Paper 44791 2 Inefficiency of Rural Water Supply Schemes in India The World Bank Policy Paper extracted from the World Bank Study on Review of Effectiveness of Rural Water Supply Schemes in India, June 2008 June 2008 Inefficiency of Rural Water Supply Schemes in India I n the last one-and-a-half decades, there has and maintenance (O&M) cost of the main been an annual average expenditure of scheme, the capital and O&M cost of about one billion US dollars in the rural supplementary government-provided sources, water supply sector in India. This has led to the institutional cost, indirect power subsidy an appreciable increase in coverage (from provided to the schemes, the cost of services 75 percent in 1997 to 97 percent in 2006, provided by Support Organizations/non- according to official statistics), but the overall government organizations, and the coping cost improvement in the provision of water supply in borne by households such as the opportunity cost rural areas has not been commensurate with of time spent on water collection, expenses the level of expenditure undertaken due to incurred on own water source, and for the repair inefficiencies and wastages of various kinds. The of government-provided sources. This is found to 10-state study on the Effectiveness of Rural Water be high with an average of about Rs 38 (US$0.9) Supply Schemes, undertaken by the World Bank at per KL for the supply-driven schemes of the the request of the Government of India, has 10 states together, compared to an economic looked at various aspects of `inefficiency' along cost1 of about Rs 16 (US$0.3) per KL for a good with measures to address these issues. performing scheme. The schemes under demand-driven programs have a distinctly lower Cost of Water cost of Rs 26 per KL (US$0.6) of water supply as compared to schemes under supply-driven The total cost of water supply per kiloliter (KL) programs. The overall efficiency of schemes is a useful summary measure of resource use under demand-driven programs is greater than efficiency. This has been estimated for supply- that of schemes under supply-driven programs. driven and demand-driven piped water supply schemes for the various states covered in the Currently, the supply-driven rural water supply study. The total cost of water has been computed schemes dominate the scene. If the cost of water by taking into account the capital, and operation in supply-driven schemes could be brought down to that of the demand-driven scheme, there would be savings of resources of about Rs 12 per 1The economic cost is derived from the cost norms for various states. Efficient institutional cost is taken as 10 percent of the total cost. It is assumed that water could be supplied at 70 lpcd. Assuming that a proportion of households would access standposts and will spend time to KL or about Rs 120 per household per month, collect water (about one hour each day), the cost of water including the cost of time spent would be about Rs 23 per KL (US$0.5). assuming the household water consumption level 2 Paper 2 Supply Inefficiency Figure 1 Total Cost of Water Supply, Piped Water Schemes Schemes of Rural in India W Source : Computed from survey data. ater (from all sources) to be about 70 liters per capita cost variation with scheme size in terms of the per day (lpcd). This is quite a large saving of number of households covered shows that, for resources, which could be put to alternative use groundwater-based supply, the size classes 500 to in rural areas, benefiting the rural people. 1,000 households and 1,000 to 1,500 households have relatively lower cost, compared to smaller Sources of Inefficiency or larger piped water supply schemes. Why is the cost of water so high, especially in supply-driven schemes? Four important reasons Compared to the cost norms, the are: (a) the high capital cost of the schemes; capital cost of schemes is found to (b) high institutional costs associated with the be higher by 50 percent or more in programs; (c) the existence of multiple schemes 18 percent cases. It is higher than serving the same population leading to resource the norm by 100 percent or more in wastage; and (d) unsatisfactory performance of 11 percent cases the schemes in terms of the quantity of water supplied in relation of design supply and in other respects, forcing the households to incur significant coping costs. Among existing groundwater-based schemes, about one-third are in size below 200 households. Excessive capital cost: Compared to the cost The implication is that in many cases a larger norms, the capital cost of schemes is found to be scheme than the existing ones would be able to higher by 50 percent or more in 18 percent reap economies of scale and reduce cost. On the cases. It is higher than the norm by 100 percent other hand, there are a number of surface or more in 11 percent cases. This obviously water-based schemes serving more than 7,000 pushes up the cost of schemes. A second factor households, with huge diseconomies in scale. that tends to raise the capital cost of schemes is that in many cases the economies of scale are not High institutional cost: The high institutional being reaped. Econometric analysis of the cost costs of supply-driven schemes tends to raise data of piped water schemes reveals significant the cost of water supply. In demand-driven economies of scale--as the number of programs, the institutional cost (as percent of households covered by the scheme goes up, the total expenditure) is on average about cost rises less than proportionately. A study of 11 percent. In supply-driven, the corresponding 3 Figure 2 Water Quality, Rural Water Supply Schemes (Percent of Sample Exceeding Permissible Limit, by Parameter), Source End AP = Andhra Pradesh; KAR = Karnataka; KER = Kerala; MAH = Maharashtra; ORSS = Orissa; PUN = Punjab; TN = Tamil Nadu. Source: Water quality survey. figure is about 24 percent. There is, however, productive insofar as it is used merely to pay significant variation across states. The ratio of salaries and meet other staff costs for an unduly institutional cost to total expenditure on rural large bureaucratic set-up created for the water supply in the supply-driven programs is implementation of the central and state 50 percent in Karnataka, 40 percent in Kerala, government schemes for rural water supply. about 30 percent in Uttar Pradesh and Uttarakhand, but much lower at about Existence of multiple schemes: Resource 15 percent in Maharashtra. These variations wastage arises also from the existence of confirm that substantial reduction in institutional multiple schemes in the same area. Often, the cost is possible. poor functioning of one scheme makes it necessary for it to be supplemented by another A detailed examination of the components of scheme. Needless to say, this raises the overall institutional costs reveal that in supply-driven cost of service provision to the government. programs more than 85 percent of the Survey results bring out that about half of the institutional costs are the salaries and staff households in Karnataka and Tamil Nadu are welfare costs, including gratuity and pension. using more than one scheme. The same applies The expenses on travel, publicity, and so on, are to the users of piped water schemes in rather small in relation to a demand-driven Uttar Pradesh. Overall, about 30 percent program. In the demand-driven programs, the households are using multiple schemes to meet staff costs are the main item, but it accounts for their requirements. only a half of the total expenses. Travel and rent are important items of cost. Administrative cost Unsatisfactory performance of schemes: The and office cost, other than rent and publicity, day-to-day operations of the piped water supply account for about 20 percent of the total schemes leave much to be desired. The institutional cost. A comparison of the break-up performance is unsatisfactory in terms of both of the institutional cost between supply-driven the quantity and quality of water supplied. and demand-driven water supply programs clearly shows that a part of the institutional cost A study of the water quality2 reveals that several under supply-driven programs may not be very important parameters exceed the permissible limits in a significant proportion of cases 2Water quality study has been undertaken for 7 states out of the 10 surveyed. (Figure 2). In regard to water consumption, the 4 Paper 2 Supply Inefficiency Schemes of Rural in India W ater survey finds that the quantity of water obtained The day-to-day operations of the by rural households from the piped water supply piped water supply schemes schemes is commonly less than design, especially leave much to be desired. The in summer months. In multi village and regional performance is unsatisfactory in schemes, for instance, the design lpcd is 47 terms of both the quantity and on an average, but the actual supply in summer quality of water supplied reported by households is 31 lpcd. Water consumption study (based on actual measurement rather than recall) reveals that the piped water supply schemes meet only a minor supply of water, and there are problems of part of the water requirements of households. frequent breakdowns. In multi village and The quantity of water obtained from the scheme regional schemes, for example, the actual hours is generally well below the norm of 40 lpcd of supply on average are 3.3 as against the currently being used by the government for rural average of design hours of 8. water supply (Figure 3). The implication of supplying a small quantity of water compared Some of the piped water schemes (20 percent to to design is obviously a high cost per KL of 30 percent) do not function for many days in water supply. a year due to system breakdowns (annual breakdowns is 23 days in Karnataka and 36 days Some of the other dimensions of unsatisfactory in Uttar Pradesh). Around 30 percent households performance of piped water supply schemes are using piped water schemes do not get daily that the hours of water supply are lower than supply in summer (some do not get daily supply design, a section of households does not get daily even in other seasons). 5 Figure 3 Water Consumption, Households Using Piped Water Schemes, by Scheme Type and State Rural water supply norm AP = Andhra Pradesh; KAR = Karnataka; KER = Kerala; MAH = Maharashtra; ORSS = Orissa; PUN = Punjab; TN = Tamil Nadu. Source: Water consumption survey. Costs borne by households: The unsatisfactory handpumps, 8 percent of the mini water schemes, performance of the piped water supply schemes and 7 percent of the piped water schemes are compel the rural households to adopt coping defunct. In Uttar Pradesh, 10 percent of piped strategies in the form of traveling considerable water supply schemes are defunct and 55 percent distances and standing in long queues to collect are only partially functional. water, storing water, incurring expenses on private water sources, and incurring expenses on Resource saving: Given that there are marked repairing public water sources. These and other inefficiencies in the rural water supply schemes, measures taken by households (for example, significant savings of resources can be made some households boil water) impose a heavy cost through efficiency improvement. For the 10 on them. The average coping cost per household states studied, the wastages of resources in the is Rs 81 (US$1.8) per month (about 3 percent of period 1997­98 to 2005­06 due to inefficiencies income), ranging from Rs 32 (US$0.7) to Rs 287 of the schemes has been assessed at Rs 470 (US$6.5) per month across different categories billion. These resources, if invested productively of schemes. in these states, would have raised their net state domestic product by about one percent. Defunct schemes: Another dimension of Evidently, the inefficiencies of rural water inefficiency is that many schemes get defunct schemes impose a significant cost to before they complete their useful life. According the economy. to the results of the Habitation Survey undertaken in 2003, about 28 percent of spot How to Reduce the Inefficiency of sources in Kerala are defunct. This proportion in Rural Water Supply Schemes? some of the other states covered in the study is 17 percent for Tamil Nadu, 14 percent for To reduce the inefficiency of rural water supply Maharashtra and Karnataka, and 10 percent for schemes, action is needed basically on three Uttarakhand. Information from other sources fronts. First, a substantial part of the inefficiency indicate that in Karnataka, 19 percent of the is traceable to high institutional cost. This can be 6 Paper 2 Supply Inefficiency Schemes of Rural in India W ater reduced through decentralization, for example, Incentive for a state-wide approach shifting the responsibility of mini water schemes could be provided to states that and single village schemes to Gram Panchayats commit upfront to developing (GPs) and user communities; unbundling multi village schemes into smaller schemes and a state-wide and sector-wide approach handing over the O&M responsibility of and adopt sector reforms, irrespective intra-village schemes to the GPs (except in of sources of financing `over-exploited' aquifers or in `quality-affected' areas, where multi village schemes, relying on surface water, would be justified), and by moving over increasingly to demand-driven programs. process, financial incentives should be provided to Even though the advantages of demand-driven states to adopt reforms for all new rural water programs are recognized, such programs supply investment and address institutional and constitute at present only about one-tenth of the cost recovery issues for all schemes. Incentive to total expenditure being incurred on rural water increase state allocations under Swajaldhara could supply. The fact that charges are not imposed, or be provided through central funds, by linking these if imposed are not compulsorily collected from with matching or increasing state funds utilized for beneficiary households in supply-driven schemes, implementing the Swajaldhara reform program; discourages rural households from opting for central funds can top-up state funds disbursed on demand-driven schemes in which they would be Swajaldhara principles. required to bear the entire cost of the O&M. Similarly, incentive for a state-wide approach could This obviously needs correction through the be provided to states that commit upfront to installation of an appropriate mechanism to developing a state-wide and sector-wide approach increase cost recovery in supply-driven schemes. and adopt sector reforms, irrespective of sources To provide added encouragement to the reform of financing. 7 Second, cost reduction can be made by The analysis of cost data suggests ensuring that new schemes are large that significant economies of scale enough to reap adequate scale can be achieved when designing economies. The analysis of cost data rural water supply schemes serving suggests that significant economies of 500 to 1,500 households, unless local scale can be achieved when designing conditions are such that only a small rural water supply schemes serving 500 scheme is cost-effective to 1,500 households, unless local conditions are such that only a small scheme is cost-effective. At present, engineering considerations tend to help. To this end, the Panchayati Raj Institutions dominate the choice of scheme size. and user committees could be permitted to Economic considerations also need to be contract the planning, designing, construction, brought in for making this choice. For the and maintenance functions to agencies of their existing large multi village and regional choice, which could include the state engineering schemes, greater efficiency may be achieved by agencies or private engineering consultants dividing such schemes into smaller schemes, and operators. Another innovative step is to and handing over the O&M responsibility to the unbundle the bulk water supply and water GPs and user communities. distribution in multi village schemes (in areas where such schemes are justified). Bulk supply Third, there is need to develop mechanisms for could be managed by a professional public or enhancing `accountability' in service delivery. private operator, who could enter into The roles and responsibilities of institutions at enforceable contracts with the GPs and/or user the state, district, and GP level need to be better committees that are responsible for distribution defined with regard to policy formulation, at the local level. financing and regulation (that should remain state responsibilities), and ownership and development of assets, and operation of service This Report has been prepared by Smita Misra (Sr. Economist, SASDU, World Bank), the Task Manager of this study. (that should be devolved to local levels). Institutional changes are needed to establish The study was carried out under the overall guidance of Sonia Hammam, greater accountability and thereby improve Sector Manager, Water and Urban, SASSD, World Bank. Data analysis has efficiency. Going for contractual relationships been undertaken by Professor B.N. Goldar and his research team at the Institute of Economic Growth, Delhi and the consumer survey was carried with performance improvement targets to out by the ORG Centre for Social Research (a division of A.C. Nielsen improve service performance will definitely ORG MARG Pvt Ltd). Comments and inputs at various stages of preparation from the following World Bank persons are gratefully acknowledged: Michael Carter, Rachid Benmessaoud, Clive G. Harris, Alain R. Locussol, Francis Ato Brown, Alexander E. Bakalian, Oscar E. Alvarado, G.V. Abhyankar, R.R. Mohan, S. Satish, N.V.V. Raghava, and Policy Papers Catherine J. Revels (WSP-SA). Special thanks are due to the Department This is one of the six policy papers that have been prepared on the basis of the of Economic Affairs, Ministry of Finance, the Department of Drinking Water World Bank study on Review of Effectiveness of Rural Water Supply Schemes in Supply, Ministry of Rural Development, and the Rajiv Gandhi National India (June 2008). These policy papers, published along with the Report, are on the Drinking Water Mission for their interest and collaboration in the study. following themes: Comments and data inputs during the preparation of the Report are Paper 1: Willingness of Households to Pay for Improved Services and Affordability gratefully acknowledged from R.P. Singh and M. Nagaraju (DEA), Paper 2: Inefficiency of Rural Water Supply Schemes in India Bharat Lal and R.K. Sinha (RGNDWM) and their team, and the Paper 3: Multi Village Water Supply Schemes in India respective State Government officials. Paper 4: Operation and Maintenance Expenditure and Cost Recovery Paper 5: System of Monitoring and Evaluation The Report has been discussed with the Government of India but does not Paper 6: Norms for Rural Water Supply in India necessarily bear their approval for all its contents, especially where the Bank has stated its judgements/opinions/policy recommendations. Author and Task Manager: Smita Misra (Sr. Economist, SASDU, World Bank The World Bank Pictures by: Guy Stubbs/Water and Sanitation Program­South Asia June 2008 Created by: Write Media Printed at: PS Press Services Pvt. Ltd. The World Bank, New Delhi Office, 70 Lodi Estate, New Delhi 110 003, India Tel: (91-11) 24617241, 24619491