Moving Ahead on Blended Financing Mechanisms and Pricing Water in India
The concept note is developed under the "Blueprint for Water Accounting in India" initiative of India-EU Water Partnership programme.
It is available online for your comments/ suggestions.
The Initial Concept Note on Costs Recovery in the Water Sector highlights several costs of water:
- resource cost (costs of water development/ collection, treatment and supply/ distribution);
- environmental cost (costs associated with depletion and degradation of water);
- opportunity cost (costs associated with not allocating water for best alternative uses and across generations); and
- cost of resource recovery (cost of pollution abatement, water reclamation).
Similarly, several pricing instruments can be combined to cover these costs:
- tariffs for water supply and sanitation services are meant to recover resource cost; they apply to bulk water production as well;
- abstraction charges are designed to signal the opportunity cost of using water (they are higher when water is scarce or competition to access it is fierce); and
- pollution charges make pollution costly and recover the cost for downstream or future users.
Under-pricing or not charging full cost pricing of water leads to inefficiency in production and distribution, which in turn reduces productivity of water in terms of gross value addition. It follows that pricing for water is not merely an environmental issue.
It is essentially an economic issue: under-pricing leads to lost opportunities for economic and social development, through wasting water that could have been available for valuable uses; misallocation of water to low value uses while more valuable uses are deprived of access; additional cost to treat polluted water before it can be used again, thus affecting productivity of agriculture or industries; etc. India’s total water productivity is very low and even lower than in developing countries in Sub-Saharan Africa.
It follows that improvements in water pricing can lead to significant economic and social benefits in India. In particular:
- It can avoid wasteful use of water, where it is scarce.
- It can allocate water where it creates most value for Indian communities.
- It can save public funding, which can have a larger benefit in other domains.
A programme of action to make water pricing reform happen in India The economic case for well-designed water pricing is robust and well-known in India. A number of initiatives have been taken at federal, state and local level to design and implement prices that make economic, social and environmental sense.
Read the full blog here.