Urban water supply and sanitation: reforms needed

By Saurabh Bhasin and Pia Singh, Trilegal

Urban water supply and sanitation is a state subject under the constitution of India (entries 6 and 17 of List II). The 74th amendment to the constitution provided for the establishment of municipalities, following which state governments were able to delegate some of their responsibilities and functions, including those in relation to water supply and sanitation (WSS) services, to local municipalities.

Institutional arrangements for the provision of WSS services vary from state to state. But broadly speaking three structures have developed over time: municipal corporations or municipal councils; semi-autonomous state water supply and sanitation boards; and public health engineering departments, which for the purposes of this article, are collectively referred to as urban local bodies (ULBs).

Saurabh Bhasin Counsel Trilegal
Saurabh Bhasin

However, most urban centres in India suffer from chronic inadequacy and inequality of WSS services. This is despite the per capita availability of water in cities like New Delhi exceeding that of Paris as detailed in the government’s 11th five year plan (2007-2012). Further, most service providers have low revenue realizations and often suffer from opaque decision making processes, poor utilization of resources, high fiscal budgetary dependence, a lack of accountability and non-responsiveness to consumer needs.

At the risk of stating the obvious, there is an immediate need to reform the urban WSS sector. This will require a combination of overhauling the public-sector institutional framework in place and encouraging participation of the private sector.

Public-sector reform

To improve the efficiency of the public sector, state governments could look at potentially unbundling ULBs. Important lessons can be learned from the successful unbundling of the various state electricity boards that happened over the last few years.

However, it is crucial to keep in mind that unlike the power sector (which could be split into three distinct sub-sectors: generation, transmission and distribution), the urban water sector is much more integrated and, thus more difficult to unbundle. One option could be to separate the supply of water from the sanitation and waste management business. However, given the scope of operations, the applicability of this model may be limited to major urban centres.

A second option could be increased autonomy for the ULBs, with the state governments reorganizing them either as government companies under the Companies Act, 1956, or as statutory corporations. In addition to increasing efficiency, corporatization would also result in greater transparency and accountability through implementation of proper corporate governance procedures and reporting requirements.

Pia Singh Associate Trilegal
Pia Singh

In addition, state governments could consider implementing reform-based incentive plans (and reducing gap-based funding), similar to the financial assistance schemes for the WSS sector introduced by the central government. These include the urban infrastructure scheme for small and medium towns, the Urban Reform Incentive Fund, the City Challenge Fund and the Pooled Finance Development Fund. To be eligible for assistance under these schemes, state governments and ULBs need to comply with certain prescribed conditions. For example, under the Jawaharlal Nehru National Urban Renewal Mission, state governments are required to achieve the decentralization objectives set out in the 74th amendment of the constitution. As part of this, ULBs are also required to implement accounting changes by adopting accrual-based double-entry book methods, introducing e-governance systems and revising their internal bye-laws for streamlining of operations.

Private sector participation

One of the key goals of the National Water Policy 2002 is to encourage private sector participation in WSS infrastructure and services. Several states including Chhattisgarh, Delhi, Tamil Nadu and Karnataka have arrangements, which include operation and management contracts, with private participants.

Clearly, it is important to encourage private participation in the WSS sector to attract much needed investment to the sector and to benefit from technological advancements made by the private sector. However, given the sensitive and often political nature of water as a commodity, if public-private partnership is to succeed in the long run it is vital that the central and state governments strike the right balance between creating a conducive environment for private investment and protecting the interest of the public. As an example, the government could consider putting in place a market regulator who would be responsible for setting and controlling the tariff, monitoring performance and ensuring equitable coverage.

In conclusion, if urban India is to achieve an adequate and equitable supply of water and sanitation services, it is crucial that the central and state governments implement a comprehensive reform of the ULBs, while also encouraging private-sector investment and technology transfer in the sector.

Saurabh Bhasin is a counsel at Trilegal and Pia Singh is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.


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