Pricing water efficiently

Pricing water efficiently

In large parts of urban India, water for domestic consumption is hardly priced. Where it is, the “slab" system often makes nonsense of the link between pricing and consumption. Last week, the Delhi government announced a plan to privatize water supply in three localities in the city. Depending on the success of this project, privatized supply may be extended to the rest of the city.

Under the slab system, consumption up to a certain level attracts one price. Beyond that, the price rises, but once again is based on a new slab. Pricing of scarce resources—and this is especially true of Delhi where bulk of the water is sourced from neighbouring states—requires a different method. A much better option is to go in for pricing per unit of water consumed, say one litre or some multiple of it. The manner in which electricity is priced—per unit—makes better sense.

Regulating such operators will require more than orders by a water regulatory commission. Enforcing such orders—without corrupt practices seeping in—is a huge challenge as the demand for water in the city is virtually unquenchable.

These, however, are problems that will emerge a while after the regulatory system has been created. The immediate problem will be political: for a group of residents that has enjoyed cheap water without any supply hiccups, higher pricing—which is inevitable when a more rational pricing scheme sets in—is bound to lead to political resistance. This is a subject that can make or mar the fortunes of any government. How the Delhi government handles this issue will determine if privatization of water supply will work.

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