India is still at an early stage of the urbanisation process and many of its cities will see exponential growth over the next few decades. By 2030, India?s urban population is expected to reach more than 590 million. This will put enormous pressure on all existing resources, especially water.
Despite sufficient availability of raw water, many cities supply water only for a few hours. The issues confronting urban water supply are complex but well-known. With unclear institutional arrangements, poor cost recovery and a high level of non-revenue water, supplying safe and affordable water is a challenge for most cities in India.
The situation is aggravated by poorly targeted subsidies and large investment requirements. While public-private-partnerships (PPPs) represent some promise for improvement, an integrated approach is needed for meeting the urban water challenge.
A recent PwC publication, ? Bringing water to your door step-urban water reforms for the next decade??which reviewed the international experience across Singapore, Senegal, Korea, Cambodia, South Africa, France, UK, US and Australia?suggests there are several good practices globally that could be adapted to the Indian context.
These include setting out a transparent, accountable and credible institutional and policy framework; separate policy-making, operations and tariff setting; measures for cost recovery through user charges to ensure sustainability of operation, better focus on service delivery and improving operational efficiency; and inclusion of small-scale water agencies who could be quite effective in providing service in areas where formal network may not be present.
Five areas require immediate and concurrent action. The measures cover financing, institutions and policy, PPPs, resource sustainability and capacity building. These measures have close synergy with one another and so any lack of movement on one will soon become a bottleneck for other areas.
Addressing the financing conundrum requires devolution of grants to the third tier of government under a predictable framework, as also expanding funding options for the sector are necessary. The 13th Finance Commission has recommended that there should be provision for an automatic transfer of funds based a percentage of the divisible pool of taxes to urban local bodies (ULBs). This will link the resource base of ULBs to buoyant sources like the proposed GST, and at the same time, minimise distortions that may arise from local taxation.
Further, a limited guarantee mechanism may be needed for enabling a debt market to take off. However, the mechanism should have in-built checks and balances to avoid the moral hazard involved in providing such guarantees.
Finally, better targeting of subsidies is extremely critical. An effective way of channelising subsidy to the poor would be through a direct transfer of subsidy and letting all consumers face tariffs that reflect actual costs. This will not distort the consumption decision and will lead to more economical usage.
Similarly, getting the institutions right is important and this requires creating an accountable and performance-driven approach and clear contractual arrangements for service delivery. Actual service delivery can be done through the local body, state level public agency or a PPP operator, provided there are clear benchmarks to be adhered to.
An important step here would be to separate the roles of policy making, tariff regulation and service delivery. Ring-fencing water supply operation is necessary and this could be done by transparently setting tariffs and ensuring that subsidies for water supply are predetermined. Having an incentive-based regulatory framework that provides graduated levels of incentives to ULBs for agreeing to be part of a regulatory framework needs to be explored.
However, an enabling environment for PPPs requires focussing on appropriate project design and improving the viability of PPPs by concentrating on a suitable fiscal framework as well as policy changes that recognise the unique characteristics of urban water supply PPPs.
Better resource sustainability can be achieved by instituting a long-term programme for non-revenue water (NRW) reduction, appropriate regulation of ground water and suitable incentives for industries to use alternative water sources such as seawater and recycled water.
Capacity building in the sector is necessary for meeting the goal of providing water supply 24×7 in our cities. For this, ULBs will need efficient and well motivated urban managers. A Stint as municipal commissioner should be compulsory for young IAS officers. A separate cadre for urban management should be created. The experience under JNNURM shows that ULBs are not even aware of facilities such as capacity building fund, and much more work is headed on building ULBs? awareness about and interest for capacity building.
The writer is associate director, government reform and infrastructure development (GRID), PwC India