India's water worries
Growing urbanization and inefficient practices are pushing India toward a water crisis. Water utilities must improve their performance and mobilize the private sector to help deliver the country’s “water revolution.” Chaitanya Kalia and Nutan Zarapkar report.
India’s water sector is plagued by challenges that include:
- Underdeveloped treatment and supply infrastructure
- Inefficient end use
- Lack of a consistent water policy framework, particularly an effective water tariff
- Absence of incentives to drive sustainable water practices
As India faces increasing urbanization, pressure on its water supply is growing. Some progress has been made by government investment in large programs such as the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and the Urban Infrastructure Development Schemes for Small and Medium Towns (UIDSSMT), but much more needs to be done.
Starting the flow
The Indian Government has produced two major policy responses — the National Water Policy (NWP) and the National Water Mission (NWM).
These policies aim to increase efficient water usage by 20% through:
- Volumetric pricing
- Establishing water regulators
- Opening up the sector to private participation, mostly through public-private partnerships (PPPs)
The initiatives highlight the need for India’s water utilities to improve their service delivery. It is estimated that even an incremental improvement in arresting distribution leakage losses by an average of 10% across the country would reduce the production cost of equivalent water supply by INR5.5 billion (US$ $103m).
At EY, we have been working with many water utilities to upgrade performance through a number of measures that can be broadly categorized into three approaches:
- Demand management — influencing demand through increasing block tariff systems, excess use charges, zonal pricing to reflect water scarcity values, water efficiency labeling schemes, revisions to plumbing and building codes, leak-detection programs, water rationing and taxation policies
- Supply management — advocating projects that enable an increase in the accessible, reliable and environmentally sustainable supply of water, for example, through the establishment of an inter-city distribution network or an inter-basin transfer of water
- Efficiency enhancement — benchmarking performance improvement across four broad areas: financial sustainability; efficiencies of operation and maintenance; efficiencies of investment; and responsiveness to customers
Incentives for industry
Other sectors and industries must also participate in bringing about the necessary changes. According to surveys of Indian industry groups, water-related concerns are expected to “become more of a priority” for businesses in the next 5 to 10 years. Water stewardship is one of the top five areas of responsibility for business organizations.
Power and utility companies have a particularly significant role to play. Thermal power plants are some of the most water-intensive operations in India, and more than 75% of the planned expansion of power capacity in India’s next Five Year Plan involves these plants.
It is important to persuade thermal power generators and other water-intensive industry sectors to become committed water stewards. Incentives must be introduced to encourage:
- Efficient use of water
- Development of new technologies to conserve it
- Complete recycling of industrial water (zero-discharge)
Even with the current absence of incentives, larger industries are already performing better than many Indian municipalities in sustainable water practices.
Mobilizing the private sector
The Indian Government understands that private sector involvement will be critical in transforming India’s water use. Both the NWP and the NWM explicitly encourage private sector participation, and the JNNURM and UIDSSMT promote institutional reform through private sector capital and capabilities.
But while India has seen some PPPs, many of these projects have been hampered by:
- The need to secure financing
- A lack of capacity to properly monitor and benchmark the service standards of PPPs
- Rushed bidding processes that lead to inadequate forecasting of risks and profitability
Further changes to the regulatory frameworks and financing structure are required to mobilize the private sector. Once these changes occur, opportunities will be available to private investors in almost every facet of the water sector for those companies that take the time to get to know this complex market.
Our teams are assisting potential investors in understanding the Indian culture and way of doing business to build a local presence and develop appropriate business models.
Hope of change
India’s water sector is in the midst of significant and rapid changes. While the implementation of the NWP has inspired hope that India is transitioning to ensure the security of future supply, there is much more to do.
A coordinated effort — by government and industry, particularly utilities — is necessary to bring about the strategic long-term planning and innovation required to deliver India’s “water revolution.”
For more information
Read our report Riding the wave.