Ixrnonucriox

Te achievements and failures of eorts in the develop-

ment of the water sector are well-known. While on the
one hand, these eorts have contributed signicantly
to food security as well as improvement in the qual-
ity of life in many Southern nations, there have been
many and equally signicant gaps and unintended
negative impacts on nature and society. Over the
years, the marginalized and disadvantaged sections of
society have been further disempowered as they have
lost control over the process of making decisions related
to the development of the water sector. As a result,
they have been subjected to a disproportionately high
burden of costs of development in the sector, while
the benets, both direct and indirect, that have actu-
ally reached them have been insignicant. A bigger
problem associated with the development of the water
sector has been disempowerment of the marginalized
and inequity. In this background, the eorts aimed at
restructuring and reforming the water sector acquire
special importance.
Sectoral reforms in the water sector began in 1990s
in India as a part of pilot projects funded by interna-
tional nancial institutions (IFIs). Tese reforms have
Water Sector Reforms
Imp|ications on Empowerment and Equity
*
Sachin Warghade and Subodh Wag|e
22
now penetrated into policy and legal frameworks of
water governance at the national as well as state levels.
Tese reforms are crucial for many reasons. First, the
reforms acquire importance because of the centrality
accorded to them in sector governance. Second, re-
forms are making fundamental changes to the values
and principles underlying laws and policies. Tird,
these reforms are comprehensive, covering all impor-
tant aspects and elements of the sector. Fourth, and
most importantly, many of the reforms have brought
in changes in not only policies and laws but also in
the institutional structures and even ground conditions
that are very di cult to reverse.
It is argued that the water sector requires huge invest-
ments for infrastructure development and upgradation,
which most governments would fail to provide. Te
most common solution proposed to address this prob-
lem consists of market-based reforms, which include
operating the system on a full cost recovery principle
and commercialization or private sector participation of
varying degrees (Prasad 2007). While arguing in favour
of cost-based water pricing, a World Bank (2005a: 54)
document states that although the massive distortions
* Tis chapter is developed based on the paper presentation in Fourth South Asia Water Research Conference organized by
SaciWaters on Interfacing Poverty, Livelihood and Climate Change in Water Resources Development: Lessons in South Asia held in
Kathmandu, Nepal on 4 May 2009.
326 India Infrastructure Report 2011
in the pricing of water services are justied in the name
of the poor, it is, paradoxically, the poor who are the
major victims of these distortions. Te document
further argues that [t]he situation in India remains
one in which public monopolies face no competition.
Te one over-riding lesson from the global revolution
in the provision of public services is that competition
matters (the World Bank 2005a: 44). Reforms, in
this context, are justied mainly on two grounds: (i)
improving e ciency and economy, and (ii) enhancing
equity and empowerment.
First, it is claimed that dierent elements of reforms
will bring in improvements in performance, which
implies reducing, if not eliminating dierent types of
losses and ine ciencies. Tis improvement in perfor-
mance will result, on the one hand, in improvements
in the economic and nancial health of the organiza-
tion in the sector as well as of the sector as a whole.
Te Government of India in the World Banks Water
Forum stated that [t]he sector is characterized by
serious under-performance, and this crisis will continue
unless there is a fundamental reform of service arrange-
ments (GoI 2002a: 2). On the other hand, increased
e ciency will also result in a decrease in consumer
prices and an increase in the quality of services given to
consumers and users.
Second, it is argued that the many elements of
reforms will empower consumers against the mighty
utilitiesboth public and private owned. Te reforms
will have special instruments and mechanisms to deal
with grievances of water users. Further, it is also argued
that reform elements, which would improve overall
transparency and accountability in the functioning of
the sector, will empower water users too. Reforms will
bring in a level playing eld to all water users, and help
users who face economic, political, or social challenges.
It is also argued that the improved functioning of the
sector will bring in private investments and reduce the
burden on government funds, which can be meaning-
fully utilized for supporting the interests of disadvan-
taged sections within or outside the water sector (the
World Bank 2005a).
Hence, such reforms in the policy and legal instru-
ments require an assessment of their potential contribu-
tion to equity and empowerment. Such an assessment
can provide valuable inputs for the future direction
of reforms. Tis chapter presents the outcomes of an
assessment of key reform instruments in the water
sector in India.
Fnaxrwon von Assrssxrxr
Te terms equity and empowerment need to be
interpreted in a manner that is relevant to the water
sector. Te main issue in the equity dimension is the
distribution of costs and benets among dierent
stakeholders. In the water sector, apart from nancial
costs, the main costs involved are social and envi-
ronmental costs, which are the result of developing
infrastructure required for generating water sources
and distributing water. Te main benet from the
sector is water services, including eective access.
Eective access to water is seen to be dependent on
the availability of water to a particular userwhich, in
turn, is aected by physical, economic, political, and
social factors.
In assessing the equity implications of reforms, both
costs and benets, need to be investigated. While the
nancial costs are borne by the state and national
governments, the decisions on the social and environ-
mental costs are made through policy and legal instru-
ments that lie outside the water sector. For example, in
Maharashtra, land acquisition for water projects is
carried out by the revenue department using special
land acquisition laws. Similarly, decisions on environ-
mental matters are handled by the agencies under the
purview of the Ministry of Environment and Forests
(MoEF), whereas issues of water quality are handled
by pollution control agencies under separate laws.
Empowerment here implies increased inuence on
the governance of the sector, especially on the functions
of decision-making and regulation. Inuence on gov-
ernance is a function of participation, accountability,
and transparency. Te ability to get decision-makers,
implementing agencies, and regulators to be account-
able is a key measure of the inuence of that water users
and citizens have on the governance of the sector. Simi-
larly, true and meaningful participation in all functions
and all stages of governance is necessary to ensure that
the needs, aspirations, and demands of the stakeholders
are reected in the outputs and outcomes of gover-
nance processes. Transparencydened as timely and
unrestricted access to informationis a precondition
to eective extraction of accountability and meaningful
participation.
Water Sector Reforms 327
It is also argued that the location of decision-making
is important for exercising inuence on governance.
Te geographic distance as well as procedural remote-
ness are considered as adversely aecting the ability
of water users and citizens in inuencing governance.
Decision-making at the local level is preferred from the
point of view of water users.
Te term reform is used in a limited senseto
designate measures aimed at structural reforms or
sectoral restructuring, especially those measures that
are aimed at changing the governance-related role given
to the state. Apart from these, other reforms too have
been introduced in the water sector, like those aimed at
increasing the participation of farmers in the manage-
ment of irrigation. However, these participation-related
reforms are more focused at the project or sub-project
level. Tough they aect the role of the state, they
are focused on shifting the role in management of
irrigation systems away from the state and in favour
of water users (discussed in Chapter 9). As against
this, structural reform instruments are primarily
aimed at changing the distribution of governance roles
in the sector, away from the state and in favour of non-
state actors.
In choosing structural reform instruments for this
assessment, the criteria used are the comprehensiveness
or depth of the reform instruments, which have impli-
cations for the core of sector governance. Te follow-
ing three sets of reform instruments are identied for
assessment: (i) National Water Policy, 2002, (ii) State
water policies, and (iii) Legislations for establishing
independent regulatory authorities.
Water is a state subject. But there are certain issues
that are supposed to be governed or guided by national
interests. Te National Water Policy (NWP) represents
the overall policy direction for the water sector that
shall be followed at the national as well as the state
levels. While the rst NWP was formulated in 1987,
the new revised NWP was launched in 2002. NWP
2002 is seen as the turning point in the governance of
the water sector in India.
For the purpose of the current assessment we have
selected state water policies (SWPs) of six states in India,
Madhya Pradesh (GoMP 2003), Uttar Pradesh (GoUP
1999), Rajasthan (GoR 1999), Maharashtra (GoM
2003), Karnataka (GoK 2002), and Andhra Pradesh
(GoAP 2008), where water sector reform projects are
being intensively implemented. Te third category
of the reform instruments chosen for the assessment
includes dierent legislations for establishing indepen-
dent regulatory authorities (IRAs). IRAs for the water
sector have been established by enacting special laws
in the three states of Maharashtra, Arunachal Pradesh,
and Uttar Pradesh. Te other states are also planning to
establish IRAs in the water sector. Laws pertaining to
participatory irrigation management (PIM) are not the
primary focus of this chapter, though they have been
touched upon in the current assessment.
Te scope of this assessment of these reform instru-
ments is restricted to the following key substantive
issues:
Centralization (especially nationalization) of water
sector governance: What are the latest trends and
their possible impacts on empowerment?
Emergence of IRAs in the water sector: What could
be their impact on empowerment?
Emergence of the water entitlement system: Te
laws establishing IRAs delegate setting entitle-
ments as one of the primary functions of the IRAs.
What could be the impact of the new emerging
entitlement regimes on equity, especially in water
distribution? What is its relation with water mar-
kets and the possible impact of these relationships
on equity?
Emergence of the new water tari system: What
could be the possible impact of the new tari
system on aordability and hence access to water
services?
Krs Fixnixos
Centra|ization of Governance of the
Water Sector
Te distribution of decision-making powers between
the local, state, and national actors aects the level of
empowerment that can be achieved. With this view,
many social movements as well as innovative eld
experiments in the water sector have demanded
delegation of power to local level functionaries and
communities regarding crucial decisions related to the
distribution of water, decisions about new water proj-
ects, and funds allocation. Such eorts seem to have led
to a widespread acceptance of the need to decentralize
328 India Infrastructure Report 2011
the governance and management of sectoral functions.
Emergence of legislations related to participatory
irrigation management could be seen as the outcome
of the demand for decentralization, though there
have been much criticism of these instruments on
the same count (Koppen et al. 2002). Te following
ndings pertain to the issue of centralization of
governance.
National Water Policy: Foundation for
Nationalization of Water Resources
As per Entry 33 of List II of the Indian Constitution,
the development and management of water is a State
Subject. Hence, the water sector has remained pre-
dominantly under the control of the states and has been
governed by state level ministries and authorities. Tis
allows citizens of the state to participate, lobby, and
inuence the state government machinery in achieving
water access and equity. As against this conventional
understanding, recent reform instruments seem to
indicate that these reforms bring to the fore national
level concerns over and above the state or local level
concerns. Some examples are:
National Water Policy (NWP), 2002, in Sections
1.1 and 1.4, denes water as precious national asset
or resource (emphasis added) (GoI 2002b).
NWP further states that planning, development,
and management of water resources need to be
governed by the national perspectives (emphasis
added) (refer to Section 1.1 of the Act) (GoI
2002b).
About inter-basin transfer of water, NWP states
that water should be made available to water short
areas by transfer from other areas based on the
national perspective (refer to Section 3.5 of the
Act) (GoI 2002b).
About the inter-state water disputes, NWP says that
water sharing/distribution among states should be
guided by the national perspective (refer to Section
21.1 of the Act) (GoI 2002b).
Each of these policy provisions reiterates that the
water sector should be guided and governed by the
national perspective. In doing so, NWP clearly lays
down the foundation for increasing national level
intervention in the governance of the water sector.
Attempt to Develop Constitutional Basis for
Nationalization of Water Resources
Te Ministry of Water Resources of Government of
India published in December 2006, a report titled
Report of the Working Group on Water Resources for the
Eleventh

Five Year Plan (200712) (GoI 2006). Te
Report recommendeds developing a Constitutional
basis for bringing central control on key decisions in
the water sector. Te Report also suggested that water
and water resources projects must be considered as
national assets and there must be a platform, such as
the (national) water regulatory authority to timely
and eectively settle all inter-state issues in a national
perspective. Te national level regulatory authority is
seen as a mechanism for making decisions on a states
matters at the national level. Such recommendations
to centralize key decisions in the water sector at the
national level are evident from policy directions.
Tis kind of nationalization is seen to be necessary if
national projects like inter-linking of rivers are to be
successfully completed.
State Level Centralization of Water Governance
Similar trends on centralization of governance are also
visible at the state level. Te new laws for establishing
water regulatory authorities provide for concentration
of key decisions in the hands of state level actors such
as state government departments and state regulators,
without much space for intervention by citizens or
water users. For example, both the Maharashtra Water
Resources Regulatory Authority (MWRRA) and
Uttar Pradesh Water Management and Regulatory
Commission (UPWMRC) Acts provide for developing
integrated state water plans (GoM 2005; GoUP, 2008).
Tese plans are to be prepared by the respective state
governments. Te particular laws do not provide any
space for public participation in the preparation of
such plans. Hence, eventually the planning process may
remain outside the domain of the public and it may
merely turn into a centralized top-down bureaucratic
exercise.
Another important example is the case of legal
provisions for determining and distributing water
entitlements. As per the regulatory laws, the state level
regulator will determine entitlements based on the
rules framed by the state government. Here again it can
be seen that the laws do not make any provision for
Water Sector Reforms 329
consultations with, and participation of, stakeholders
in taking such a crucial decision on water distribution
(GoM 2005; GoUP 2008).
Tis clearly shows that while on one side attempts
are made to decentralize the governance of the water
sector, on the other side there is centralization of key
decisions in the water sector at the level of the state
government.
Te Impact of Centralization and
Nationalization on Empowerment
Te discussion so far suggests that there are strong
tendencies to centralize the governance of the water
sector at the national level as well as at the state level.
Once such enormous powers related to crucial sectoral
decisions get concentrated in the hands of the top
bureaucracy, top regulators, or dominant vested interests,
then empowerment will merely remain in the form of
delegating the implementation functions at the local
level. A major negative impact of centralization and
nationalization of water sector governance will be on
empowerment of the citizens and other stakeholders.
It must be noted that there might be genuine con-
cerns that prompted calls for giving due importance to
the national perspective. Tese would include concerns
over the increasing instances and increasing severity of
inter-state disputes or concern over repeated failure of
the state level machinery and other instances, which
would justify intervention, mediation, coordination, or
control by the national government or other national
level agencies. But it also needs to be noted that such
attempts of giving an increasing role and control of the
sector governance in the hands of national level agen-
cies, without adequate thought to the dencentralization
framework, would certainly lead to an adverse impact
on the empowerment of state and local level actors.
Estab|ishing IRAs: Impact on Empowerment
Tree states have established IRAs in the water sector.
Other states are considering setting up of IRAs. Te
ndings related to this development are now discussed.
Genesis of IRAs: Not Grounded in
Public Debate and Demand
National Water Policy discusses regulation as a policy
measure mainly in relation to groundwater and ood
management (GoI 2002b). Tis policy does not make
any mention of the need for a regulatory authority in
the water sector. SWPs of various states also do not give
any policy direction for setting up IRAs in the water
sector. Te only exception in this case is the policy of
the state of Uttar Pradesh (UP) (GoUP 1999).
Tis suggests that the initiative towards setting up
of IRAs in the water sector at the state level is not
grounded in policy debates at the state or national level,
which are supposed to reect in the respective water
policies. Similarly, the need for IRAs does not seem to
emerge from an informed public debate or demands
from stakeholders. Te initiative to set up IRAs seems
to be largely due to an externally driven stimulus, which
became active mainly after the articulation of the NWP
and SWPs.
Te major external stimulus in this regard is provided
by the water sector improvement/restructuring projects
undertaken in various states, which were funded by the
World Bank. Tese projects were initiated in Madhya
Pradesh (MP) in 2004, Maharashtra in 2005, and
Rajasthan and Uttar Pradesh in 2001. It can be seen that
state policies in MP, Rajasthan, and Maharashtra were
declared before undertaking these World Bank-funded
projects. Further, the project appraisal documents of
these World Bank-funded projects include establishing
regulatory authorities as one of the conditions of the
loan agreement (World Bank 2005b). Tis suggests
that the move towards the formation of state level IRAs
in the water sector has been an externally driven phe-
nomenon. Te main rationale provided by the World
Bank for bringing in IRAs is to bring rationality in
the decisions on key economic and nancial matters,
such as tari and entitlements, which is shown as the
necessary precondition for increasing private participa-
tion in the sector. Tis reform has no connection with
the state or national level policy debates, but is created
by an external stimulus with the intention that has
nothing to do with empowerment. It is equally inter-
esting to undertake a state-specic assessment of the
process of establishing IRAs. Te ndings of such an
assessment are:
Maharashtra became the rst state in India to pass
a law for establishing IRA in the water sector. In
2005, the state passed the Maharashtra Water
Resources Regulatory Authority (MWRRA) Act.
It is interesting to note that the bill in this respect
330 India Infrastructure Report 2011
was passed in the state legislative assembly on the
last day of the session through voice vote, without
much discussion on the revised draft. Te World
Bank loan for sector improvement was sanctioned
by the Banks board immediately after the Act was
passed.
Arunachal Pradesh was the second state to pass such
a law. Te state literally copied the entire Act passed
by Maharashtra. An assessment shows that many
provisions in the Act are totally irrelevant to the
specic context of the water situation in Arunachal
Pradesh. For example, the legislation provides
for removal of irrigation backlog in backward re-
gions. Te issue of irrigation backlog is relevant to
Maharashtra and not Arunachal Pradesh. Here
again there was no attempt to ensure empowerment
through public participation and consensus on
crucial decisions, such as the setting up an IRA.
Uttar Pradesh passed a legislation for establishing
an IRA in the water sector following the conditions
stipulated in the contract for the World Bank
supported water sector reform project. Neither civil
society organizations nor any other key stakeholders
in the state were consulted in the process of forming
the law for this purpose (PRAYAS 2009a).

Tus, the sources or roots of these laws have nothing
to do with empowerment; and even the processes of
passing these laws are, without exception, are marked
by complete disrespect to the basic tenets of public
participation or transparency. In summary, it could
be said that the assessment of the genesis of the laws
for establishing IRAs indicates that there is hardly any
consideration of empowerment or equity in either the
genesis or passage of these laws.
Water Sector IRAs: Disempowering Tendencies
Major concerns regarding the setting up of IRAs in
the water sector are about their accountability to
citizens and common water users. Teir statusas
quasi-judicial bodiesdened by the respective laws
make them immune to political pressures or political
activities. In eect, unlike the elected representatives
who are held accountable by the public through the
mechanism of elections, there is no formal mechanism
to hold the IRAs accountable to the public.
IRAs are expected to be governed by the law that
created them as well as by the rules and regulations for
conduct of their business (which the IRAs are expected
to articulate). To ensure that the IRAs adhere to the laws
and regulations, the process adopted by them to arrive
at decisions, has to be transparent, participatory, and
accountable to their stakeholders, including common
water users.
An assessment of IRAs was carried out by comparing
provisions of the Act for establishing state regulatory
authorities in the water and electricity sectors (GoM
2003, 2005). After comparing the Electricity Act, 2003
and MWRRA Act, 2005, it was found that the Electric-
ity Act contains much better provisions for transpar-
ency, public participation, and accountability of state
regulatory commissions. In contrast the MWRRA Act
is very weak in all these aspects. Some of the ndings of
the comparative analysis of the two acts are (PRAYAS
2007):

Section 3 (4) of the Electricity Act (E-Act) provides
for public participation in preparing the national
electricity plan. In contrast to this, the MWRRA Act
does not provide for participation in preparing the
integrated state water plan.
Section 181 (3) of the E-Act makes it mandatory
on the regulatory commission to make regulations
subject to the condition of previous publication.
Te condition of prior publication keeps open the
opportunity for public awareness and participation
in forming the regulations before they are nalized.
Tere is no such condition of previous publication
in the MWRRA Act for provisions related to the
powers of the regulator to make regulations.
Section 86 (3) of the E-Act makes it mandatory
on the regulatory commission to ensure transpar-
ency while exercising its powers and discharging
its functions. Tis provides blanket acceptance and
unrestrained scope for transparency. Unfortunately,
the MWRRA Act does not provide any concrete
measure for transparency.
Te MWRRA act requires participation of water
users only while setting tari. It does not require
participation of water uses while making decisions
on important matters, such as determining water
entitlements or project assessment.
Water Sector Reforms 331
Tese examples show that the MWRRA Act, which
is often been proposed as a model regulatory act for
replication by other states, is, in fact, not supportive
of the cause of empowerment of citizens and other
stakeholders in the water sector.
Tere is another major hindrance in common water
users inuencing the functioning of IRAs. Te IRAs
are expected to ensure economy and e ciency in water
use. As a result, the focus of their deliberations is on
technical, economic, and nancial aspects of issues on
which decisions are to be taken. In order to inuence
these deliberations, the participants in the delibera-
tions require a high level of technical, economic, and
nancial expertise. Moreover, all proceedings of IRAs
are supposed to be carried out in a quasi-judicial format
and thus participants are also required to have adequate
legal knowledge and skills for eectively participating
and inuencing the proceedings. Most civil society
organizations, common water users, or their organiza-
tions do not possess knowledge, expertise, or skills in
these areas; neither do they have nancial resources
to hire expensive professional services. Tis is not the
case with dominant actors like the state and corporate
houses, who often have both expertise and resources.
In such situations, the proceedings and deliberations
before IRAs may be controlled and captured by these
dominant actors, often at the cost of the interests of
other stakeholders. In other words, the nature of the
proceedings and deliberations before IRAs tend to
eectively disempower common water users.
Te experience of proceedings by MWRRA vindi-
cates this analysis. Te authority, which was conduct-
ing the process for determining water tari for farmers,
initially chose to restrict itself to a website as the only
means of communication for reaching out to farmers.
It did not take into consideration the fact that these
farmers were spread in remote rural areas, most of them
did not even get electricity beyond 6 to 7 hours a day,
and certainly did not have connectivity to the internet.
Similarly, it also required all participants in the public
consultation to submit written petitions, when most
farmers lack skills and resources to articulate their
grievances on paper. In fact, it initially asked all partici-
pants to make legal a davits. Te authority was forced
to set aside this requirement due to strong protest by
farmers (PRAYAS 2009b).
Warrn Exririrxrxrs: Rroixr ov
Ixruiranir Warrn Disrninuriox
An assessment of the new legislations enacted in
Maharashtra, Arunachal Pradesh, and Uttar Pradesh
for establishing IRAs in the water sector shows that
the creation, management, and regulation of the water
entitlement system (WES) is at the heart of the regula-
tory framework of IRAs in the water sector. As part of
WES, various water users and groups of users shall be
allotted certain shares of water as their water entitle-
ment. UPWMRC and the MWRRA are empowered,
through their respective legislations, to determine and
regulate water entitlements to dierent user groups
(GoM 2005; GoUP 2008).
1
Te MWRRA Act states
that entitlements are deemed to be usufructuary rights,
(refer to Section 11 (i) (i) of the Act). Water entitle-
ments are certainly not ownership rights but they are
rights to use (in short use rights), which are also called
usufructuary rights. Tus, entitlements are legally
recognized, registered, near-perpetual, and regulated
rights over use of water.
Such a system of water entitlements will drasti-
cally change the way water resources are shared among
various users. Te system will usher a completely new
mechanism for determining, recognizing, and allocat-
ing rights over the use of water among contending
stakeholders.
Narrow Interpretation of Equity:
Creating Water Lords
Both the UPWMRC and MWRRA acts specically
mention in their preambles that the regulator shall en-
sure judicious, equitable, and sustainable management
1
While the paper was under printing there was an amendment to the MWRRA Act which was passed in 2011. As per this
amendment the powers of determining inter-sectoral allocations have been transferred from MWRRA to the Cabinet. Te criteria for
equitable entitlement that existed in the earlier law now stands abandoned as per the amendment. Te key feature of the amendment
is the provision that legalizes all the past decisions of water allocation that led to water diversion from irrigation to non-irrigation use.
Tese decisions were made by a ministerial group by bypassing the powers of MWRRA.
332 India Infrastructure Report 2011
and allocation of water resources. Tus, the legislations
accept equity as the key principle that shall guide the
allocation of water resources. Based on this acceptance,
it is expected that there will be equitable distribution
of entitlements, thus making the poor and other dis-
advantaged sections including the landless, entitled to
their due share of water resources.
A thorough assessment of the UPWMRC Act shows
that except for its preamble, the term equity is not
mentioned in any of the legal provisions in the Act.
In fact, there has been no attempt to legally dene the
criteria for equitable allocation of water resources. Te
absence of a practically implementable denition of
equity will not help the regulator to implement the
principle of equitable distribution in practice. Tus, in
practice, the provision for equitable distribution will
not yield any results.
Te term equity is mentioned in the MWRRA Act
four times in its main provisions, apart from being
mentioned in the preamble (GoM 2005). Te main
provisions related to these in the MWRRA Act are:
for equitable distribution of water in command
areas of the project, every land-holder in the com-
mand area shall be given a quota.
the quota shall be xed on basis of the land in
command area, (refer to Section 12 (6) (a) & (b) of
the MWRRA Act).
Tese provisions clearly indicate that water will be
made available to only those people who have land in
the command area and it will be in proportion to the
landholding. Hence, this denition of equity includes
only landowners in the command area of an irrigation
project. Te denition totally ignores the rights of
landless communities, including land tillers, agriculture
labourers, and women cultivators. By making this law,
the state has actually given legal sanctity to such a nar-
row denition of equity. Te reform instrument fails
to evolve an inclusive interpretation of the principle
of equity.
Te combination of two factors: (i) establishing the
entitlement regime (legally recognized and perpetual
use rights over water), and (ii) interpretation of equity
in terms of the land owned will allow big landlords to
gain immense control over water resources that would
not only have the governments support but also have
legal sanctity. Te WES with a narrowly dened prin-
ciple of equity may thus lead to the emergence of water
lords. Tis will ultimately reinforce the nancial and
political clout that the dominant group holds today
and would lead to further erosion of space for disem-
powered sections to assert their rights. Te problem
gets further accentuated when we explore the linkages
between WES and the creation of water markets.
Priority of Water A||ocation: No C|ear Mandate
for Equitab|e Water Distribution
Te IRAs have to follow the policy guidelines given in
state water policies while determining water entitle-
ments for agriculture or industry (GoM 2005). Te
national water policy as well as most of the state water
policies in their list of priority use of water, give higher
priority to water requirements in agriculture water than
to industrial water requirements. Te only exception to
this is Maharashtra, which has allocated higher prior-
ity to industrial water use as compared to agriculture
water use (GoM 2003). Tis prioritization of industrial
users over agricultural users in a state facing semi-arid
conditions and water scarcity is seen by many as a clear
case of inequity in water allocation as far as the water
demands of farmers are concerned.
Te higher priority to agriculture water use in com-
parison to industrial use provided in NWP as well as
most other SWPs is, however, not unequivocal. Tese
reform instruments include a provision allowing for
modifying the priority based on specic needs of cer-
tain regions and purposes. Tus, the policies are in a
way non-committal in giving higher priority to agricul-
ture use in water allocation. Almost half of the SWPs
that were assessed included such a provision allowing
modication of priority. Such discretion could be used
in future to change the original priority list, resulting
in inequitable distribution of water resources among
contending users, disfavouring the small and disadvan-
taged stakeholders.
NWP, which acts as a guideline to all states, included
the following categories in dening priority for water
allocation: drinking, irrigation, hydropower, ecology,
agro-industry, non-agriculture industry, and naviga-
tion. Similarly, SWPs in some states (there are some
exceptions) also have very short lists, neglecting water
needs of diverse livelihood practices of rural people in
this vast and diverse country. Tese livelihood practices
Water Sector Reforms 333
which need water include aquaculture, aorestation,
and livestock, which are important rural, agro-based
livelihood practices. Exclusion of these categories of
water uses would lead to disadvantages to some sections
of the rural population.
Entitlement as Precursor to Water Markets:
Impacts on Equity
According to Section 11(i) of the MWRRA Act, the
regulator is accorded the powers to x criteria for trad-
ing of water entitlements. Further, the law states that,
entitlements are deemed to be usufructuary rights
which can be transferred, bartered, bought or sold
within a market system (refer to Section 11(i) (i) of the
Act) (GoM 2005). Tus, emergence of formal water
markets is not just hypothetically linked with entitle-
ments; it has already penetrated the regulatory frame-
work and received legal sanctions in one of the states in
India. Te assumption underlying the creation of water
markets is that market forces will ensure allocation of
water to the most high-value application or most eco-
nomic use of water. Tis has already been implemented
in countries like Australia and Chile (GoAu 2005)
(Saleth and Dinar 1999).
One of the most comprehensive studies done on the
distributive impacts of water markets in Chile concludes
that farmers share of water rights decreased signi-
cantly after formal water markets backed by the system
of property use rights (entitlements) were introduced
(Romano and Leporati 2002). Tis led to deterioration
in the standard of living. Te study further concludes
that the share of the agricultural sector in water rights
as a whole decreased while that of non-agricultural
sectors increased. Such impacts would be detrimental
to the agro-economy and the overall rural economy in
India. Tis will further deprive the vulnerable sections
of their rights to water resources.
Water Tari Systems and Inequity
An assessment of the legislations for establishing IRAs
also indicates that establishing a tari system and regu-
lation of tari is one of the key functions of IRAs. Te
UPWMRC Act as well as the MWRRA Act entrust
the responsibility of determining and regulating water
tari to the respective regulatory authorities. Water
tari has been a politically controversial and emotive
issue. Tis is primarily due to its direct impact on the
aordability that, in turn, aects access to water for
common citizens, especially, for vulnerable sections of
society.
Paradigm Shift in Tari System: From
Aordability to Cost Recovery
It should be noted that in many parts of India water
charges are based on the (explicit or implicit) criteria of
aordability for water users. As a result, in many places
water is being provided free or at highly subsidized rates
to certain areas or to certain sections of society. And for
the same reasons expenditure for water services was sub-
sidized using the revenue generated from general taxes.
Tus, historically water services were predominantly
considered social services and water was considered a
social good.
Te new tari regime that will be implemented as
part of water sector reforms attempts to reverse this
principle and replace it with the principle of water as
economic good. Tere is an emerging consensus that
water services should either be run like a business,
or become a business (Kessler 2005). A business-like
operation would require full cost recovery from the
water tari charged to individual consumers. In eect,
this requires charging of water services based on market
principles.
An assessment of state water policies shows that
almost all the states in India have accepted the principle
of cost recovery for determining water tari. But, there
was no formal mechanism to establish the tari regime
based on this principle. So this has been secured by
making relevant provisions in the new regulatory laws,
such as the UPWMRC Act and MWRRA Act, which
eectively provide legal sanction to the paradigm shift
in the perspective towards economic water services and
tari. Both the laws empower water regulatory authori-
ties to establish tari systems based on the principle
of cost recovery, and to determine and regulate water
taris. Such a shift from aordability to cost recovery
will have a strong bearing on the cost burden of water
services on the poor and marginalized sections of soci-
ety. An application of the cost recovery principle will
naturally increase water taris.
Assessment of Levels of Cost Recovery
In the Water Week Panel on Political and Technical
Issues in Cost Recovery organized by the World Bank
334 India Infrastructure Report 2011
(February 2005), six dierent levels of cost recovery
were proposed and recommendations were made for
moving to higher and higher levels of cost recovery. Te
lowest cost recovery level pertains to the level where
even operations and maintenance (O&M) costs are not
recovered while the highest level pertains to not only
recovery of O&M costs but also recovery of capital
investments and prots (Revels 2005).
Te movement from one level of cost recovery to
a higher level, as proposed by the World Bank panel,
is actually being implemented through the new water
regulatory laws in India. Te water tari levels that
exist in a majority of the Indian states fall in the rst
level of cost recovery, that is, tari levels at which even
O&M costs are not recovered. Tis explains the need
that was felt for moving to the next level as accepted in
MWRRA Act. As per Section 11(d) of this Act, water
tari should be able to recover O&M costs.
Te UPWMRC Act makes a provision for going to a
still higher level of cost recovery than that achieved by
the MWRRA Act (which was passed three years before
the UPWMRC Act). Te UPWMRC Act provides for
recovery of cost of not only O&M, but also the cost of
depreciation, and subsidies. In eect, the UPWMRC
Act gives legal sanction for a higher level of recovery of
costs. Te provision for cost of recovery of depreciation
from water tari in the UPWMRC Act makes way
for allowing recovery of that part of the capital which
gets reduced due to aging and use. In accounting
terms, depreciation is often equated with the cost of
repayment of a loan. Hence, part of the tari can be
used to repay the loan (principal amount) on capital
assets. Te depreciation amount collected as part of the
tari can also be used for renewal, rehabilitation, or
replacement of capital assets. Tus, the UP Act makes
a landmark decision for recovering a signicant part of
the capital cost on a continuous basis from water tari.
Provision of recovery of capital costs in this manner
paves the way for a higher level of commercialization
of water services, which would result in increasing the
cost of services. Recovery of capital costs also creates a
conducive environment for privatization in the water
sector.
Tis assessment shows that both the regulatory laws
have still not made a provision for recovery of invest-
ments or prots from water taris. Once this level of
cost recovery is reached, the water sector will be able to
attract private investors.
Unlike the MWRRA Act, the UPWMRC Act makes
a provision for recovery of subsidy from water taris.
Te MWRRA Act makes provisions for cross-subsidy,
which comes from the revenue from water tari, as
well as from government subsidy. But the UPWMRC
Act mandates the authority to x tari such that the
revenue from the tari should also recover subsidy.
Tus, the UPWMRC Act attempts to close the option
of government subsidy by putting the entire cost
burden of subsidy on revenue from water tari. Such
an attempt will lead to tremendous pressure on service
providers to reduce the subsidy component of the costs
to enhance the already limited revenue collected from
water taris.
Pricing Out the Poor and Rural
Te tari regime being envisaged in the policies and
legislations will lead to an increase in water tari.
Te increase in water tari will mostly be targeted
at the agriculture and rural economy, since these are
the categories that are subsidized either by industries or
by the government.
Tis inference could be justied by looking at the
water tari increase proposed in the rst approach
paper prepared for MWRRA by a consultant for
determining tari regulations (PRAYAS 2009b). Te
proposal envisages 39 per cent increase in the tari for
agriculture water use and an only 5 per cent increase
in water tari for industrial water use. Te proposal
also seeks to put in place cost recovery as the primary
principle for determining tari and totally neglects the
principle of aordability.
2
2
While this paper was under printing, the nal criteria for tari determination were xed by MWRRA. Tese include various
social criteria related to aordability. Tese criteria were accepted by MWRRA only after strong demands made during the intense
public consultations conducted by MWRRA due to pressure from civil society groups. Hence, this was achieved after a high social
cost incurred by civil society groups in analysis, awareness generation, and public participation in regulatory process. Te social criteria
based on aordability should be made part of the law to avoid reliance on such a high social investment. Such social investment is
not always possible due to lack of resources and capacities among the marginalized groups.
Water Sector Reforms 335
Tus, the new tari regime in the water sector is
attempting to bring in practice major commercial prin-
ciples of regulation like cost recovery and reduction in
cross-subsidy. Such a move to commercialize the water
sector will have detrimental impacts on the poor and
the agro-based rural economy of the nation. Tis will
put the price of water services beyond the paying capac-
ity of the poor and marginalized sections of society.
Coxciusiox
Te ndings of an assessment of selected reform
instruments pertaining to the four issues can be sum-
marized as:
Reform instruments like NWP have attempted to
centralize and nationalize the water sector. Tis may
lead to disempowerment of local and state level
actors by denying them an opportunity to partici-
pate and inuence key sector level decisions in the
water sector.
Te emergence of IRAs in the water sector raises the
question of accountability of these new decision-
making bodies to the public. Lack of adequate
mechanisms for transparency, public participation,
and accountability in the proceedings of IRAs
further leads to the lack of inuence of citizens and
water users on the governance of the water sector.
Tis will open avenues for dominant and vested
interest groups to control the sector by indulging in
a regulatory capture.
Legal reform instruments usher in new mechanisms
for determining, allocating, and regulating water
entitlements. WES has the potential to strengthen the
water rights of local communities and marginalized
sections of society. But, the current legal instruments
use a very narrow meaning of equity that links water
entitlements to the quantum of land owned. Hence,
in reality they strengthen and reinforce the already
inequitable system of land ownership. Also there
is no strong commitment of giving priority to the
water requirements of agriculture water as against
industrial water requirements. Further, the linkages
of water entitlements to development of formal water
markets poses a serious threat of diversion of water
to urban-industrial elites by compromising on the
water needs of rural, agro-based poor communities.
Water tari systems based on commercial principles
like cost recovery and cutting subsidies are also man-
datory aspects of the new legal reform instruments.
Such commercialization of the water sector will fur-
ther put water services beyond the reach of common
water users, especially of the poor and vulnerable
sections of society.
Overall, the analysis indicates that the reform instru-
ments do not provide adequate measures for enhance-
ment of equity and empowerment. In fact, many of
them are working against equity and empowerment.
Tis calls for urgent and proactive measures to ensure
that public interest, especially the interests of the
vulnerable sections of society, are not compromised
in the process of reforms in the water sector. Some
the important measures that should be undertaken
are:
Participatory deliberations with wider participa-
tion of farmers organizations, organizations of
agriculture labourers, environmental organizations,
and other marginalized sections should be held to
review policies and legal instruments used for water
sector reforms. Such a review should lead to neces-
sary changes that will result in pro-equity and pro-
empowerment frameworks and mechanisms.
Tere is an urgent need to evolve a normative
framework for water governance based on the prin-
ciples of equity and empowerment. Tis normative
framework should be legally enforceable so that
all future reform instruments, including IRA laws,
follow the principles and norms laid down in the
framework.
Tere is a need for rethinking of the IRA models
being implemented in the water sector, especially
because of its peculiar multi-dimensional nature.
Water is a life and livelihood sustaining resource.
Unlike commercial sectors which rely on eco-
nomic principles alone, water regulation should be
approached with proper integration of the social,
environmental, economic, and political dimensions
of water resource. Te focus should be on develop-
ing a regulatory system comprising of decentralized
nested institutions rather than total reliance on an
apex level authority.
336 India Infrastructure Report 2011
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