Is free water supply bad economics?

Updated on: Jan 01, 2014




The Delhi Government should have restricted its generosity to poor households.

“It is the duty of any responsible government to provide lifeline water to its citizens. We may debate the quantum, but can we argue against the principle?” This is what Arvind Kejriwal, the newly elected Chief Minister of Delhi, tweeted immediately after announcing 666 liters of free water per day (or 20 kilolitres of water a month) to every household connected with a metre.

Is this move economically viable for the Delhi Jal Board (DJB)? Is it necessary to provide free water supply to every household? Since Delhi does not have any reliable perennial water source, where will the water come from?

JAL BOARD FINANCES Water is increasingly becoming an economic good worldwide because of its storage and distribution costs. Rainwater is harvested in dams and reservoirs to be supplied for various purposes, including domestic use, which involves huge cost.

At the same time, groundwater is exploited at an alarming rate; it also involves huge drilling and electricity costs. The cost of management and distribution of water for urban households is massive.

Why provide water free to all households when the per capita income of this State is much higher than the national average? Is it not against the ability to pay principle? This free scheme reportedly is going to cost about Rs 160 crore per annum at current prices for the DJB and is expected to increase manifold for a variety of reasons. How is DJB to manage this cost?

According to one estimate, the DJB’s net cash revenue surplus increased from Rs 40.56 crore in 2007-08 to Rs 233.57 crore during 2013-14. DJB’s dependence on the government for operational costs reduced from Rs 380 crore in 2009-10 to zero in 2013-14, a remarkable achievement. The financial condition of DJB will now run into a mess.

Delhi does not have the luxury of a perennial surface source of water. It needs water from the neighbouring State of Haryana which is guaranteed. Haryana’s Chief Minister Bhupendra Singh Hooda has already cautioned that Delhi is getting more than its due share.

Besides, the groundwater stock is precarious in the State. As per the estimate of Central Ground Water Board, the total annual replenishable groundwater resource is only 0.30 BCM (billion cubic metres) for Delhi, but the draft of groundwater is already 0.48 BCM/year, which is way above the permissible limit. Owing to the increased scarcity of water, the present supply of water even in posh areas is only about 509 litres per household per day, below the promise made by this new government.

Therefore, there is no guarantee that the Delhi government will be able to provide the promised supply of water to all households. Considering the increased scarcity of water, is it necessary to provide free supply of water to all households? Will it not aggravate water scarcity during summer? This scheme pronounces that if a household consumes more than 20 kilo litres of water, it will have to pay for the entire water consumed with 10 per cent additional charges. How will this work? Who will monitor this? Will it not encourage consumers to tamper meters?

In most cities, the domestic consumption of water is not monitored as it involves considerable transaction cost. Delhi reportedly has a pipeline network of 14,000 km with about 68 per cent households having a piped connection. If this new scheme tries to measure the consumption of water by meter, will it not increase the operation and management cost?

A recent CAG report underlines that “the Delhi Jal Board has neither a proper system to measure the water supply to different areas nor does it have access to reliable data on population in different areas”. It, therefore, cannot ensure equitable supply of water.

If this Government is serious about improving the plight of poor people, it should provide free water only to those households which are identified as economically poor.

It is proved beyond doubt that free supply of any good to consumers will result in inefficiency. Water cannot be an exception. There is ample evidence to prove from different states that the free supply of electricity to farm sector over the years has not only increased the exploitation of groundwater but also created financial mess in many State electricity boards.

DRAWING LESSONS A UN estimate suggests that each person needs 20-50 litres of water per day for drinking, cooking and cleaning. If this is so, the supply of water to the tune of close to 700 litres per household per day will surely increase inefficiency.

Delhi must draw lessons from the Amravati and Malkapur regions of Maharashtra. These regions provide water supply to all of its residents through skilful water use efficiency and lower per capita consumption.

McKinsey Global Institute had underlined that Delhi could experience the biggest increase in water demand from 2010 to 2025 because of fast urban agglomeration. This means the capital cost requirement for managing the amplified water demand will increase. How will the State generate resources with free supply of water?

Therefore, the present Government must rethink on its policy of providing free water supply to all households and instead try to work on providing water to poor people at an affordable rate, without affecting the viability of the DJB.

(The author is Head, Department of Economics, Alagappa University, Karaikudi.)

Published on January 01, 2014

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