Urban water tariff structure and cost recovery opportunities in India

Given the high level of capital investment and the history of government subsidized services, full cost pricing of water services has yet to take hold in India. As a result, it remains broadly underpriced leading to public perception that water is "free" The current tariff levels in India are too low to cover even operating costs. This paper examines the existing Indian urban water tariff models (fixed tariff, volumetric tariff, increasing block tariff etc.), their relevance and problems. It was found that none of the tariff structures could satisfy all the design objectives (cost recovery, economic efficiency, equity, affordability etc.). Also subsidies are not explicit and well targeted for poor population. There are several studies and issues that do demonstrate the opportunities for tariff increase and improved cost recovery. This paper highlights the results of such studies and brings out issues needing consideration. Improved cost recovery would lead to improved financial status of the water utilities. Also, subsidies, if designed suitably and well targeted, would serve the concerns of the economically weaker sections. Such reform process would eventually lead to socio-economic sustainability.