CS47: Investigation of Household Payments for Municipal Water Supply in India: Findings and Policy...

8/3/2019 CS47: Investigation of Household Payments for Municipal Water Supply in India: Findings and Policy Implications

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Investigation of Household Payments forInvestigation of Household Payments forMunici al Water Su l in India:Munici al Water Su l in India:

Findings and Policy ImplicationsFindings and Policy Implications

Water CoP Catchment Series

Sekhar Bonu and Masayuki TachiiriSekhar Bonu and Masayuki Tachiiri



Contents of the PresentationContents of the Presentation

.. n ro uc on an ac grounn ro uc on an ac groun

..

3.3. Policy ImplicationsPolicy Implications

4.4. DiscussionDiscussion



1. Introduction1. Introduction



Word of CautionWord of Caution

•• It is not about willingness to payIt is not about willingness to pay

•• Provides some insights into affordability andProvides some insights into affordability and

financing gap in water sectorfinancing gap in water sector--only first steponly first step•• n ngs nee to e nterprete w t nn ngs nee to e nterprete w t n

limitations of the surveylimitations of the survey

•• acac -- ox : ere are s so manyox : ere are s so manyunanswered questionsunanswered questions--need to know moreneed to know more



Data and MethodsData and Methods

•• se na ona y represen a vese na ona y represen a vesurvey data:survey data:

oo National Family Health Survey III (2004National Family Health Survey III (2004--

20052005

oo National Sample Surveys 60National Sample Surveys 60thth (2004) and(2004) and6161stst rounds 2005rounds 2005



Key Variable and LimitationsKey Variable and Limitations

or other local bodies. This item does notor other local bodies. This item does notinclude the cost of water urchasedinclude the cost of water urchasedthrough tanker, etc.through tanker, etc.

•• Limitation:Limitation: No information on source of No information on source of water. Adjustments had to be made atwater. Adjustments had to be made atstatestate--level using other surveys. No datalevel using other surveys. No data

..coping costs.coping costs.



100%

21.3

4.7

15.1

. .

75%

Others

20.3

53.250% Tube well or

source of

drinking water at

50.725%

Public tap/ stand pipe

ouse o

level is 71% in

urban and 28%

11.8

.

0%

Piped water(dwelling/yar

d/plot)

in rural

r an ura

Source: National Family Health Survey, 2005.



n P li Tn P li T29India

44

44

53

53

55

Kerala

Karnataka

A P

Chattisgarh

WB

TN

Major source of tap water in

23

31

31

40

42

NEM P

Jharkhand

B ihar

Orissa

tap water). As

high as 55% in

10

10

12

12

13

15

P u n ab

HP

Uttarkhand

Delhi

Haryana

M aharashtra . .

Scale of

3

6

8

9

10

J K

Rajasthan

UP

Go a

Gujarat

commercial non-revenue water!

0 10 20 30 40 50 60

Source: National Family Health Survey, 2005.



Source of Water for the PoorSource of Water for the Poor

Piped into dwelling Piped to yard/plot Public tap/stand pipe Others

The poorest urban

households depend

-

21

53

25

18

24

7

29

22

2nd Richest

Richestsignificantly on

public tap/ stand

post

2

6

9

17

40

41

48

36

2nd Poorest

Middle

Is it crude way to

control volume?

13 46 50Poorest

Source: National Famil Health Surve 2005.



2. Findings2. Findings



Large Number Pay “Zero”!Large Number Pay “Zero”!6

66% of urban

households (HH)

re orted a in

UP WB

APTN4

5

o t h i n g ( m i

l l i o n

“nil” (35 million

HH), which3

o l d s

w h o p a y n

as 99% in Bihar

and 95% in West

Gujarat

MPKeralaKarnataka

Bihar

NEPunjab Orissa

2

b e r o f h o u s e h

BengaRajasthan

Delhi Haryana ChhattisgarhUttaranchal

UTJKHP

Goa

0

0 25 50 75 100

N u

Source: National Sample Survey of India 61st Rounds (2004 and 2005).

% of households who pay nothing



Average (weighted) Payments Average (weighted) Payments

80

44% of the

variation in

water char eGoa

UT

60 h a r g e s ( R

s )

payments is

explained by

Karnataka

Delhi

HaryanaHP

R2 = 0.4367

40 e i g h

t e d w a t e r

-

variation in HH

overall

All IndiaTN

Kerala

AP Gujarat

MP

UPUttaranchal

Punjab

20 H H m o n t h l y

expen iturea sgar

Orissa

Jharkhand

WB

NE

Bihar

JK

0

A v e r a g


3,000 4,000 5,000 6,000 7,000

Monthly HH expenditure (Rs)



HH Expenditure on Util it iesHH Expenditure on Util it iesand Othersand Others

On an average,

HH spend 0.6%

on water0.6 4.6 3.6 1.6Overall

a er c arges we g e ec r c y

Telephone Pan+tobacco+alcohol

charges.

0.6

0.5

4.6

4.8

2.2

4.7

2.0

1.3

2nd Richest

Richest

spend 8 times

more on tobacco,0.6

0.6

3.9

4.3

0.5

0.9

2.6

2.4

2nd Poorest

Middle

a co o t an t eyspend on water!!

0.4 3.3 0.2 2.6

0 2 4 6 8 10 12

Poorest

% of HH monthly expenditure




Pa ment b Poor is Contin entPa ment b Poor is Contin enton State Where They Liveon State Where They LiveBihar100

Corre ation between

HH below povertyline and above

AP

Jharkhand

NE

2 =

80

90

a y n o t h i n g

paying is high

(0.66).All India

TN

Kerala

Maharashtra

Chhattisgarh

UP

Uttarakhand

.

60

70

o v e r

t y l i n e w h o p

The state-level

policies do matter!Karnataka

uaraMP Haryana

Punjab

HP30

40

50

u s e h o l d a b o v e

Much can be gainedif WB, Bihar can

emulate UT/J&K

GoaRajasthanDelhiJK

UT

10

20 % o

f h


10 20 30 40 50 60 70 80 90 100

% of households below poverty line w ho pay nothing



Where HH Pay, Rich PayWhere HH Pay, Rich PayTw ice As Much as the PoorTw ice As Much as the Poor

70

Again the corre ations

between how much therich and poor pay by

Goa

UT

R2 = 0.6586

60

y l i n e ( R s )

correlated (0.66). There

is wide variation.

Karnataka

Maharashtra

Delhi

Punab

40

50

o l d s

a b o v e p o v e r

Karnataka is closest to

“ideal” welfare state

ricin , while J&K isAll India

TN

AP

Guarat

MP

Chhattisgarh

RajasthanHaryana

Uttarakhand

HP

20

30

a y m e n t b y h o u s e

on the other end of thespectrum

KeralaOrissa

JharkhandWB

NE

Bihar

UPJK

0

10

A v e r a g e

p


0 5 10 15 20 25

Average payment by household below poverty line (Rs)



Two AssumptionsTwo Assumptions

•• os o r n ng wa er: sos o r n ng wa er: s($0.10) per cubic meter (very($0.10) per cubic meter (veryconservative estimate)conservative estimate)

for drinking water: 1% to 2% of for drinking water: 1% to 2% of

t e ouse o ncome expen turet e ouse o ncome expen ture



Source: Komives, K., Foster, V. et al. Water, Electricity and the Poor. The World Bank



CrossCross--countr Com arisoncountr Com arison(selected countries,(selected countries, % of HH expenditure% of HH expenditure))

WaterWater

ElectricityElectricity

and fueland fuel TotalTotalExpecting HH

to a be ondIndiaIndia 0.6%0.6% 4.6%4.6% 5.2%5.2%

ChinaChina 6.3%6.3%

2% of overall

HH expenditure

on water may.. .. ..

JapanJapan 1.6%1.6% 4.9%4.9% 6.5%6.5%

NorwayNorway 1.3%1.3% 4.8%4.8% 6.1%6.1%

be unrealistic

and politically

unacceptablehailandhailand 4.9%4.9%

PhilippinesPhilippines 7.6%7.6%

Central EastCentral East

Some WTP

studies talk

EuropeEurope 1.6%1.6% 3.8%3.8% 5.4%5.4%South East EuropeSouth East Europe 1.5%1.5% 5.2%5.2% 6.7%6.7%

Commonwealth of Commonwealth of

a ou - ,which is far

fetched

Independent stateIndependent state 1.0%1.0% 2.3%2.3% 3.3%3.3%

Latin AmericaLatin America 0.90.9--2.6%2.6%



RevenueRevenue3

1

1

44.7

57.3

32.4

52

41

67

Jharkhand

W B

Bihar

Water (% )Water (% )

14

11

10

10

81.8

31.6

38.8

42.8

4

57

51

48

JK

U P

N E

Orissa

Current levels of

w ater charge

collection

Even at a low costof Rs5 ($0.10) per

23

2016

16

55.1

67.951.0

24.1

22

1233

60

TN

Gujarat

Chhattisgarh

Kerala

,

deficit is close to

64% of the total

cost for those26

25

24

23

46.5

68.4

41.0

57.5

28

6

35

20

All India

Uttaranchal

M P

A P

provide 120 lpcd

at Rs5 per cu

meter for covered

population

currently

connected, and

74% for all urban42

41

37

33

51.1

51.7

40.5

50.6

7

8

22

16

Punjab

M aharashtra

Haryana

Rajasthan

Deficit to provide

120 lpcd at the

HH.

58

54

52

26.5

33.2

32.2

.

15

13

16

Goa

Delhi

Karnataka

HP

rate of Rs 5 percu meter for

w hole urban

population


81 14.9 5

0% 20% 40% 60% 80% 100%

U T



HHHHExpendituresExpenditures

21.0

22.0

Levels of Levels of

Tariffs for 120Tariffs for 12016.0

17.0

18.0

19.0

.

Rs 2 per cu mt

Rs 5 per cu mt

LP DLP D

12.0

13.0

14.0

15.0

.

p e n d i t u r e

Rs 20 per cu mt

Rs 40 per cu mt

meter is

approximately 1.7%8.0

9.0

10.0

11.0

o f H

o u s e h o l d E x

If Rs10 per cu meter

it is 3.4% of HH4.0

5.0

6.0

7.0 %

expenditure

0.0

1.0

2.0

3.0

E T a P b l h i

l a r a a B a t N KE i a a P r h n

d a l n P P a r


S T A G

P u n j

D e

K e r a

M a h a r a s h t

H a r y a W

G u j a r J

A l l I n d

K a r n a t a A

C h h a t t i s g a

J h a r k h a

U t t a r a n c h

R a j a s t h

O r i s

B i h



HH Expenditure on Water byHH Expenditure on Water byExpenditure QuintileExpenditure Quintile

HH expenditure on 120 lpcd water as a % of overall HH

Rs 5 per cu

expenditure for water at Rs5 per cu meter

9

10

Poorest Quintile Middle Quint ile Richest Quintile

constitutes

5.8% of poorest5

6

7

8

E x p e

n d i t u r e

expenditure!!

2

3

4

% o

f H H

0

C h h a t t i s g a r h

J h a r k h a n d

B i h a r

N E

U T

M P

A P

T N

K a r n a t a k a

A l l I n d i a

M a h a r a s h t r a

W B

H P

O r i s s a

R a j a s t h a n

H a r y a n a

U P

G o a

K e r a l a

J K

D e l h i

G u j a r a t

U t t a r a n c h a l

P u n j a b




Revenue Shortfall for Drinking Water ServicesRevenue Shortfall for Drinking Water Services

All India revenue

shortfall for water7

6

2

2

7

6

2

2

14

12

5

3

35

31

12

8

UT

JK

Goa

HP

Shortfall at Rs5

per cu mt

existing customersranges from:

11

9

9

8

8

11

9

9

8

8

22

19

17

16

54

47

45

42

40

18

Orissa

NE

Chhattisgarh

Uttaranchal

JharkhandAdditional

incrementalshortfall at Rs10

per cu mt

• $545 million

@Rs5 per cu mt,

• $3,080 million for35

17

16

11

35

17

16

11

70

33

32

22

176

83

80

55

Punjab

Haryana

Kerala

Bihar incremental

shortfall at Rs20

per cu mt

Additionalincremental

Rs 20 per cu mt,

and

• $7.3 billion @52

51

44

42

42

52

51

44

42

42

105

103

89

85

83

262

257

222

211

208

Karnataka

WB

MP

Rajasthan

e shortfall at Rs45

per cu mt

Rs45 per cu mt.

177

77

76

72

66

177

77

76

72

66

354

155

152

143

132

886

387

380

358

331

Maharashtra

TN

AP

Gujarat

UP


1 10 100 1,000 10,000

Log Scale in $ Million



3. Policy Implications3. Policy Implications



In r T riff In r T riff ,,

(expenditure on tobacco and alcohol!) for(expenditure on tobacco and alcohol!) forscope to increasescope to increase--even among the pooreven among the poor

•• Laggard states can emulate better performingLaggard states can emulate better performingstates within India (Bihar and WB emulate HPstates within India (Bihar and WB emulate HP

•• Differential (volumetric) tariff is required toDifferential (volumetric) tariff is required tomake water affordable to poormake water affordable to poor

•• Increasing tariffs is easier said than doneIncreasing tariffs is easier said than done(Delhi Jal Board)(Delhi Jal Board)



Tariffs:Tariffs:Uniform visUniform vis--àà--vis Variablevis Variable

7 6% of HH expenditure Cost per cubic meter

2.5 14% of HH expenditure Cost per cubic meter

Variable Tariff

Uniform Tariff

4

5

x p e n d i t u r e

3

4

5

m e t e r o f w a t e r

1.5

2.0

E x p e n d i t u r e

8

10

12

b i c m

e t e r ( R s )

1

2

3

% o

f H H

1

2

C o s t o f c u b i

0.5

1.0

% o

f H H

2

4

6

C o s t p e r c u

0Poorest 2nd

Poorest

Middle 2nd

Richest

Richest Overall0

0.0

Poorest 2nd

Poorest

Middle 2nd

Richest

Richest Overall

0



Mismatch between Cost andMismatch between Cost and Affordability Affordability

affordability for water, there will be significantaffordability for water, there will be significantshortfall in full O&M cost recoveryshortfall in full O&M cost recovery

•• However, this will start easing with economicHowever, this will start easing with economicgrowth as 2% of HH expenditure startsgrowth as 2% of HH expenditure starts

•• Yet, there will be long period where subsidies Yet, there will be long period where subsidiesfrom general tax revenues will be required tofrom general tax revenues will be required to

run water operat ons werun water operat ons we•• Meanwhile priceMeanwhile price--based volume control canbased volume control can



Revenue Shortfall With & Revenue Shortfall With & Without Volume ControlWithout Volume Control

10,000

Current Covered Po ulation Whole Urban Po ulation30% =40 lpcd; 40%=70 lpcd; 30%=120 lpcd

10000

Current Covered Population Whole Urban Population

100%=120 lpcd

6,000

7,000

8,000

9,000

6000

7000

8000

9000

u e s

h o r t f a l l

2,000

3,000

4,000

5,000

2000

3000

4000

5000

$ m i l l i o n r e v e n

0

,

Rs 5 cu meters Rs 10 cu meter Rs 20 cu meter Rs 40 cu meter

Average 76 lpcd

0

Rs 5 cu meters Rs 10 cu meter Rs 20 cu meter Rs 40 cu meter

Avera e 120 l cd



withdrawwithdraw•• Subsidies should be tied to clear exit strategy overSubsidies should be tied to clear exit strategy over

•• Tariffs should increase with households increasingTariffs should increase with households increasing

purchasing powerpurchasing power•• Subsidies should be tied to performance so thatSubsidies should be tied to performance so that

overall cost is reducedoverall cost is reduced

continue to pose challenges to exit strategycontinue to pose challenges to exit strategy



Role of PPPs and PSPsRole of PPPs and PSPs,,

costs, and thus reduce overall subsidiescosts, and thus reduce overall subsidies•• Efficiency gains need to be high enough to cover costEfficiency gains need to be high enough to cover cost

•• PPP/PSP financial structures need to assurePPP/PSP financial structures need to assure

continued inflows of subsidies to meet the HH watercontinued inflows of subsidies to meet the HH waterr v ur v u

•• Water revenue guarantee fund (escrow account) willWater revenue guarantee fund (escrow account) willbe required in each structurebe required in each structure

•• Dedicated and “predictable” tax revenues can financeDedicated and “predictable” tax revenues can financewater fundwater fund— —tobacco and alcohol tax, for example.tobacco and alcohol tax, for example.



a er una er un

70

8090

Revenue

Water Fund required to underwrite

the gross units of revenuedeficit (629 in this case)

40

50

60

A m o u n t

e c

Revenue

recovered

Rural-urban migration of the poor

Political resistance

Inability to capture increasing HH income for water

10

20

30

Economic growth

Increasing commercial base

Increasing rich households

Increase in consum tion

acroeconom c sta ty an a ter ng growt

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Year--->



What ADB May Do?What ADB May Do?

unlikely to work??unlikely to work??•• ShortShort--term en a ement is unlikel to work term en a ement is unlikel to work

•• Medium to long term engagement in selectedMedium to long term engagement in selected

towns involving capitals costs, operations andtowns involving capitals costs, operations andma n enance, ena ng s w c earma n enance, ena ng s w c earexit strategyexit strategy

Patna or Ghaya!Patna or Ghaya!

•• Invest more in o erational research: unravelInvest more in o erational research: unravelthe “Black the “Black--box” box”



Research QuestionsResearch Questions

•• Need to better understand: affordability,Need to better understand: affordability,quantity and price, water charges toquantity and price, water charges tomun c pa y, overa mun c pa nance, o ermun c pa y, overa mun c pa nance, o erexpenditures on water at household levelexpenditures on water at household level

•• Invest more in reliable WTP studiesInvest more in reliable WTP studies

•• Need better benchmarks to control costs forNeed better benchmarks to control costs for

O&MO&M•• Need better policy understanding of existNeed better policy understanding of exist

strategies for water subsidiesstrategies for water subsidies



4. Discussion4. Discussion



Finally… Util ity experienceFinally… Util ity experiencefrom Japanfrom Japan

Long term trend in Japan

35,000

40,000

45,000

3.5%

4.0%

25,000

30,000

x p e n d i t u r e ( $

2.0%

2.5%

.

e x

p e n d i t u r e

10,000

15,000

20,000

A n n u a l H H e

1.0%

1.5%

S h a r e i n H H

0

5,000

5 0

5 3

5 6

5 9

6 2

6 5

6 8

7 1

7 4

7 7

8 0

8 3

8 6

8 9

9 2

9 5

9 8

0 1

0 4

0.0%

0.5%

1 1 1 1 1 1 1 1 1 1 1 1 1 9

1 9

1 9

1 9

1 9

2 0

2 0

HH expenditure $ Electricity Gas Water charges Tobacco



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