Introduction

According to the provisional data provided by census 2011, population in India amounts
to 1.21 billion with around 30% of them living in cities. The latest projections suggest
that 40% of the Indians will have moved into the cities by 2021. Urban population will
rise from 360 million to 575 million by 2021. India can achieve four fold growth in it’s
per capita income. Currently 70% of the GDP is generated in the cities which will only
grow in the coming years.

While urbanization has fueled growth into our economy, it has also created much
pressure on the present physical infrastructure of the country. To keep the growth
momentum going, India must develop a internally consistent practices across every
element of the planned urbanization like funding, planning, governance, sectoral policies
and shape and pattern of the urbanization. India is still waking up to its urban realities
and the opportunities it’s cities can offer for economical and social transformation.

Providing efficient utility services like water supply, waste management, and
transportation to such a large and rapidly growing population will be a huge challenge
and will require very strong financial and technical sources.

From past experiences and by the analysis of the current situation it is clear that there will
be huge demand- supply gap of the public utility services and it’s infrastructure. It would
result into disappointment if we just expect Central and State Government to bridge the
gap. The private sector will have to come up with its financial resources, technical
expertise and managerial skills to complete the task.

The administrative and political structure in India is not competent enough to attract the
private investors to fund the public utility services projects. The Urban local bodies must
improve their efficiency and balance sheet to attract private partners. There is also very
strong need of development on reforms side, which is politically very sensitive area.

Water supply and sanitation were added to the national agenda during the first five-year
planning period.(1951- 1956) and a new National Water Policy was adopted in 2002.
Government of India launched the projects like JNNURM and UIDSSMT in 2005 to
focus attention on the urban infrastructure. Five year past the launch both projects have
achieved some success in the areas of project planning and implementation, but still there
is a scope in the area of reforms which need to be addressed as soon as possible.

Focus is only on developing the infrastructure facilities, and not much attention is given
to the maintenance of the existing infrastructure. This has resulted into poor utilization of
the facility and inefficient service delivery.

In this report we have tried to analyse the water sector in India on various parameters like
policies and regulatory framework, present scenario, upcoming trends like PPP and its
scope and technological advancements in the sector. We have tried to find out the
opportunities in the sector and the future prospects of the sector.

Overview of the sector

Urban India is in the midst of transformation. In this era of economic reform,
liberalization and globalization, cities and towns are fast emerging as centers of growth.
India’s water resources are stressed and depleting day by day, while the demand of all
sectors like drinking water, Industrial water demand, agriculture water demand are
growing rapidly because of the urbanization and population increase.

Water supply is the responsibility of the state government under the Indian Constitution.
The Ministry of Housing and Urban Poverty Alleviation and Ministry of Rural
Development are the two ministries at the central level responsible for the water
supply.At present in India generally the State Government plan, design and execute the
water supply schemes and pass on the responsibility to Urban Local Bodies (ULB) to
maintain and operate the facility. Some largest cities have created municipal water and
sanitation utility boards that are legally and financially separated from the local
government, but still they lack in terms of financial capacity. Due to the highly
centralized decision making and approvals at the state level most of the projects gets
delayed. Tariffs are also set by the State Governments which often do not cover even the
operating expenses. There is a strong need for de-centralization of the authority, and
ULBs should be given the autonomy to plan and design the projects and schemes for the
water supply.

One problem in India’s water supply system which has got very less attention yet is that
people of India consider water as a “free goods” and don’t view water supply services as
any other utility services like electricity and gas, while water supply system also has
same requirements of funds for capacity building, expansion, operation and maintenance.
This attitude of Indian people has made it difficult to charge realistic tariffs, which has
led to non recovery of the costs by the ULBs which in turn happened to be the reason for
inadequate and irregular water supply.

Investment in the water sector by India is comparatively much lower at $5/ per capita
than compared to the other developing countries at $14/per capita. The government is
now encouraging the ULBs to approach the private sector not only for their funding
requirements but also for their technical expertise to bring operational efficiency in the
services. The situation in India is slowly beginning to change. National water policy has
been adopted in 2002 and the launch of JNNURM and UIDSSMT were the main
contributors in the growth of the sector from past five years. Analysis of the data from
various sources suggests that around 91% to 93% population in urban India gets their
drinking water from protected sources. And overall 96% of the urban population has
access to improved source of water.
From 1951 to 1997 the rapid expansion of irrigation and drainage infrastructure has been
one of India’s major achievements However, this achievement has come at the cost of
groundwater depletion.

Water supply sector consists of infrastructure for the procurement, transmission,

treatment, storage, and distribution of water for homes, commercial establishments,
industry, and irrigation, as well as for such public needs as firefighting and street
flushing.

Water procurement:- The major source for water procurement in India for local bodies
is surface water, which consists of water from ponds, lakes, streams and rivers and from
water reservoirs. As most of the rivers in India are now getting highly polluted, this
source has becoming less useful day by day.

The another source of water is ground water. The ground water sources of water are
based on rainwater that goes deep down into the earth to be stored inside the earth. The
water, which is so stored inside the earth in the form of ground water reservoirs,
constitutes the major sources of sub-surface water supply. Underground water is
generally pure because of natural filtration during the percolation process. Ground water
makes up about twenty percent of the world’s fresh water supply.

Depleting ground water table and deteriorating ground water quality are threatening the
sustainability of both urban and rural water supply in many parts of India. The supply of
cities that depend on surface water is threatened by pollution, increasing water scarcity
and conflicts among users.

In India now increasing emphasis is given on water conservation, rainwater harvest and
ground water recharge.

Water Transmission:-. In India most of the water supply systems use underground pipes
for the transmission of water. A very common problem in India is water is often wasted
through leaking pipes, joints, valves and fittings of the transmission system either due to
bad quality of materials used, poor workmanship, and corrosion, age of the installations..
This leads to reduced supply and loss of pressure.

Water Treatment:- Almost all the water treatment plants in India, use liquid chlorine for
pre and post chlorination process. Government of India accepts the quality standards by
WHO but it is unable to meet them.

Water Distribution:- The most important process of any water supply system is the
effective and efficient water distribution system. India lacks behind in this area.

Nearly all the cities and towns in India have piped water system but do not function
efficiently and there is always problem of low pressures and frequent breakdowns. The
reason behind this is the in India all the emphasis is being given to the creation of the
infrastructure facilities but there is very little attention given on the efficient maintenance
of the facilities developed at huge costs. This results into a very high level of Non-
revenue water.

Quality of the water

Quality of the water provided by the ULBs has always been an issue in the country. 2003
survey showed that 87% of water reservoirs serving residential buildings and 63% of the
tap water has high level of faecal contaminations.

India accepts the quality standards for water given by WHO but is not able to met the
standards.

Cost Recovery

According to a 2007 study of 20 cities the average rate of cost recovery for operating and
maintenance costs of utilities in these cities was 60%. Chennai generated the highest
relative surplus and the lowest cost recovery ratio was found in Indore which recovered
less than 20% of its operating and maintenance costs.

Challenges faced in attempting to increase tariffs.

Tariffs in India for the water services are much lower than the other Asian countries.
Existing evidence shows that low-income household will also afford to pay more for
water provided the improvement in the quality of water and the regularity in the service,
because as per the study they are already paying almost 4 to 5 times the amount due to
irregularities in the water supply system.

Even if users are willing to pay more for better services, political interests often prevent
tariffs from being increased even to a small extent because the price hike in the water
services have immediate impact on the voter sensibility.

Subsidies in the sector

The strong emphasis on affordability in the Indian water tariff design, and the poor
performance in terms of recovery of the cost indicates that subsidies lie at the heart of the
Indian water sector. As per the last available data India spends around Rs. 5470 Crore per
year, which accounts for 4% of the all Government subsidies in India. Around 98% of
this subsidy is provided by the State Government. This figure only covers subsidies given
for the operating and maintaining cost of the plants. The amount including the investment
subsidies would be much more higher.

According to World Bank survey, 70% of those benefiting from subsidies for public
water supply in India are not poor, while 40% of the poor are excluded because they do
not have access to public water services.

Financing

As per the Eleventh Five Year Plan (2007-12), the investment of Rs. 127,025 crore will
be made for urban water supply and sanitation which also includes urban drainage and
solid waste management. 55% of the proposed investments foreseen under the 11th Plan
are to be financed by the central government, 28% by state governments, 8% by
"institutional financing" such as HUDCO, 8% by external agencies and 1.5% by the
private sector. Local governments are not expected to contribute to the investments.
External cooperation

India receives almost twice as much development assistance for water, sanitation and
water resources management as any other country, according to data from the
Organization for Economic Co-operation and Development. India accounts for 13 per
cent of commitments in global water aid for 2006-07, receiving an annual average of
about US$830 million, which is more than double the amount provided to China. India's
biggest water and sanitation donor is Japan, which provided US$635 million, followed by
the World Bank with US$130 million. The annual average for 2004-06, however, was
about half as much at US$448 million, of which Japan provided US$293 million and the
World Bank US$87 million. The Asian Development Bank and Germany are other
important external partners in water supply and sanitation.

Evolution of Water supply sector in India and it’s present status.

Key Devlopments

• Prior to 1990

 Water supply and sanitation were added to the national agenda during the first
five year planning period (1951-1956). The first national water supply
programme was launched as part of the government’s health plan.

 The Ministry of Water Resources drafted a National Water Policy in 1987 to

guide the planning and development of water resources throughout the
country.

The policy included several recommendations, which were subsequently

adopted by the states. The recommendations focused on the need for
introducing

(i) Water resource management and according domestic water supply the
highest priority.
(ii) Design standards for groundwater structures to protect groundwater
sources.
(iii) Water quality monitoring and mapping, and
(iv) Data management and valuation.
• Between 1990 to 2000
 74th Amendment Act was passed in 1992 with an objective to give the
municipalities an independent status and freedom to take decisions which can
improve their efficiency to the optimum capacity.
The important provisions in the Act include greater functional responsibilities and
financial powers to municipalities, regular and fair conduct of municipal
elections, and constitution of Wards Committees, District Planning Committees,
Metropolitan Planning Committees and State Finance Commissions.

The Act provided a basis for the State Legislatures to guide the State
Governments in the assignment of various responsibilities to municipalities and to
strengthen municipal governance.

Through this initiative, an attempt is being made to improve the performance

ability of municipalities, so that they are able to discharge their duties efficiently.

• After 2000.
 National Water Policy 2002 was an revised edition of National Wate Policy 1987,
which laid emphasis on
i. Monitoring and limiting groundwater exploitation.
ii. Monitoring and enforcement of water quality.
iii. Increase awareness on on water conservation.
iv. The most encouraging thing which the policy included was the approach
to encourage more and more private sector participation and access to the
commercial borrowing. resources facilities, may be considered.

The states have been asked to formulate state water polices based on the policy
within the next two years.

 9th Five year Plan:- The 9th five year plan highlighted some major policies related
to
i. Supply of water to the entire population
ii. Decentralization of ULBs.
iii. Enhancing the financial viability of the water bodies through full cost
recovery.

 10th Five year Plan.:- The 10th five year plan included some areas like
i. Prioritizing the water services to the currently uncovered population.
 ii. Encouragement of private players in planning and implementation of the
scheme.

 11th Five year Plan :- The eleventh plan identified a total requirement of Rs.
53,666 Crore in order to provide 100 percent water supply coverage to the urban
population. There are 16 ongoing Externally Aided Projects funded by World
Bank, JICA, and ADB.

 JNNURM:- Jawaharlal Nehru National Urban Renewal Mission is a massive

scheme launched by Government of India with an objective to improve the
service delivery, encourage reforms, and fast track planned developments in 65
mission cities with an investment of 1,00,000 crores during the span of seven
years (2005-12).
The scheme has two sub missions.

1. Sub-Mission for Urban Infrastructure and Governance administered by the

Ministry of Urban Development, with a focus on water supply and sanitation,
solid waste management, road network, urban transport and redevelopment of
old city areas.
2. Sub-Mission for Basic Services to the Urban Poor administered by the
Ministry of Housing and Urban Poverty Alleviation with a focus on integrated
development of slums.

 UIDSSMT:- The Urban Infrastructure Development Scheme for Small and

Medium Towns is one component of JNNURM launched by the government to
cover those small and medium towns which are not covered by JNNURM. The
scheme covers 5098 cities and towns over a period of seven years (2005-2012).

JNNURM and UIDSSMT are the two largest initiatives in the sector which provided
strong support for the change in the sector.

Major Issues / Constraints in the sector

1. Increasing demand of water and depleting water sources.

India receives an average annual rainfall of about 4000 billion cubic meters (BCM). The
total utilizable water resource is assessed as 1123 BCM. The per capita availability of
water at national level has been reduced from about 5177 cubic meters in 1951 to the
estimated level of 1,820 cubic meters in 2001. Given the projected increase in population
by the year 2025, the per capita availability is likely to drop to below 1,000 cubic meters,
which could be labeled as a situation of water scarcity. Most of the rainfall occurs in the
monsoon season from June to September. The contribution of different states is
extremely uneven with 100 mm a year from Rajasthan to more than 9000 mm per year
from Meghalaya. As 80% of the water from the rainfall is received in the monsoon,
India’s rivers carry 90% of the water during the period from June to November and only
10% river water is available during the other six months. While, India is considered rich
in terms of annual rainfall and total water resources, its uneven geographical distribution
causes severe regional and temporal shortages.

Depleting ground water table and deteriorating ground water quality are threatening the
sustainability of both urban and rural water supply in many parts of India. The supply of
cities that depend on surface water is threatened by pollution, increasing water scarcity
and conflicts among users.

Demand for water is growing due to urbanization. The gap between demand and water
access is increasing continuously. As per the research by Mckinsey, demand of water in
the India will be two times of its supply in the year 2030.

Water availability from other sources like desalination of sea water and ground water is
considered negligible because of its high costs.

2. Inadequate storage capacity

Developed, arid countries (United States, Australia) have built over 5000 cubic meters of
water storage per capita. Middle-income countries like South Africa, Mexico, Morocco
and China can store about 1000 cubic meters per capita. India’s dams can store only 200
cubic meters per person. India can store only about 30 days of rainfall, compared to 900
days in major river basins in arid areas of developed countries.

3. Incompetent regulatory framework

The current administrative and political structure does not give the ULBs the autonomy
they need to operate at the optimum efficiency. In most of the states of India the decision
making authority is still the State Government for all the matters related to water supply
sector. For any changes in the technology or tariff changes they need to ask permission
from the state government, and because of the slow pace of work in the government
department, most of the decisions are not taken on the time and get delayed, which makes
it even more difficult to implement that change. In the democracy like India the reform
needs political willingness and support, the decisions in the sector is also politically
sensitive as changes in the tariff and staff layoffs are more visible to public than
improved efficiency and can have direct impact on the voter’s sensibilities.

4. Poor service delivery

A standard indicator of inefficiency in the water distribution is the percentage of water

produced that does not reach water board customers. Unaccounted water results both
from leakages and illegal connections. In addition to the financial costs to the water
utility, high levels of unaccounted water are also a major reason for intermittency in the
supply of water, since leaks and illegal connections lower water pressure in the
distribution system.

Not any of the Indian city having population of more than one million is able to distribute
water for more than few hours per day. Even when the water is available in the lines
people struggle to get it because of the inadequate pressure, as a result households where
the water supply is irregular have made investments for storage tanks and installed
booster pumps in their connection to get the maximum water when it is provided. These
practices further reduce the pressure in the main line and compel others to do the same.

Another indicator of the inefficiency in the water distribution is non revenue water which
is the water which is produced but which does not generate any revenue to the water
supplying body.

Following are reasons for the non-revenue water in India.

• Unbilled authorized consumption

• Apparent losses by water theft and metering inaccuracies

• Real losses from transmission mains, storage facilities, distribution mains or

service connections.
5. Poor pricing model

Tariffs for water in India are much lower than compared to the other Asian countries.
State Governments in India are responsible for choosing urban tariff structures, and the
result is wide variety in pricing practices. Average tariffs in India are low relative to
costs. A cross-region study by the Asian Development Bank found average rates in
Calcutta and Delhi of 5-8 US cents/kilolitre (KL), 11 cents/KL in Mumbai and 31 US
cents/KL in Chennai. In comparison, rates were 14 cents/KL in Dhaka and Karachi, 32
cents/KL in Lahore and 41 cents/KL in Kuala Lumpur. With the exception of Chennai,
Indian cities therefore tend to have much lower prices than other Asian cities. The major
issue in increasing the prices for the utility is the lack of political willingness, as it can go
have adverse impact on the sentiments of the people about the ruling party.

The current pricing model does not generate sufficient revenue even to cover up
operating and maintenance costs. According to a 2007 study of 20 cities the average rate
of cost recovery for operating and maintenance costs of utilities in these cities was 60%.

Metering is the precondition for billing water users on the basis of volume consumed.
According to a survey of 300 cities about 62% of urban water customers in metropolitan
areas and 50% in smaller cities are metered (average 55%). However, meters often do not
work so that many "metered" customers are charged flat rates.
Problems associated with metering arise in the case of intermittent supply, which is
common in India. Sudden changes in pressure can damage meters, so that many meters
in India are not functional. Many types of meters also register air flows, which can lead to
over registration of consumption, so there is also a resistance for metering in India.

6. Growing financial crunch

Currently, India’s water sector is in severe financial distress and the gap between the
requirement and availability of funds is increasing. There is shortage of funds to deal
with the needs for the development of water resources infrastructure, maintenance and
management. Though the Government have come up with the schemes like JNNURM
and UIDSSMT and allocated huge funds for the sector but still there is need to leverage
JNNURM funds with private investment through PPP and borrowing from capital
markets, which is not happening because of the absence of a proper revenue model at the
ULB level and the outdated systems of Finance, Accounts and MIS used by most of the
ULBs. As investors look for the repayment module prior to the investment in the sector.
The current governance and financing structure do not create enough confidence to attract
the private sector.

7. Social issues
It also needs to be considered that the issues and problems of water supply systems go
beyond considerations of financial self-sufficiency. They include critical issues like
welfare of the community, the social concerns, responsibilities and obligations of the
Government as part of its commitment to the development and fulfillment of the needs of
the urban and rural poor.

One problem in India’s water supply system which has got very less attention yet is that
people of India consider water as a “free goods” and don’t view water supply services as
any other utility services like electricity and gas, while water supply system also has
same requirements of funds for capacity building, expansion, operation and maintenance.
This attitude of Indian people has made it difficult to charge realistic tariffs, which has
led to non recovery of the costs by the ULBs which in turn happened to be the reason for
inadequate and irregular water supply.

The tariff hike in India has mostly met with protests, Critics viewed the price rises as
laying the ground for privatization of water, and the ULBs mostly fail to justify their
price hike due to lack of proper information and transparency norms. The opposition
party always uses this as a point against the ruling party, sot there is lack of political
support for tariff hike in the sector.

8. Poor maintenance of infrastructure

The crucial aspect in water supply sector which require immediate attention is that
physical infrastructure facilities which have been developed, are not being used in the
most efficient manner due to inadequate attention and improper operating and
maintenance. Not much effort has been made either to manage these assets efficiently or
to achieve self-sustainability. It is therefore necessary that a link be established between
asset creation and management, as both are important components for ensuring sustained
service delivery.

9. Water quality

The WHO’s primary health requirement is that the water be microbiologically safe. In
India the primary contaminant of surface and ground waters is human and animal waste.
The WHO guidelines suggest that E. coli (the indicator organism for bacterial
contamination) should not be detectable in a 100-ml sample of water, but with fewer than
10 coliforms, the water is considered to be of ‘moderately’ good quality. The
Government of India accepts these guidelines but has been unable to ensure that they are
met.

Water-borne diseases from faecal contamination are one of the

biggest public health risks in the country -- it has been argued that India loses 90 million
days
a year due to waterborne diseases, costing Rs 6 billion in production losses and treatment.
10. Inadequate transparency

The key feature of modern water management in a liberalized economy and democratic
environment is that of openness and transparency. In most countries now all relevant
information about performance, planning is available publicly, on the web and in real
time. Unfortunately, India has been slow in adapting to this changed information
environment. However, recently there has been some modest progress. This change
would undoubtedly stimulate a chain reaction of accountability, participation and demand
for more and better data which would transform the culture of water management in the
country.

A lack of transparency over the true costs of under-priced and inefficient

municipal systems dampens public support for major reforms that may be needed.

Knowledge gaps also plague the sector. There is not much reliable information about the
customers and connections available. Database of the most of the ULBs are not updated
regularly which creates lot of problems and confusions while taking any decisions. And
published data is not readily available.

11. Expanding Water Conflicts

In India the major rivers of the country are mostly inter-State rivers. There has been an
increasing demand for water in all sectors, sometimes leading to inter-State disputes on
sharing of water. The lack of clear allocation rules and uncertainty about how much water
each state has a right to, impose high economic and environmental costs. There is also
growing conflicts about the allocation of water between users like agriculture, industry,
domestic supplies. Such growing water conflicts between different users, and States and
inequities in distribution of the available water resources are some of the crucial concerns
currently faced by the country’s water-sector.

So, the willingness to charge rather than willingness to pay is the bottleneck in the
sector. We don’t pay enough for water which leads to the poor cost recovery , which
leads to low investment in the sector and ultimately it leads to poor service delivery, and
thus our willingness to pay decreases, This vicious circle must be broken and it can
happen with the support from enlightened political leadership at the city and state levels.

Scope of Improvement in the sector and investment required for going forward.

 Scope for pricing reform

In India the price of water is artificially low due to the social issues and political
interference in the water sector. Since the provision of water for drinking and domestic
uses is a basic need, the pricing of water for this purpose is subsidized. It has been
assessed through extensive studies that the rich people are paying less for the quantum of
water they consume compared to the poor.

Low tariffs affect the profitability of local water boards and therefore the quality of
service. Currently most of the water supply bodies are not even able to recover the cost of
operation and maintenance from its revenue from the charges collected from users. There
is a strong need to change the attitude and approach about the water sector. Realistic
prices should be charged so that ULBs can generate sufficient funds for proper
maintenance and operation of the systems.

Existing evidence suggests that many low income households in India can afford to pay
more for water, particularly if the increase in prices is accompanied by better service. At
present, households may pay several times the municipal charges in coping costs arising
from the irregularity and unreliability of supply.

Increasing block tariff ( IBT) is widely used in developing countries, in which two or
more prices are charged for water used, each price applies to a customer’s use within a
defined block. Prices rise with each successive block. Generally in IBT the first block
price is deliberately set below cost, however cost may be defined. In the design of IBTs,
much attention is given to the size and price of the first block. Of course, some form of
metering is necessary in order for suppliers to charge in proportion to water used.

IBT should be used in all the areas in which meters are already installed. And wherever
no meter supply is effective, a flat rate may be levied based on the average cost of
production and supply of water.

The water charges should be based on the incremental cost of production & supply of
water in a water supply system and not on the basis of average cost of water because as
the connections of the water increases, to satisfy the more demand the city has to use the
more expensive sources of water such as getting it from the distant location etc. thus the
cost of the water will also go up, so the recovery would be more effective if the prices are
charged based on the incremental cost of production.

Progressive water rates should be charged upon the consumers so that the water may be
supplied to the urban poor at a subsidized rate. But instead of giving free supply to them
minimum charge should be collected from them at a flat rate so that can realize the
importance of treated water supply. The affluent sections of the society should be charged
at a higher rate based on metered quantity including free supply, if the consumption is
more than the prescribed limit.

Where metering is not possible, flat-water charges could be linked as percentage of

property tax.
The water bodies should develop an approach to recover all expenditure incurred through
water charges in order to make them self-supporting. Further, funds for future expansion
should also be created so as to minimize dependence on outside capital.

Wastage and extravagant use of water should be discouraged and tariff with multi-tier
system incorporating incentives for low consumption should be designed.

A study carried out by Johns Hopkins University, USA suggests replacing the IBT with a
system of uniform pricing with rebates. Under this method, a volumetric charge is set
equal to marginal cost and coupled with a negative fixed charge, or rebate.

In the nutshell, the tariffs for the water supply should be designed in the way that can
allow the ULBs to recover full cost of operation and maintenance and also provide the
scope for the funds of further expansion of the facility. The effort to create awareness
about the cost associated with the procurement, treatment and distribution of water
should be made, that will lessen the possibilities of protest and strong resistance from the
user community for the tariff hikes.

 Scope for Financial Reform

Generally the funding for the water supply sector is provided by soft loans and grants
from the State or the Center. Credit is also available from institutions like HUDCO and
LIC, but these are mostly backed by guarantees from the State or the Central
Government.

Several ULBs have also attempted to access the credit markets through bond issuance, for
example Ahmedabad Municipal Corporation (AMC) became the first Indian municipality
to use this mode of raising capital in 1998. AMC first worked to gain the trust of the
credit markets by lowering its budget deficits, increasing the transparency of its financial
administration and the capacity of its water sector staff.. AMC managed to get A+ rating
from the Credit Rating Information Services of India, and with this rating the AMC
raised over $20 million through municipal bonds sold both to the public and to
institutions. Many other municipal corporation like Ludhiana municipal corporation,
Bangalore Mahanagar Palika and many other followed the example and were quite
successful in raising funds through bond market. But still the municipal bond market in
India has a long way to go before it transforms into a vibrant investing environment.

Government should further develop the Municipal Bond market in order to meet the debt
requirement of the sector which had improved in the past with few ULBs accessing the
market.

Private investors would not touch the sector until there is enough transparency in the
framework and enough confidence about the recovery of the funds.
To attract the private sector funding it is very necessary that ULBs should shift to a
regime of more transparent and accountable structure. Adoption of transparent
accounting policy, improvement of financial health, improvement in technical and
managerial capacities for project management and getting healthy credit ratings from the
trustworthy rating agencies would ensure larger flow of funds in the sector from the
capital market. ULBs should develop their financial plans in a manner which can give a
fair idea of the risk associated with the project, build relationships with capital markets,
make investor aware of issuer profiles, and establish familiarity with market
intermediaries and the regulatory environment.

Projects should be designed to separate the risk that can be handled by the private sector
from those that can be handled by government. By doing this way it would be easy to
secure commercial funding for the projects as all private players need the full clarity
about the risk associated with the project before investing.

Preformance based payments contract can be adopted with private investors where the
public funding is limited.

JNNURM funding can be tapped for cities which have above 10 lakh population to meet
the capital investment.

Aid can also be sought from multi-lateral aid agencies for meeting the capital cost.

ULBs should also try to access the different financial products to develop a vibrant
municipal borrowing market like working capital loans, and multilayered debt structures
etc.

Specialized and focused agencies should be encouraged to channel the commercial

capital into the sector.

Situation should be that the ULBs should compete with each other for the private funding
and technical and managerial expertise.

 Scope for regulatory reform

Local bodies should be made to publish fact sheets containing data on operations
periodically and subject themselves to public review. This would increase the
transparency of the existing system, and would allow for benchmarking of local water
utilities with other cities. Public awareness could be further increased by reporting the
results of water quality tests, along with information on hours of service and pressure.
This information could be coupled with accessible data on how much water subsidies
take from the state budget, and price increases could be explicitly linked to targeted
improvements in key sectors.
States which do not have implemented the mandatory and optional reforms should not be
given the aid from the central budget.

Complete decentralization of power as per the 74th CCA should be implemented and
ULBs should be given power to take decisions regarding the approval of projects,
increasing tariffs and issuance of the bonds etc.

An Independent regulator should be appointed and the sector should be given freedom
from political interventions. Promoting changes in the water sector requires finding a way
to raise the political benefits of reform efforts, or of increasing the political costs of not
reforming.

Grants should have a fixed and variable component. Fixed component to be provided
only if cities conform to basic reform requirements.

Variable Grants to be provided only if cities achieve pre-determined milestones.

The efficient water audit systems and should be developed and implemented.

Scope for operational reform

The serious effort should be made to transform the water sector into a commercial
operation and the emphasis should be on full cost recovery and generation of surplus
funds for further expansion. Basic approach about water supply as social responsibility
should be converted into a commodity to be bought and sold.

Realistic tariffs should be charged from all the users of the water and water should not be
provided free of cost to anyone.

The process of water storage, transmission and distribution should be made separate to
achieve better efficiency.

Subsidies should be eliminated from the sector to compel the ULBs to achieve self
sustainability and recovery of the entire cost of water procurement and supply.

Households not paying water charges should be disconnected from the water supply and
it should not be reconnected just by collecting the earlier dues, but a heavy penalty and
the new water connection charge should be collected from them to ensure the prompt
payment of water charges.

Special operations should be carried out to identify illegal connections and the owners of
such connections should be penalized and then should be given chance to make their
connection legal.
Old pipelines should be renovated since major portion of the leakage is found in the
distribution systems of old pipelines.

Meters should be installed wherever feasible and the frequent checks should be
conducted about the working condition of the meters and meter repair workshop should
be established to repair defective meters.

Other scopes for improvement.

India needs to shift its focus from ‘water resources development’ to ‘water resources
management’ by restructuring and strengthening existing institutions for better service
delivery and resource sustainability. So far the focus has been on the development of
water resources and very less attention has been given to the proper management and
utilization of the existing water resources.

Tanks Rejuvenation: India has some 580,000 tanks of various sizes spread over across the
country. Most of them were managed by local communities for several years. With
growing water scarcity, tank rejuvenation is an important way in which water can be
conserved and distributed at the time of need. With limited water resources, uncertainty
of monsoon and looming water scarcity in many parts of India, water conservation and
use by medium and micro water retaining structures have assumed greater significance.

Overview of JNNURM and UIDSSMT and its impact.

Jawaharlal Nehru National Urban Renewal Mission (JNNURM): JNNURM is an

INR 100,000 crore Government of India initiative launched in December 2005.
Administered by the Ministry of Urban Development and Ministry of Poverty
Alleviation, the Mission is designed to support state and local
investment in urban development. The central government spends amounts to INR
50,000 crore with matching contribution from cities/ states.7 The overall objective of the
Mission is to ‘create economically productive, efficient, equitable and responsive cities’.
The aim is to encourage reform and fast track planned development of identified cities.
The focus of JNNURM is on efficiency and inclusiveness in development of urban
infrastructure and service delivery mechanisms, community participation and
accountability of ULBs towards citizens. The duration of the mission is for 7 years and
covers 63cities across the nation.

JNNURM is a landmark in India’s urbanization policy and has infused a sense of urgency
amongst various stakeholders to ensure timely results.
To qualify for JNNURM funding, city administrations must submit a three tiered
application with the following information:
1. City Development Plan (CDP) defining the vision for the city over the next 20-25
years;
2. Detailed project report, enumerating the financial requirements;
3. Timeline for implementation of the proposed initiatives.

The States and urban local governments (ULBs) accessing the JNNURM must
complete a total of 22 mandatory and optional reforms, during the seven-year period
(2005-12). Many of these reforms will help to empower ULBs.
Some of the mandatory reforms are
- Aggressive decentralization of urban services to ULBs under 74th CAA.
- Constitution of district planning and metropolitan planning committees
- Public disclosure
- Double entry accounting system , e governance , reasonable user charges.
- Recovery of full O and M cost and internal earmarking of funds for the basic
services for the urban poor.

Urban Infrastructure development scheme for small and medium towns

(UIDSSMT):- UIDSSMT cover those small and medium towns which are not covered by
JNNURM. The scheme covers 5098 cities and towns. The duration of the Scheme will
be for seven years beginning from 2005-06.

The objectives of the scheme are to:

1. Improve infrastructural facilities and help create durable public assets and quality
oriented services in cities & towns
2. Enhance public-private-partnership in infrastructural development and
3. Promote planned integrated development of towns and cities.

Financing pattern.- The sharing of funds would be in the ratio of 80:10 between Central
Government & State Government and the balance 10% could be raised by the
nodal/implementing agencies from the financial institutions.

The State Government may designate any existing institution as nodal agency for
implementation of the scheme.

The nodal agency will be responsible for the following:-

1. Inviting project proposals from ULBs//Implementing agencies.

2. Techno-economic appraisal of the projects either through in-house expertise
or by outside agencies through outsourcing.
3. Management of funds received from Central and State Governments.
 4. Disbursement of the funds as per the financing pattern given in the
guidelines.
5. Furnishing of utilization certificates within 12 months of the closure of the
financial year and quarterly physical & financial progress reports to the
Ministry of Urban Development.
6. Maintenance of audited accounts of funds released to ULBs and implementing
agencies.
7. Monitoring of implementation of reforms and infrastructure projects.

Impact of JNNURM and UIDSSMT on the water supply sector

JNNURM has provided a strong platform for investments in the sector and incentivized
cities to develop sustainable investment framework through service delivery reform and
cost recovery of services provided.

Cities have captured the opportunity to finance their urban infrastructure but the reform
side of the scheme is going at a very slow pace.

JNNURM has jump started investments in the sector but the service levels in most of the
JNNURM cities continue to be poor.

Before JNNURM the financial capacity of the city was considered as a major constraint
in urban water supply sector, but now the ability of ULBs to execute the project is also
proving to be equally serious constraint as most of the projects face the time-over runs
and increase in the project cost due to delay.

JNNURM increased the use of PPP model for the project implementation. Out of the 500
billion of projects approved by JNNURM, Rs. 70 Billion worth are being developed on
the PPP model.

JnNURM has made a quantum change in size of investments and breadth of coverage
across cities and sectors.