat and Haryana. West Bengal is not able to recover even 15 per cent of total
dues. The reason is not only inefficiency in managing the service but also perhaps
because flat rates or the tax method is less conducive to collection.
(ii) Revenue Receipts and Revenue Expenditure per Kilolitre
The revenue-expenditure gap/kilolitre is lower in class-I cities than class-II
cities. The average revenue receipts are Rs. 1.02 for class-I cities and Rs. 1.21 for
class-II cities as compared to the average revenue expenditure of Rs. 1.88 and Rs.
2.44 per kilolitre for these class cities (Table 6). The revenue-expenditure gap is
the highest for class-I cities in Rajasthan and for class-II cities in Maharashtra.
Almost all states show revenue deficits on the water supply account. As compared
to the expenditure per kilolitre, the tariff charged is generally low. Bridging the gap
between tariff and expenditure is essential to reduce dependence on higher levels
of government for providing this basic service.
Some urban centres show a positive balance with revenue receipts exceeding
revenue expenditure. One third of the sampled utilities, including Chennai,
Urban Water in India 103

Table 6 : Revenue - Expenditure Gap/kl on Water Supply for Class-I & II Cities of
Various States
Class-I Cities Class-II Cities
Revenue/kl Expenditure/ Rev – Exp Revenue/kl Expenditure/ Rev – Exp
States
(in Rs.) kl (in Rs.) Gap/kl (in Rs.) (in Rs.) kl (in Rs.) Gap/kl (in Rs.)
Andhra Pradesh 1.21 1.81 -0.6 1.64 2.54 -0.9
Bihar 0.12 0.33 -0.21 NA NA NA
Gujarat 0.78 2.34 -1.56 0.6 2.53 -2.47
Haryana 0.65 2.6 -1.95 0.85 2.4 -1.85
Jammu & Kashmir NA NA NA NA NA NA
Karnataka 1.27 1.35 -0.08 0.86 1.29 -0.43
Kerala 0.68 1.48 -0.8 NA NA NA
Madhya Pradesh 0.93 1.97 -1.04 0.68 1.56 -8.8
Maharashtra 1.36 2.7 -1.34 2.08 8.03 -5.95
Orissa 0.44 1.98 -1.54 NA NA NA
Punjab 0.79 1.54 -0.75 0.76 1.28 -0.52
Rajasthan 1.46 5.13 -3.67 1.46 6.1 -4.64
Tamil Nadu 2.53 1.94 0.59 3.28 3.25 0.03
Uttar Pradesh 0.43 0.77 -0.34 0.49 0.96 -0.47
West Bengal 0.13 1.55 -1.42 0.17 2.1 -1.93
Average 1.02 1.88 -0.86 1.21 2.44 -1.23

Source : Calculated from the Statistical Volume I of NIUA Report, 2005.

Mumbai, Jamshedpur, Nagpur, Visakhapatnam, Bangalore, and Coimbatore are

able to cover their costs (ADB, 2007). According to service level benchmarking
data, however, only 67.2 per cent of the total cost is recovered by sampled utilities
across the states (GOI 2010).
(b) Unaccounted for Water
One of the main problems in the urban water sector today is the high level of
unaccounted for water (UFW). The UFW3 in many Indian cities is as high as 40 to
50 per cent while the acceptable level is about 15 per cent (according to CPHEEO
norms) (GOI 2005). UFW is generally an estimate worked out by technical staff
based on their perception of the situation. Most cities do not have bulk meters or
meters at all at the user’s end. Hence, the task of calculating UFW is very difficult.
Even when water supply is adequate, poor maintenance and inadequate replacement
leads to technical losses in the distribution network. The technical losses can be
prevented by investment in regular maintenance and repairs. Generally, large
amounts are spent on new capital works, while routine maintenance is ignored
(Asit, K. Biswas 2000). The reason may be that the capital projects are visible and
projected as an achievement while maintenance yields no such benefits. The average
UFW for 20 Indian cities is about 31 percent. The lowest UFW is in Jamshedpur
(12.8 percent) while the highest in Nasik with 59.6 percent (ADB 2007).
Non-revenue water4 (NRW) refers to water that is produced but not sold to
consumers. High levels of NRW are common throughout India. Delhi’s NRW was
estimated to be as high as 55 percent. Ahmedabad and Goa reported 36 percent and
47 percent respectively (World Bank 2011).
104 Rashmi Tiwari and Sanatan Nayak
(c) Unmetered Water
Metering is essential for recovery of reasonable user charges and water
conservation. Only some urban centres have all connections metered. A large
percentage of domestic connections are unmetered in many urban centres while in
one-fourth of urban centres all non-domestic connections are also unmetered. Since
meters often do not work, many cities charge fixed tariff for water supply based
on the calculated consumption patterns (GOI 2005). Most cities have intermittent
water supply which could also lead to inaccurate readings. There are also no robust
facilities to test and to certify meters (GOI 2012). Some cities such as Coimbatore,
Bangalore, Nasik, Chandigarh, and Mumbai have more than 75 percent metered
domestic connections while Bhopal, Jabalpur, Mathura, and Varanasi have no
metered connections (ADB 2007).
(d) Under-pricing of Water
Water in most Indian cities and towns is underpriced. Under-pricing has not
only affected the financial health of water supply which has consequently impeded
the expansion of water services and reduced the coverage of urban poor households
but also resulted in wasteful usage of water (Mathur & Thakur 2006; TERI 2010;
GOI 2012). In India, tariffs are often not raised because of the perception that people
are not willing to pay and poor people cannot afford it but several studies suggest
that people, including low income households, are willing to pay more for better
water supply. At present, households pay several times the municipal charges in
coping costs arising from the irregularity and unreliability of supply (Uttar Pradesh
Development Report 2007; Mckenzie & Ray 2009).
(e) Misuse of Subsidy
Water subsidy is not a targeted subsidy. There are two methods for subsidy in
tariff models: direct subsidy and cross subsidy. A lower price for water is a direct
subsidy to consumers while recovering costs through high tariffs on industrial users
is a cross subsidy. Many municipalities use cross subsidies to recover their costs
(Rogers et al. 2002). In Bengaluru, while the commercial and industrial usage is 5 per
cent of its total water supply, the billing amounts to almost 40 per cent. Bangalore,
which charges Rs 6 per m3 for the lowest domestic slab and Rs 36 per m3 for the
highest, charges as much as Rs 60 per m3 for industrial and commercial use. The
situation is the same in Chennai, Hyderabad and other key cities (GOI 2012). But
the objective of the subsidy has not been achieved. As water supply is provided
directly to the rich and middle classes while not to the poor, the subsidy benefits the
rich (Boland & Whittington 2000; Wang et. al. 2010; TERI 2010). While increases
in price are required, many studies suggest that subsidies will still be needed to
provide for the poor. An emphasis on connection subsidies should probably be the
goalto provide for water needs of the poor while increasing prices on the non-poor
can occur simultaneously. Cross subsidies need to be kept at a minimum level.
Urban Water in India 105
(f) No Accounting for Groundwater Usage
Groundwater remains the missing link in city water accounts. Without
assessment of groundwater usage, any policy of increased tariff is insufficient
because it will lead to even greater dependence on groundwater and most likely
result in over-exploitation (Rogers et. al. 2002). Across the country, the evidence
suggests that the low price of water hurts water supply agencies as does the
increased use of free groundwater. Bangalore, Chennai and even Hyderabad are
clear examples of this. Water agencies, in other words, lose twice. (GOI 2012). Not
only should water tariffs be raised but appropriate charges set for groundwater use.
Groundwater supply is more reliable and if the government does not levy a charge
on groundwater extraction it will be over-exploited as the only costs to the user are
those of installing and operating pumps.
(g) Distance
Distance adds to the burden of costs because there are huge losses in
transportation. As the distance increases, the cost of building and then maintaining
water pipelines and distribution networks also increases. If the network is not
maintained water losses increase. Today, municipalities officially report that
between 30 to 50 per cent of water supplied is lost in leakages. It would be far
more efficient to revive traditional and local water bodies which also help recharge
groundwater (NIUA 2005; GOI 2011).
5. Summary and Conclusion
Provision of water supply is one of the oldest functions of urban bodies in
India. Municipal water supply is the primary source of drinking water for most
households, but no city provides 24 hour water supply. There are wide disparities
with regard to use of sources for drinking water in urban areas across states. In some
states such as Himachal Pradesh and Delhi, tap water is the main source of drinking
water while in Bihar and Uttar Pradesh most households depend on groundwater
for their daily needs. Kerala has the highest per cent of well users.
The study reveals that there are also quite a few variations in water pricing
structures across Indian states. The main distinctions are between metered and
unmetered connections, domestic and commercial uses, the length of the billing
period and average monthly tariffs. Almost all cities use non-volumetric methods
for water pricing because of unmetered connections. Thus, it can be said that fixed
charges are still the most prevalent way to calculate household water bills in Indian
cities.
The urban water sector has also been plagued with a number of other problems
including poor governance, under investment, lack of accountability, unaccounted
for water and low revenue collection, all of which have led to infrastructure
deterioration, the breakdown of services and ultimately customer dissatisfaction.
Tariffs are based on socio-political considerations rather than costs involved in
106 Rashmi Tiwari and Sanatan Nayak
producing and delivering water (Kumar D. 2003; GOI 2007). To meet the challenges,
reforms need to focus on improving service delivery. This would require raising
the price of water.
Pricing of water on cost basis is essential because it not only helps in resource
generation but also results in efficient usage of water while discouraging wastage
of water. Consumption based tariffs should form the basis of charging while flat
rates for charging should be discouraged by making flat rates unattractive. Tariffs
should be revised every year to reflect changes in cost.
Although subsidies appear inevitable, the government should subsidize
connections, not volumetric water use. Subsidizing connections for poor households
can remove an important barrier within the water supply network. Subsidizing
connections rather than monthly use appears to be a better way of directing subsidies
towards the poor.
Notes
1
A tariff is a set of prices, charges, and taxes used to generate revenue. A tariff
structure is a set of procedural rules used to determine the conditions of service and
monthly bills for water users in various classes or categories (Boland & Whittington,
2000).
2
Cost recovery is the ability of a service provider to take in sufficient revenues
from customers to cover their current and some of their future costs. These include
operation and maintenance costs (to deliver the service) as well as capital costs
(including recuperation of asset depreciation over time and savings to pay for future
capital investment needs).
3
UFW includes both physical losses as well as revenue losses (which include theft
of water and illegal connections).
4
Non-revenue water refers to water that is supplied free through stand posts or under
an exemption policy, is consumed without payment via theft or illegal connections
or is lost through leakage.
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