india's water economy

INDIA’S WATER ECONOMYBRACING FOR A TURBULENT FUTURE

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INDIA’S WATER ECONOMY

Bracing for a Turbulent Future

India faces an unsure water future. Unless fresh policies are adopted and implemented to make waterdevelopment and management sustainable, India will have neither the means to maintain and buildnew infrastructure, nor the water required for its survival.

This report focuses on two basic issues—the major water-related challenges facing India, and the criticalmeasures required to address them. It calls for a reinvigorated set of public water institutions to sustainwater development and management in India. The study:

• examines the evolution of water management in India• describes the achievements of the past• analyses the challenges ahead• suggests ways of evolving a sustainable water management system

Drawing heavily on background documents by eminent Indian practitioners and policy analysts,it explores various options of managing the transition from past practices in a principled andpragmatic manner.

The report will be essential for practitioners in the fields of water management, development, andeconomics. It may prove useful for policymakers, government agencies, NGOs, journalists, and generalreaders interested in India’s water economy.

John Briscoe is currently World Bank Country Director for Brazil. Previously, he was Senior WaterAdvisor with responsibility for the Bank’s water portfolio both globally and in South Asia.

R.P.S. Malik currently works with the Agricultural Economics Research Centre, University of Delhi. Hehas written extensively on water-related issues. Earlier, he worked for The World Bank, World ResourcesInstitute, and Afro-Asian Rural Reconstruction Organization.

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BRACING FOR A TURBULENT FUTURE

John BriscoeR.P.S. Malik

1THE WORLD BANK

Agriculture and Rural Development UnitSouth Asia Region

1

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ISBN-13: 978-0-19-568333-2ISBN-10: 0-19-568333-1

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YMCA Library Building, Jai Singh Road, New Delhi 110 001

ACKNOWLEDGEMENTSThis report has benefited greatly from formal reviews and comments from external reviewers (SureshPrabhu, Peter Rogers, Ramaswamy Iyer, George Varughese, Tushaar Shah, Maria Saleth, Vijay Vyas,Ramesh Bhatia, and Nirmal Mohanty) and World Bank staff (Sumir Lal, Sanjay Pahuja, Sunil Khosla,R.S. Pathak, Prabir Joardar, Grant Milne, Connie Bernard, Martien van Nieuwkop, Gajan Pathmanathan,Dina Umali-Deininger, Manuel Contijoch, Karin Kemper, Javier Zuleta, Srinivas Rajagopalan, HarshadeepRao, Keith Pitman, and Alain Locussol). As usual, not all reviewers agreed with all that is written in thereport (nor did the authors agree with all that was suggested by the reviewers!). The product is entirelythe responsibility of the authors and should not be attributed to the reviewers. The report was discussedwith the Government of India but does not necessarily bear its approval for all its contents, especiallywhere the Bank has stated its judgments, opinions or policy recommendations.

The title for this report is stolen—with kind permission from Tushaar Shah—from that of the 2005annual meeting of the IWMI-Tata Water Program, one of the many fora at which the ideas in this Reportwere discussed and refined. The IWMI graciously helped with the production of the basin maps. JacquelineJulian of the World Bank provided excellent assistance. Generous support was provided by the BankNetherlands Water Partnership Program.

CURRENCY EQUIVALENTS

Currency unit = Indian rupeeUS$1= Rs. 45.50

FISCAL YEAR

April 1–March 31

ABBREVIATIONS AND ACRONYMS

CAS – Country Assistance StrategyCII – Confederation of Indian IndustryCWC – Central Water CommissionDJB – Delhi Jal BoardDVC – Damodar Valley CorporationFICCI – Federation of Indian Chambers of Commerce and IndustryIMT – Irrigation Management TransferIPCC – Intergovernmental Panel on Climate ChangeIWMI – International Water Management InstituteNWDA – National Water Development AuthorityPIM – Participatory Irrigation ManagementTISCO – Tata Iron and Steel CompanyTVA – Tennessee Valley AuthorityWUA – Water Users Association

Vice President : Praful PatelCountry Director : Michael Carter

Sector Director : Constance BernardSector Manager : Adolfo BrizziTask Manager : John Briscoe


TABLE OF CONTENTS

PREFACE

EXECUTIVE SUMMARY

1. THE HUGE ACHIEVEMENTS OF WATER DEVELOPMENT AND MANAGEMENT IN INDIA

The Era of Large Investments in Major Infrastructure 1The Era of Groundwater Exploitation 7

2. CURRENT AND LOOMING CHALLENGESAdjusting to the Needs of a Changing Society 12Adjusting to Scarcity and Greater Variability 15Dealing with Growing Conflicts 20Maintaining and Renewing Existing Infrastructure 26Building Infrastructure in Under-served Areas and for Under-served Public Purposes 30

3. AN INVIGORATED INDIAN WATER STATE FOR THE 21ST CENTURYA State in Disrepute 39The Central Institutional Challenges in Building ‘the new Indian water state’ 40Instruments, not Organizational Forms, are Key 41Stimulating Competition in and for the Market of Water Supply Services 43Empowering Users by Giving them Clear, Enforceable Water Entitlements 46Ending the Culture of Secrecy and Making Transparency the Rule 53Introducing Incentive-based, Participatory Regulation of Services and

Water resources 54Putting the Sector on a Sound Financial Footing 55Investing Heavily in Human Resource Development 58Ensuring that Local People are the First Beneficiaries of Major Water Projects 59Making the Environment a High Priority 60

4. PRINCIPLED PRAGMATISM AND ‘RULES FOR REFORMERS’Rule #1: Water is Different 63Rule #2: Initiate Reform where there is a Powerful Need and Demonstrated Demand

for Change 63Rule #3: Involve those Affected, and Address their Concerns with Effective,

Understandable Information 65

viii

Rule #4: Reform is Dialectic, not Mechanical 67Rule #5: It’s Implementation, Stupid 68Rule #6: Develop a Sequenced, Prioritized List of Reforms 68Rule #7: Be Patient and Persistent 68Rule #8: Pick the Low-hanging Fruit First—Nothing Succeeds like Success 69Rule #9: Keep your Eye on the Ball—don’t let the Best become the Enemy of the Good 69Rule #10: There are no Silver Bullets 70Rule #11: Don’t throw the Baby out with the Bathwater 71Rule #12: Reforms must Provide Returns for the Politicians who are Willing to

make Changes 72

5. THE EVOLVING ROLE OF THE WORLD BANKWhat the Bank has Done in the Past 73The Bank’s New Water Strategy 76The 2004 World Bank Country Assistance Strategy for India 76The Ongoing Evolution of Bank Engagement in the Water Sector in India 78

Contents

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FIGURES

Figure 1: Rates of return on investment on infrastructure and management of water resources xvii

Figure 2: The evolving role of the citizen and the state in watermanagement in India xxi

Figure 3: The changing composition and level of World Banklending for water in India xxiii

Figure 1.1: British water engineers who are revered as saints in southern India 2Figure 1.2: Output on irrigated and unirrigated farmland 2Figure 1.3: Percentage of irrigated area by farm size 4Figure 1.4: Average number of days of employment for adult casual laborers each month 4Figure 1.5: The effect of Nagarjunasagar irrigation on per capita income 5Figure 1.6: The effect of irrigation and Green Revolution on income in Tamil Nadu 5Figure 1.7: The effect of Bhakra Dam on different social groups 5Figure 1.8: Income gains from directly and indirectly impacted sectors—Bhakra Dam 6Figure 1.9: How irrigation reduces poverty in India 6Figure 1.10: Electrification and rural poverty by state 6Figure 1.11: Economic growth and poverty reduction—the global relationship 6Figure 1.12: The decline in poverty in India, 1973–2000 7Figure 1.13: The evolution of forms of irrigation in India, 1950–2000 7Figure 1.14: Electricity tariffs and generation cost in different states 8Figure 1.15: Level of groundwater development by basin 8Figure 1.16: Increase in electricity consumption for agriculture 9Figure 1.17: Electricity subsidy to agriculture as percentage of gross fiscal deficit, 2000–01 10Figure 1.18: Farm input subsidies in Gujarat 10Figure 1.19: The precarious state of groundwater in Tamil Nadu 11

Figure 2.1: Rates of return on investment on infrastructure and managementof water resources 12

Figure 2.2: Employment generation by crop 13Figure 2.3: Total and sectoral water use in 2020 under two management scenarios 14Figure 2.4: Differences in income in Tamil Nadu in 2020—flexible compared to fixed

water allocations 15Figure 2.5: Utilizable water, demand, and residual which is available but not used 15Figure 2.6: ‘Unused’ surface water and groundwater 16Figure 2.7: Simulated effects of deglaciation on Himalayan river flows over 10 decades 16

FIGURES AND BOXES

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Figure 2.8: Change in South Asia summer rainfall predicted by 10 General Circulationclimate models 17

Figure 2.9: Predicted change in number of rainy days from the ‘decreased rainfall’IPCC model 17

Figure 2.10: Predicted change in rainfall intensity (in mm per day) from the‘decreased rainfall’ IPCC model 18

Figure 2.11: Area flooded has been relatively stable 18Figure 2.12: Areas subject to flooding are vulnerable to climate change 18Figure 2.13: Running out of groundwater 19Figure 2.14: Chief Ministers of Karnataka and Tamil Nadu resolving the conflict

over the waters of the Cauvery River 23Figure 2.15: Water entitlements in the Vaigai Basin 24Figure 2.16: The demise of the Bharatpur Bird Sanctuary 26Figure 2.17: The stock of major water infrastructure (large dams in this case) is aging 27Figure 2.18: The financing of water services in India 28Figure 2.19: Depleting India’s infrastructure stock 29Figure 2.20: Storage per capita in different semi-arid countries 30Figure 2.21: Days of average flow which reservoirs in semi-arid countries can

store in different basins 30Figure 2.22: The development of economically-feasible hydropower potential in

India in the international context 31Figure 2.23: Status of hydropower development in different regions 31Figure 2.24: Environmental and social indicators for hydropower dams 32Figure 2.25: The declining role of hydropower in India 32Figure 2.26a:Flows in billions of cubic meters per year in the major river basins of India 33Figure 2.26b:The number of days of average flow that can be stored in different

river basins in India 33Figure 2.27: Possible inter-basin water transfers 33Figure 2.28: The poverty-reducing impact of irrigation is declining 34Figure 2.29: Allocations to major water infrastructure are declining 35Figure 2.30: Subsidies to water-related sectors 35Figure 2.31: Yamuna River dissolved oxygen 37Figure 2.32: Yamuna River quality––fecal coliforms 37

Figure 3.1: The desired evolution of functions and actors 41Figure 3.2: The basis for sound irrigation service provision 43Figure 3.3: Typical public and private roles in the provision of infrastructure 45Figure 3.4: Cost and quantity of raw water from different sources for Chennai 48Figure 3.5: Pakistan Punjab canal entitlements from the 1991 Water Accord 52Figure 3.6: Participants in modern regulation 55Figure 3.7: From low-level to high-level equilibrium in Conakry 57Figure 3.8: How social and economic performance of dams has improved globally 59Figure 3.9: The ‘Kuznets Curve’ for environmental quality 60

Figures and Boxes

xi

Figure 4.1: Impact of eliminating electricity subsidies on marginal farmers in Haryana 70

Figure 5.1: The decline and changing composition of World Bank lending for water in India 74Figure 5.2: The ‘global’ Poll results for South Asia, showing that infrastructure and

education were the two areas which were of high development priority,and priority for the World Bank 75

Figure 5.3: Development priorities and comparative advantage of the World Bank 77Figure 5.4: World Bank re-engagement with water in India 77

BOXES

Box 2.1: Water environment challenges––the case of the Yamuna River around Delhi 36Box 3.1: Incipient water trading around Chennai 48Box 3.2: Water entitlements are the principal mechanism for ensuring efficiency,

sustainability, and voluntary reallocation of water 49Box 3.3: The Maharashtra Water Resources Regulatory Authority Act of 2005 50Box 3.4: Towards a transparent water entitlement regime in Punjab, Pakistan 52

Figures and Boxes

This report was motivated by two ideas. First, an important element of the World Bank’s 2003 WaterResources Strategy was to translate the general principles governing Bank engagement in the watersector into ‘Country Water Resource Assistance Strategies’ which were tailored to the requirements ofspecific countries. Second, the 2004 World Bank Country Assistance Strategy (CAS) for India signaleda major increase in Bank lending for water (including water resources, irrigation, water, sanitation, andhydropower).

In discussions with the Ministry of Water Resources and the Planning Commission of the Governmentof India, it was agreed that the Bank would undertake a study of the strategic challenges facing the watersector in India, and provide more specificity than the CAS on what the ‘trademark’ ideas would be forthe Bank’s lending and non-lending activities in India.

The Bank commissioned the following background papers by prominent Indian practitioners andpolicy analysts:

• The evolution of national policies and programs (Mr. A.D. Mohile, former Chair, Central WaterCommission)

• The evolution of water development and management: the perspective of the Planning Commis-sion (Mr. A Sekhar, Adviser, Planning Commission)

• The evolution and performance of World Bank work on water in India (Dr. R.P.S. Malik,University of Delhi)

• Water and growth (Professor Ramesh Bhatia, Institute of Economic Growth, University of Delhi)

• Water and poverty (Dr. R.P.S. Malik, University of Delhi)

• Water and environmental sustainability (Mr. George Varughese, Development Alternatives)

• Water and energy (Professor Ramesh Bhatia, Institute of Economic Growth, University of Delhi)

• Pricing and financing (Professor Sebastian Morris, Indian Institute of Management Ahmedabad)

• Water rights and entitlements (Dr. Maria Saleth, International Water Management Institute,Colombo)

• Accountable institutions (Dr. Tushaar Shah, International Institute of Water Management, Anand)

• Moving to scale (Dr. Nirmal Mohanty, Infrastructure Finance Development Corporation)

• The political economy of change (Professor V.S. Vyas, Institute of Development Studies, Jaipur)

PREFACE

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The process included a number of consultations. In a Bank-hosted multi-stakeholder consultation inAugust 2004, the idea of the study was presented, and inputs on substance and process were made byabout 50 individuals from the Union Government, Planning Commission, state governments, the privatesector, financial institutions, urban water supply utilities, NGOs, academics, professional associations,chambers of industry, bilateral and multilateral aid agencies, and UN agencies. The same individualswere invited to a final consultation on the draft report, held in New Delhi in October 2005. Drafts ofthe main ideas of the report were also discussed at seminars held by the Confederation of Indian Industry,the Federation of Indian Chambers of Commerce and Industry, the World Wildlife Fund, the InternationalWater Management Institute (IWMI), and the Planning Commission of the Government of India.

In January 2005, the Ministry of Water Resources hosted a major consultation on ‘Challenges forWater Development and Management in India and Future Strategies’, which was addressed by theMinisters and Secretaries of Finance and Water Resources, the Member for Water and Power of thePlanning Commission, and the World Bank Country Director for India. The focus of the consultation wason the emerging themes from the Bank’s study, the views of the Union and state governments, and theimplications for World Bank involvement in water in India.

Preface

xv

India faces a turbulent water future. The currentwater development and management system is notsustainable: unless dramatic changes are made—and made soon—in the way in which governmentmanages water, India will have neither the cash tomaintain and build new infrastructure, nor thewater required for the economy and for people.

This Report examines the evolution of the man-agement of India’s waters, describes the achieve-ments of the past, and the looming set of challenges.The Report suggests what changes should be con-sidered and how to manage the transition from‘the ways of the past’ to ‘the ways of the future’ ina principled but pragmatic manner. It drawsheavily on a set of 12 background documents byeminent Indian practitioners and policy analysts,and addresses two basic questions:

• What are the major water development andmanagement challenges facing India?

• What are the critical measures to be takento address these?

India has a highly seasonal pattern of rainfall,with 50 percent of pre-cipitation falling injust 15 days and over90 percent of riverflows in just 4 months.Throughout history,

people have adapted to this variability by eitherliving along river banks or by careful husbandingand management of water. Until the 19th century,most of this management was at the communitylevel, relying on a plethora of imaginative andthen-effective methods for harvesting rainwater intanks and small underground storages.

Over the past 150years, India hasmade large invest-ments in large-scalewater infrastructure,much of which brings water to previously water-scarce areas. This has resulted in a dramatic eco-nomic shift, with once-arid areas becoming thecenters of economic growth, while the historicallywell-watered areas have seen much slower progress.For the most part, the results of this ‘hydraulicinfrastructure platform’ have been spectacular bothnationally (through the production of foodgrainsand electricity, for example) and regionally (wheresuch projects have generated large direct andequally large indirect economic benefits). The poorhave benefited hugely from such investments. Theincidence of poverty in irrigated districts is one-third of that in unirrigated districts.

There are regions of India that can benefit greatlyfrom increased in-vestment in water in-frastructure, of allscales. India can still store only relatively smallquantities of its fickle rainfall. Whereas arid richcountries (such as the United States and Australia)have built over 5000 cubic meters of water storageper capita, and middle-income countries like SouthAfrica, Mexico, Morocco, and China can storeabout 1000 cubic meters per capita, India’s damscan store only 200 cubic meters per person. Indiacan store only about 30 days of rainfall, comparedto 900 days in major river basins in arid areas ofdeveloped countries. A compounding factor is thatthere is every indication that the need for storagewill grow because global climate change is goingto have major impacts in India—there is likely to

EXECUTIVE SUMMARY

Much human ingenuityis required to sustainlife and society inIndia’s highly variableclimate

India has reaped greatbenefits from itsinvestments in waterinfrastructure

India needs a lot morewater infrastructure

xvi

be rapid glacial melting in coming decades in thewestern Himalayas, and increased variability ofrainfall in large parts of the subcontinent.

A review of India’s hydropower infrastructurereveals a similar picture: whereas industrializedcountries harness over 80 percent of their economi-cally-viable hydropower potential, in India thefigure is only 20 percent, despite the fact that theIndian electricity system is in desperate need ofpeaking power and despite the fact that Hima-layan hydropower sites are, from social and envi-ronmental perspectives, among the most benign inthe world. Especially in the water-rich northeast ofthe country, water can be transformed from a curseto a blessing only if major investments are madein water infrastructure (in conjunction with ‘soft’adaptive measures for living more intelligentlywith floods). Recognizing this, the Prime Ministerhas recently called for the establishment of ‘a TVA(Tennessee Valley Authority) for the Brahmaputra’,which would combine major water infrastructurewith modern management approaches to makewater a stimulus for growth. In many parts of thecountry there are also substantial returns frominvestments in smaller-scale, community-levelwater storage infrastructure (such as tanks, checkdams, and local water recharge systems). And thereare massive needs for investment in water supplysystems for growing cities and for underservedrural populations.

The problems of a developing India, however,are not limited to providing adequate quantities ofwater. Growing populations, cities, and industriesare putting great stress on the aquatic environ-ment. Many rivers—even very large ones—haveturned into fetid sewers. India’s cities and indus-tries need to use water more effectively, and therewill have to be massive investments in sewers andwastewater treatment plants.

Global experienceshows that the returnsto investments in wa-ter infrastructure andmanagement followthe broad outlinesshown in Figure 1.During the first, de-velopment stage, the challenges were predomi-nantly engineering in nature. In India, Sir ArthurCotton and other pioneering engineers were wor-shipped as saints, and dams became ‘the templesof modern India’. The very success of this enter-prise, as in other societies and for other issues,carried the seeds of its own downfall. As an infra-structure platform was built, the ‘Type 2’ and ‘Type3’ challenges of maintenance, operation, and man-agement started to emerge. The uni-functional(‘build’) and uni-disciplinary (‘engineering’) bu-reaucracy adopted the command-and-control phi-losophy of the early decades of independence,seeing users as subjects rather than partners orclients. The Indian state water apparatus still showslittle interest in the key issues of the managementstage—participation, incentives, water entitle-ments, transparency, entry of the private sector,competition, accountability, financing, and envi-ronmental quality.

Evidence aboundsof the inability of thestate water machineryto address even the problems of the provision ofpublic irrigation and water supply services. Usercharges are negligible, resulting in lack of ac-countability and insufficient generation of revenueeven for operations and maintenance. The gapbetween tariff and value of irrigation and watersupply services has fueled endemic corruption.Staffing levels are 10 times international norms,and most public funds are now spent feeding the

India’s development ofwater infrastructure hasnot been accompaniedby an improvement inthe governance of waterresources and waterservices

Much of the infrastruc-ture is crumbling

Executive Summary

xvii

administrative machinery, not maintaining thestock of infrastructure or providing services. Thereis an enormous backlog of deferred maintenance.The implicit philosophy has been aptly described1

as ‘Build-Neglect-Rebuild’. This problem is seri-ous in its own right, but it also means that publicfinancing is not available for the vital tasks ofproviding new irrigation, water supply, and waste-water infrastructure to serve growing populationsand the unserved poor. Most recent irrigation andwater supply projects assisted by the World Bank,for example, have not financed new infrastruc-ture, but the rehabilitation of poorly maintainedsystems.

The sector is facing a major financing gap. Thereal financial needsof the sector aregrowing—to meet the

costs of rehabilitating the existing stock of infra-structure and to build new infrastructure. Theseneeds are amplified by the fact that large propor-tions of recurrent budgets are spent on personnel,not on real maintenance, and on electricity, irriga-tion, and water supply subsidies. On the ‘supply

side’ there are ultimately only two sources of fi-nancing—tax revenues and user charges. The bud-getary allocations to the water sector is falling, asare payments by users. The net result is a large andgrowing ‘financial gap’, which can only be met bya combination of methods which include greaterallocations of budgetary resources, more efficientuse of those resources, and greater contributionsfrom water users.

This decline in thequality of public irri-gation and water sup-ply services wouldnormally be expectedto produce social un-rest and political pressure. But to the (temporary)rescue of Indian society came a simple and re-markable transformational technology—thetubewell. With large areas of India having sub-stantial and easily-accessible aquifers, people wereable to ignore the inconvenience of poorly func-tioning public systems and become self-reliantusing groundwater. In many ways, this ‘era of theindividual coping strategies’ has been remarkablysuccessful.

• Irrigators have either drilled individualtubewells or relied on others’ tubewells (giv-ing rise to elaborate informal water mar-kets). This has happened on a massive scale,with 20 million tubewells now installed, andgroundwater now accounting for over 50percent of irrigated area.

• The urban middle class have learned to makedo with irregular, unpredictable, and oftenpolluted public water services. They havedeveloped coping strategies which includeinvestments in household storage,purchasing of bottled water for drinking,installation of household water purification

Figure 1: Rates of return on investment oninfrastructure and management of

water resources

Source: World Bank, China Country Water ResourcesAssistance Strategy 2002.

There is a majorfinancial resources gap

People have showngreat ingenuity in‘working around’ apoorly governed watersystem

1 Nirmal Mohanty, ‘Moving to scale’, Background Paper for this Report, 2005.

Executive Summary

xviii

systems, purchase of water from vendors,and, like their rural counterparts, privatewells to tap the groundwater. Although thecosts are high—six times higher than theaverage payment to the utility in Delhi, forexample—this works for the middle class.Around 80 percent of domestic water supplyin India now comes from groundwater.

• The situation of the poor in urban areas isfar worse. They are powerless and thereforeat the end of the line when the inevitablerationing takes place, and they cannot af-ford to make the same coping investmentsas the middle class. They depend heavily onwater vendors, most of which are, again,supplied by groundwater, and provide wa-ter of very high cost.

• Industry, too, has coped by self-providing,mostly from groundwater. Where aquifersare either not available or exhausted, in-dustries resort to very-high cost ‘captive’alternatives (including reverse osmosis treat-ment of wastewater and desalination) to keeptheir factories running.

In many ways, this private, self-provision strat-egy has been a suc-cess, and hasunderpinned spec-tacular gains in agri-cultural productionand the rise of thou-sands of towns andcities. This has bred

an attitude among many—political leaders, indus-trialists, irrigators, and common people—that ‘wehave muddled through okay, and we will continueto muddle through’. This is a dangerous compla-cency, because it is based on three erroneous as-sumptions:

• that there is limitless groundwater;

• that the environmental debts (includingvanishing wetlands and polluted rivers andaquifers) do not seriously constrain humanactivity; and

• that the financial liabilities inherent in thesesystems can continue growing indefinitely.

In already-large and rapidly-growing segmentsof the economy and in many of the most productiveregions of the Indian economy, this self- provisionmodel is no longer sustainable. The NationalCommission on Water of 1999 has shown thatoverall water balances are precarious, that crisissituations already exist in a number of basins, andthat by 2050 demands will exceed all availablesources of supply. Already about 15 percent of allaquifers are in critical condition, a number whichwill grow to 60 percent in the next 25 years unlessthere is change. About 15 percent of India’s food isbeing produced using non-renewable, ‘mined’,groundwater. Since aquifer depletion isconcentrated in many of the most populated andeconomically productive areas, the potential socialand economic consequences of ‘continued muddlingthrough’ are huge.

At the same time,Indian society ischanging in manyprofound ways. In-dustries and cities(which both require water and produce wastes) aregrowing rapidly. Rural life is changing, with morethan half of the people in rural Punjab and Haryanano longer engaged in agriculture. And agricultureitself is evolving. In a growing number of areas,high-value crops are now displacing low-valuefoodgrains, farmers are investing heavily in dripirrigation, and there are even travel agencies spe-cializing in ‘agro-tourism’, so that farmers can seehow their contemporaries manage with less waterin Israel and other places. As incomes rise—100,000people are joining the middle class every day!—

Complacency—‘we canmuddle through’—is adangerous illusion, inlight of scarcity,groundwater depletion,and environmentaldegradation

Changes in demandsand in climate require aflexible and adaptivewater sector

Executive Summary

xix

people are becoming more concerned with envi-ronmental quality. The net effect is that the de-mands for and on water resources are changingsubstantially, with the effects especially acute inthe high-growth regions, most of which are water-scarce.

Confronted with this reality of limited supplies,and growing and changing demands, the need isobviously for a management framework whichstimulates efficiency and which facilitates volun-tary transfer of water as societal needs change.The traditional command-and-control and con-struction instruments of the Union and State waterbureaucracies address neither of these imperatives.The economic and social costs of rigidity arelarge—a World Bank study of Tamil Nadu, forexample, shows that if a flexible water allocationsystem was adopted, the State economy in 2020would be 20 percent larger than under the current,rigid, allocation procedures. A central element ofa new approach must be that users have well-defined entitlements to water. The broader mes-sages are that the economic ideas of the 1991 eco-nomic reforms must be drilled down from theregulatory and financial sectors into the real sec-tors (including the water sector) if India is to havesustainable economic growth, and that the role ofthe Indian water state must change from that ofbuilder and controller to creator of an enablingenvironment, and facilitator of the actions of waterusers, large and small.

An important manifestation of the break-downon the current systemis the growing inci-dence and severity ofwater conflicts—be-

tween states, between cities and farmers, betweenindustry and villagers, between farmers and theenvironment, and within irrigated areas. The statehas generally responded by proposing new supplyschemes (a new dam, a desalination plant, or a

rainwater harvesting scheme) which will ‘solvethe supply problem’. What is becoming increas-ingly apparent is that in the growing number ofareas where water is already scarce, it is a zerosum game. These schemes increasingly solve oneperson’s problem at the expense of someone ‘down-stream’. On the more thorny issues where tradeoffscannot be avoided, the usual response of the statewater apparatus has been to hope it rains and,failing that play for time. (‘Passing it to the Su-preme Court’ has become a standard modus oper-andi for water matters, where the administrationcannot muster the necessary imagination or politi-cal will to act.) Where inter-state Tribunal awardshave been made, they have not helped much. Theyhave taken years to complete, have not followedglobal good practice, and have stimulated statesto focus their attention on ‘getting more water nexttime’, rather than on effective use of what theyhave. The results have been serious economic andfiscal damage. (For example, 18 percent ofMaharashtra’s fiscal deficit is to pay for the con-struction of dams whose primary purpose is to layclaims for water from the Krishna in the next Tri-bunal Award.) In addition, there are no effectivemechanisms for enforcing awards or preventingunilateral action or even exit by dissatisfied states.The lack of modern, fair, and enforceable inter-state water compacts has also stymied sensibleinter-state ‘win-win’ water cooperation.

As in all other federal countries, these issues arecomplex and political. India has some good mod-els for proceeding—in its own treaties withPakistan on the Indus and Bangladesh on the Ganga;and in the experience of other arid federal coun-tries. Dealing with these issues is the single mostimportant task facing the Union Ministry of WaterResources. Recent statements by national politicalleaders show growing awareness of the problem.The Finance Minister has warned about ‘a grow-ing set of little civil wars over water’, and theMinister of Water Resources notes wryly that he isreally ‘the Minister of Water Conflicts’.

Water conflicts arebecoming endemic atall levels

Executive Summary

xx

India needs a re-invigorated set of public waterinstitutions, which are built on the following im-peratives:

• focusing on developing a set of instruments(including water en-titlements, contractsbetween providersand users, and pric-

ing) and incentives which govern the use ofwater;

• stimulating competition in and for the mar-ket for irrigation, water, and sanitation ser-vices;

• empowering users by giving them clear, en-forceable water entitlements;

• ending the culture of secrecy and makingtransparency the rule;

• introducing incentive-based, participatoryregulation of services and water resources;

• putting the sector on a sound financial foot-ing;

• investing heavily in the development of anew generation of multi-disciplinary waterresource professionals;

• making the environment a high priority;

• making local people the first beneficiariesof major water projects.

India is rapidly approaching the end of an erain which society could ‘get by’ despite the fact thatgovernment (a) has performed poorly where it hasengaged (in service delivery), and (b) has aban-doned major areas where government engagementis critical (such as groundwater management, con-flict resolution, establishing and managing waterentitlements, and the financing of public goodssuch as flood control and wastewater treatment).

There are two main corollaries to this diagno-sis. First, that a major push is needed—by govern-ment and by users working together—to bringabstractions from groundwater in line with re-charge. While traditional technologies such asrainwater harvesting and tanks can play an impor-tant local role, they also create new and addi-tional demands which often clash with existinguses, and they sustain the wishful thinking thatsupply-side options (both large and small scale)are what will ‘solve the problem’. The simple factis that in many parts of India demand will have tobe brought down to match sustainable supply.Global experience shows that this difficult andessential task will require a partnership betweenusers and government—to form empowered aqui-fer user associations; to formalize water entitle-ments which are consistent with the sustainableyield of the aquifer; to develop transparent infor-mation and decision support systems. So far theapproach of the water apparatus has been to pro-mulgate laws and policies, most of which are notimplemented. Here an approach which begins withacknowledgement of and respect for the privateinterests of individual farmers will be far moresuccessful than approaches which resort to com-mand and control, or ones which are based on acommunitarian ideal. The longer this adjustmenttakes place, the more costly and difficult itbecomes.

Second, the end of the era of massive expansionin groundwater use is going to demand greaterreliance on surface water supply systems. This isgoing to require recuperation of the large stock ofdilapidated infrastructure and large-scale invest-ment in public infrastructure of all scales (for pro-vision and distribution of surface water supplies,but also for treatment of wastewater). And it isgoing to require a dramatic transformation in theway in which public water services are provided tofarmers, households, and industries, in which thewatchwords are water entitlement, financial

Towards a ‘new waterstate’ at the Union andState levels

Executive Summary

xxi

sustainability, accountability, competition, regu-lation, and entry of alternatives to governmentprovision, including cooperatives and the privatesector.

India faces this challenge with many assets andsome liabilities. The assets include citizens, com-munities, and a private sector who have shownimmense ingenuity and creativity, attributes whichare critical for the new era of water management.The major liability is a public water sector whichrests on the laurels of an admirable past, but is notequipped to deal with the central tasks which onlythe government can—developing an enabling le-gal and regulatory framework; putting into placeentitlement and pricing practices which will pro-vide incentives for efficient, sustainable, and flex-ible use of water; forming partnerships withcommunities for participatory management of riv-ers and aquifers; providing transparent informa-

tion for use in managing and monitoring the re-source and services; stimulating competitionamong providers through benchmarking and theentry of private sector and cooperative providers;regulating both the resource and services; and fi-nancing true public goods, such as flood controland wastewater treatment. Figure 2 provides aschematic sense of the necessary ‘next stage’ in theevolution of water management in India.

In the eyes ofmany—inc lud ingseveral of the veryexperienced Indianswho wrote background papers for this report—theidea of such a modern, accountable ‘Indian watersystem’ is a fantasy, given the dismal performanceof the Indian state on water matters in recent de-cades and the broader challenges of governance.Others point to ‘the hollowing out of the Indian

Starting to move fromhere to there—the politi-cal economy of reform

1850 1970 2005 2025

The State

Citizens

Int

ensi

ty o

fin

volv

emen

t

Figure 2: The evolving role of the citizen and the state in water management in India

Some state works, butmost citizens survivedalong rivers, by localrainwater harvestingand from rainfed agri-culture

The era of massivestate irrigationworks, with a de-cline in traditionalwater managementby citizens

Declining publicfunding, and massiveindividual invest-ments in tubewells

An era in which thestate needs to play amajor role in surfacewater provision and inthe regulation ofgroundwater

Executive Summary

xxii

state ... the growing middle-class exit from publicservices ... and the inability to grapple with themany long-term challenges facing the country’.2

The glass is, of course, always half empty. But itis half full too. There are some important signsthat the need for change is being understood, thereare political leaders who are starting to grapplewith these realities, and there are a few states whichare taking the important first steps down this longand winding road.

India is fortunate, too, in that it is not the firstcountry in the world to face this (daunting) set ofchallenges. The experiences of other countriessuggest that there are a set of ‘rules for reformers’in undertaking such a transition. These rulesinclude:

• Initiate reform where there is a powerfulneed and demonstrated demand for change.

• Involve those affected, and address theirconcerns with effective, understandable in-formation.

• If everything is a priority, nothing is a pri-ority—develop a prioritized, sequenced listof reforms.

• Pick the low-hanging fruit first—nothingsucceeds like success.

• Keep your eye on the ball—don’t let the bestbecome the enemy of the good.

• Be aware that there are no silver bullets.

• Don’t throw the baby out with the bathwater.

• Treat reform as a dialectic, not mechanical,process.

• Understand that all water is local and eachplace is different—one size will not fit all.

• Be patient, persistent, and pragmatic.

• Ensure that reforms provide returns to poli-ticians who are willing to make changes.

In a nationalworkshop to discussthis Report, the Min-istry of Finance de-scribed what the Government of India expects ofthe World Bank in the water sector. The WorldBank is expected to finance projects which couplehigh-return investment with reform processes, andwhich bring knowledge about international goodpractice to bear on the water challenges facingIndia. With this guidance, what is it that the WorldBank can do to be a better partner to India onwater?

The India Country Assistance Strategy of 2004outlines the broad features of Bank involvementwith India over the next 4 years. This includes:

• lending, which will simultaneously addressinvestments, reforms, and knowledge,transfer;

• a large increase—see Figure 3—in lendingfor water-related sectors (including water re-sources management, irrigation, hydro-power, and water supply and sanitation), withaggregate lending for these sectors set to risefrom $200 million to $800 million a year;

• a willingness to consider financing high-return infrastructure that can be built to rea-sonable social and environmental standards;

• clear ‘guidelines’ for engagement with eachwater-related sector.

The CAS is a living document, with elabora-tions and adjustments emerging as needs and

How the World Bankmight be a more effectivedevelopment partner

2 Devesh Kapur, ‘India’s Promise?’, Harvard, July–August 2005.

Executive Summary

xxiii

bal best practice content of Bank-financed activi-ties. This will mean greater emphasis on ‘instru-ments’ that stimulate efficiency, accountability,and flexibility (such as water entitlements, infor-mation, regulation, competition, and pricing). Itwill also mean greater attention to the ‘hiddengroundwater economy’. It will mean more atten-tion on building capacity in the public sector. Itwill mean being ‘principled and pragmatic’, fol-lowing the ‘rules for reformers’ outlined earlier.

In its internal workings, the Bank will also givemore explicit attention to ensuring better cross-sectoral collaboration within the Bank on waterresources and to better integration of the Bank’slending and knowledge services—so that there ismore explicit learning from projects, and thatanalytic work feeds back into the design of Bank-financed projects. And the Bank will recruit staffand consultants who have hands-on knowledge intranslating reform principles into results on theground.

3500

3000

2500

2000

1500

1000

500

0

Irrigation Urban RuralHydro Water Resources

Figure 3: The changing compositionand level of World Bank lending

for water in India

1993–98 1999–2004 2005–08

perceptions evolve. Consistent with the guidancefrom the Ministry of Finance, the Bank will focusmore sharply on the institutional reform and glo-

Executive Summary

India has a highly seasonal pattern of rainfall,with 50 percent of precipitation falling in just 15days and over 90 percent of river flows occurringin just four months. Throughout history, peoplehave adapted to this variability by either livingalong river banks or by careful husbanding andmanagement of water. Thousands of minor irriga-tion tanks were constructed in the 5th century AD

by the Cheras, Cholas, and Pandyans.1 Most ofthis management was at the community level,relying on a plethora of imaginative and then-effective methods for harvesting rainwater in tanksand small underground storages. But even in an-cient times, India had constructed some major waterinfrastructure. Small storage reservoirs were con-structed before the Mauryan era around 300 BC2

and the Grand Anicut across the Cauvery Riverwas built in the 2nd century AD. The WesternYamuna Canal was built in the 14th century AD.3

During the Mughal era (16th through 19th centu-ries) large-scale, run-of-the-river schemes andinundation canals were constructed.

The Era of Large Investments inMajor Infrastructure

With British rule came the systematic and large-scale development of water infrastructure in India.

As analyzed in Deepak Lal’s economic history ofIndia,4 the British understood that the marginalreturns to water development were higher in re-gions of relatively low rainfall than in the higherrainfall areas, and thus emphasized hydraulic workswhich would ‘make the deserts bloom’.5 The re-sults were spectacular. The Godavari Barrage, builtin the mid-19th century, transformed the famine-wracked districts of the Godavari Delta into agranary (and the builder of the Barrage, Sir ArthurCotton, into a saint whose image is reveredthroughout coastal Andhra Pradesh—Figure 1.1).And the Periyar Dam, a major turn-of-the-centuryinter-basin transfer scheme which sustains agricul-tural productivity in the Vaigai Basin in TamilNadu to this day, brought similar fame to anotherBritish engineer, the equally-evocatively namedColonel John Pennyquick (Figure 1.1, too.) ‘In re-cent years, portraits and statues featuringPennyquick’s ramrod posture … have rapidlyproliferated throughout the region, lending a rathersurprising tint to a Tamil monumental landscapepeopled otherwise by film stars and political lead-ers … Pennyquick (is venerated) as the very sym-bol of attentive and effective government’.6

After Independence, the Government of Indiagave high priority to the construction of major

CHAPTER 1THE HUGE ACHIEVEMENTS OF WATER DEVELOPMENTAND MANAGEMENT IN INDIA

1 A.D. Mohile, ‘The evolution of national policies and programs’, Background Paper for this Report, 2005.2 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,

Background Paper for this Report, 2005.3 A.D. Mohile, ‘The evolution of national policies and programs’, Background Paper for this Report, 2005.4 Deepak Lal, Cultural Stability and Economic Stagnation: India 1500 BC – 1980 AD.5 In the evocative phrase of Arthur Maass and Raymond L. Anderson, And the Desert Shall Rejoice: Conflict,

Growth, and Justice in Arid Environments, MIT Press, 1978.6 Anand Pandian, ‘An ode to an engineer’, in The Penguin Book of Water Writings, ed. Amita Baviskar, Penguin

India, 2003.

India’s Water Economy

2

water infrastructure. Today, India has a capacityto store about 200 billion cubic meters of water, agross irrigated area of about 90 million hectares,and an installed hydropower capacity of about30,000 megawatts (MW).7

These investments transformed the economicand social development of India (as docu-mented in detail in the background paperson ‘Water and Growth’ by Ramesh Bhatia,and ‘Water and Poverty Reduction’ by R.P.S.Malik). Most obviously and directly, as-sured supplies of water meant that cropyields on irrigated land were consistentlymuch higher than yields from rainfed agri-culture (Figure 1.2), providing the basis forthe achievement of national food securityand associated affordability of food. Manyof the large dams also provided the under-pinnings for Indian industrial growth andgroundwater irrigation, with hydropoweraccounting for over half of India’s installedgeneration capacity in the 1960s.

Important as these direct effects are, theytell only part of the story of the impact ofmajor infrastructure. The irrigation and

hydropower are the ‘direct benefits’, which in turngenerate both inter-industry linkage impacts, andconsumption-induced impacts on the regional andnational economy. Water released from amultipurpose dam provides irrigation that resultsin the increased output of agricultural commodities.Changes in the output of these commodities requireinputs from other sectors such as seeds, fertilizers,pumpsets, diesel engines, electric motors, tractors,fuels, and electricity. Furthermore, increased outputof some agricultural commodities encouragessetting up of food processing (sugar factories, oilmills, rice mills, bakeries, etc.) and other industrialunits. Similarly, hydropower produced from amultipurpose dam provides electricity forhouseholds in urban and rural areas and forincreased output of industrial products (includingfertilizers, chemicals, and machinery). Changes inthe output of these industrial commodities requireinputs from other sectors such as steel, energy, andchemicals. Thus, both increased output of electricity

Figure 1.1: British water engineers whoare revered as saints in southern India

Statue of Sir ArthurCotton in the GodavariDelta, Andhra Pradesh

Statue of Col. JohnPennyquick inMadurai, TamilNadu

7 A.D. Mohile, ‘The evolution of national policies and programs’, Background Paper for this Report, 2005.

Figure 1.2: Output on irrigated andunirrigated farmland

Irrigated Unirrigated

8000

7000

6000

5000

4000

3000

2000

1000

A

ndhr

a Pr

ades

h

B

ihar

G

ujar

at

Har

yana

Kar

nata

ka

M

ahar

asht

ra

M

adhy

a Pr

ades

h

O

riss

a

Pu

njab

R

ajas

than

Tam

il N

adu

U

ttar

Pra

desh

Source: Bhatia, 2005.

Rup

ees

per

hect

are

3

The Huge Achievements of Water Development and Management in India

and irrigation from a dam result in significantbackward linkages (i.e. demand for higher inputsupplies) and forward linkages (i.e. providing inputsfor further processing). In addition, as incomesrise, there is a further feedback loop deriving fromincreased demands for goods and services.

There have been two major studies in Indiawhich have examined these indirect impacts. Astudy by the International Food Policy ResearchInstitute of the impact of the Green Revolution inthe North Arcot region of Tamil Nadu8 showedthat:

• the multiplier was large—each rupee in-crease in value added in agriculture stimu-lated an additional rupee of value added inthe region’s non-farm economy;

• about half of the indirect income gain wasdue to agriculture’s demands for inputs andmarketing and processing services, and therest due to increased consumer demands asa consequence of higher incomes;

• the multipliers for basic productive infra-structure were much higher than for socialspending and other sectors.

A recent, major study9 by Ramesh Bhatia andRavinder Malik has used an input-output modelcombined with a social accounting matrix forPunjab to make a similar assessment of the impactof the Bhakra Dam, which was conceived of as acornerstone of the development of Northwest In-dia and which irrigates 7 million hectares andprovides 2800 MW of hydropower. The study foundthat the direct benefits were higher than antici-pated when the dam was built and that the dam

did, indeed, serve to transform this region. Forevery 100 rupees of direct benefits, Bhakra gener-ated 90 rupees of indirect benefits for the regionaleconomy and ripples well beyond the region.

Several important studies have examined thedeeper, transforming role of the provision of waterinfrastructure in India. In a classic study in the1970s, the eminent economist K.N. Raj examinedthe interaction of ‘infrastructural’, ‘human’, and‘financial’ capital, by comparing the fate of Punjabiand Gurkha military retirees. Both groups hadsimilar ‘human’ and ‘financial’ capital, but re-turned to radically different settings in terms of‘infrastructural capital’. Whereas the Gurkha vet-erans invested in jewelry (with little effect on theirsociety), the Punjabis invested in pumps and seeds,which provided the fuel for rapid economic growth.

More recently, Pritchett10 has examined the cir-cumstances under which investments in educationprovide economic returns. In India, the results werestriking—in districts where there was agriculturaltransformation (viz. irrigated districts) the returnsto five years of education were 32 percent, whereasin unirrigated rural districts there were no eco-nomic returns to primary education.

How then, do such investments stack up in anew era, in which attention to poverty reduction ismuch more overt and explicit? As noted by in thebackground paper by Malik,11 ‘such investmentshave generally been justified for realizing broad-based growth, for increasing agricultural produc-tion and achieving food security, for increasedhydropower generation, for making drinking wa-ter available to rural and urban areas … not aspoverty-reducing strategies per se .…’ Such invest-

8 Peter Hazell and C. Ramasamy, The Green Revolution Reconsidered: The Impact of High Yielding Varieties inSouth India, Baltimore, Md.: The John Hopkins University Press, 1991.

9 Ramesh Bhatia and R.P.S. Malik, ‘Indirect Economic Impacts of Bhakra Dam’ in Ramesh Bhatia, MonicaScatasta, Rita Cestti, and R.P.S. Malik, Indirect Economic Impacts of Dams, (2 vols.), The World Bank,Washington DC (forthcoming 2006).

10 Lant Pritchett, ‘Where has all the education gone’, World Bank Economic Review, vol. 15, no. 3, pp. 367–91.


4

ments in major water infrastructure havebeen criticized (including, by the Opera-tions Evaluation Department of the WorldBank12) on equity considerations: ‘the ben-efits of development are reaped by rela-tively better-off landowning householdsand non-land-holding and poor householdsare left out’. Fortunately, there is a largeliterature in India on the distributionalaspects of such projects, a literature whichreveals a quite different reality.

The first important fact is that (as shownin Figure 1.3) irrigation in India is notdominated by ‘big landlords’.

More importantly, the central factor isnot who gets the water, but how that watertransforms the demand for inputs, moststrikingly labor (which is provided primarily bythe landless and marginal farmers). The funda-mental driver is that the demand for agriculturallabor is 50 percent to 100 percent higher on irri-gated land.13 As Robert Chambers14 has shownthrough village-level work (Figure 1.4), irrigation

11 R.P.S. Malik, ‘Water and poverty’, Background Paper for this Report, 2005.12 J. Peliekaan, ‘India: Evaluating Bank Assistance for Poverty Reduction’, The World Bank Operations Evaluation

Department, Washington DC, 2002.13 Ramesh Bhatia, ‘Water and Growth’, Background Paper for this Report, 2005.

has meant higher and much more stable employ-ment, with the poor as the major beneficiaries.

There have also been numerous analyses at theproject level, showing similar results. Figure 1.5,

for example, compares the actual situationof farmers and agricultural laborers withinthe massive Nagarjunasagar Project on theKrishna River with that of similar groupswho did not get water from the scheme. Itshows that ‘the poor’—small and marginalfarmers and agricultural laborers—benefitedproportionately about as much as did largefarmers.

Two recent, much more sophisticatedanalyses (which used input-output matricesand Social Accounting Matrix methods) haveshown similar results. The study (Figure 1.6),

Figure 1.4: Average number of days of employmentfor adult casual laborers each month

Source: Chambers, 1988.

Figure 1.3: Percentage of irrigated areaby farm size

40

30

20

10

0

Canals Tanks Tubewells

Large Medium Semi- Small Marginal medium

% o

f ar

ea

Source: Malik, 2005.

5


by the International Food Policy Research Instituteof the impact of the Green Revolution in the NorthArcot region of Tamil Nadu,15 showed that thebiggest winners were the landless whose incomesincreased by 125 percent as a result of the largeincrease in demand for their labor.

The major study (Figure 1.7) by Bhatia andcolleagues of the effect of Bhakra,16 again showsthat the rural poor have benefited hugely from theproject. (And this analysis, being confined to theregional economy, does not include the benefits forthe very poor million seasonal migrants from Bihar,or the urban poor who benefited from lower foodprices.) Figure 1.8, from the same study, showsthat it was the indirect effects which had the major

impact on urban areas (and therefore onurban poverty reduction).

Finally, all these effects show up stronglyat the national level. Figure 1.917 shows theresults of an analysis of the associationbetween poverty and levels of irrigation in54 national sample survey regions. In irri-gated districts, the prevalence of poverty isabout one-third of that in unirrigated ruraldistricts.

Similarly, the relationship between elec-tricity availability (much of which came

80

70

60

50

40

30

20

10

0

% i

ncre

ase

in i

ncom

e du

e to

irr

igat

ion

Large Medium Small Marginal Agrfarmers farmers farmers farmers Laborers

Figure 1.5: The effect of Nagarjunasagarirrigation on per capita income


Figure 1.7: The effect of Bhakra Damon different social groups

80

60

40

20

0Land- Agr Rural Rural Urbanowner Labor Non-Agr others

% change of income of different types of householdswith and without Bhakra Dam


14 Robert Chambers, Managing Canal Irrigation, New Delhi, 1998.15 Peter Hazell and C. Ramasamy, The Green Revolution Reconsidered: The Impact of High Yielding Varieties in

South India, Baltimore, Md.: The John Hopkins University Press, 1991.16 Ramesh Bhatia and R.P.S. Malik, ‘Indirect Economic Impacts of Bhakra Dam’ in Ramesh Bhatia, Monica

Scatasta, Rita Cestti, and R.P.S. Malik, Indirect Economic Impacts of Dams, (2 vols.), The World Bank,Washington DC (forthcoming 2006).

150

100

50

0

%

inc

reas

e 19

73–8

3

Large farmers Small farmers Non-irriga- Landless Non-agwith irrigation with irrigation ting farmers households

Figure 1.6: The effect of irrigation and GreenRevolution on income in Tamil Nadu

Source: Hazell et al, 1991.


6

from hydropower) and poverty is strong(Figure 1.10).

Overall global analyses show a very close rela-tionship between economic growth and povertyreduction (Figure 1.11). In the case of India, growthdid not generate more inequality.18 And it is abun-dantly clear that major water infrastructure, de-

signed to provide a platform for regional and na-tional economic growth, has been an importantplatform for the remarkable reduction in povertyin India (Figure 1.12).

So, at the end of the day, it is less material (a)whether such projects are justified in terms ofpoverty reduction, or (b) whether the primary re-cipients of the ‘first-round benefits’ are those with

100%

80%

60%

40%

20%

0%

Direct Impacts Indirect Impacts

Self Agr Labor- Non Agr- Others- UrbanEmployed- Rural Rural RuralRural


Figure 1.8: Income gains from directly andindirectly impacted sectors—Bhakra Dam

70

60

50

40

30

20

10

0

% o

f pop

ulat

ion

belo

w p

over

ty li

ne

<10% 10% to 20% to 30% to >50% 20% 30% 50%% of cropped area which is irrigated

Figure 1.9: How irrigation reducespoverty in India

Source: Rao 1988, in World Bank 1991.

17 World Bank, Indian Irrigation Sector Review, 1991.18 Francois Bourgignon, Chief Economist of the World Bank, ‘High growth has not generated more inequality, says

Figure 1.11: Economic growth and povertyreduction—the global relationship

Source: Dollar and de Kraay, World Bank 2002.

Log

(pe

r ca

pita

inc

ome

in %

out

line

)

Growth Rate Log(per capita income)

y = 1.0734 × 1.7687R2 = 0.8846

Figure 1.10: Electrification and ruralpoverty by state


7


land. Because the record is overwhelmingly clear—investments in water infrastructure in India haveresulted in massive reduction in poverty, and it isactually the poor and landless who have been thebiggest beneficiaries—the appropriate metaphoris not ‘trickle down’ but ‘a rising tide lifts (almost)all boats’.

The Era of Groundwater Exploitation

The 1960s was a turning point in India’s agricul-tural development. The Green Revolution providedgreat benefits to those who could adopt new seedsand fertilizers—for which water control was anessential pre-condition.

Large investments in surface water projects wereundertaken to provide assured water supply to alarger number of farmers. Starting in the 1960s,however, a couple of critical changes took place.First, electricity supply expanded in rural areas(itself often linked to water, since hydropowerprovided over 50 percent of installed capacity untilthe mid-1960s). Second, in areas wherewaterlogging and salinity were growing problems(such as parts of Punjab), it was realized thatencouragement of groundwater pumping providedan effective mechanism for lowering the

groundwater table and reducing the severity ofwaterlogging and salinity. Third, modest newmodular well and pump technologies becamewidely available, as did subsidized credit. Fourth,farmers realized that groundwater was abundant,especially in the large alluvial basins. Fifth, farmersrealized they could apply water ‘just in time’ fromgroundwater sources, something which was notpossible in the institutionally-complex andincreasingly corruption-ridden canal systems.

The result was an extraordinary ‘quiet revolu-tion’, in which, beginning around 1960, ground-water irrigation developed at an explosive rate (asshown in Figure 1.13), while tank irrigation al-most disappeared and surface water irrigation grewmuch more slowly.

Over time, two other pressures developed.Irrigators who used tubewells argued that theywere disadvantaged relative to those who receivedvirtually free canal water. In Uttar Pradesh, forexample (where electricity charges are relativelyhigh, as shown in Figure 1.14), irrigating a hectareof wheat during the rabi season would cost aboutRs 2,800 from groundwater, whereas farmers payonly about Rs 70 per hectare—about 2 percent ofthe cost of pumping for canal irrigation.19 Politiciansresponded, and soon there was a widespread culture

Figure 1.13: The evolution of forms of irrigation in India, 1950–2000


WB’, Financial Express, January 2004.

60

40

20

0% o

f po

pula

tion

bel

owpo

vert

y li

ne

Rural Urban Combined

1973–74 1993–94 1999–2000

Figure 1.12: The decline in poverty inIndia , 1973–2000



8

of ‘free or nearly free’ electricity for irrigators (seeFigure 1.14).

Simultaneously, the reliability of canal watersupplies deteriorated, as systems were not main-tained and as corruption became more widespreadand the historic allocation systems such as‘warabandi’ and ‘shejpali’ no longer functioned aseffectively. This, too, motivated farmers to turn togroundwater. In large areas, a primary function ofsurface water systems evolved into ‘involuntary’recharge of groundwater. In East and West Punjabit is estimated that 50 percent and 80 percent,respectively, of groundwater is recycled canal water.

Over the last two decades, 84 percent of thetotal addition to net irrigated area came fromgroundwater, and only 16 percent from canals.Thus, as shown in Figure 1.13, at present the netarea irrigated by private tubewells is about double

19 Ramesh Bhatia, ‘Water and energy’, Background Paper for this Report, 2005.

Source: Tyagi data—GIS work, courtesy of IWMI.

> 10%

10–30%30–50%> 50%

Figure 1.14: Electricity tariffs and generation costin different states

0 50 100 150 200 250 300 350 400 Paise per kwh

UP

West Bengal

Maharashtra

Gujarat

All India

Karnataka

Bihar

MP

Tamil Nadu

Punjab

Tariff Cost


the area irrigated by canals.

The fact is that groundwater now pro-vides for about 70 percent of the irrigatedarea, and about 80 percent of domestic water.As emphasized in the background paper byTushaar Shah,20 ‘we need to recognize thatself-provision of water is the best indicatorof the failure of public water supply sys-tems. Tubewells proliferate in canal com-mands because public irrigation managersare unable to deliver irrigation on demand.Urban households want their own boreholesbecause municipal service is inadequate andunreliable’. Figure 1.15 shows the propor-tion of groundwater potential which is de-veloped in each of the major river basins ofIndia.

As discussed elsewhere in this report, thepoor quality of public infrastructure is a

pervasive problem in India. Studies throughout

Figure 1.15: Level of groundwaterdevelopment by basin

9


the world21 have shown that where industries haveto self-provide, costs of production go up sharply,competitiveness is reduced, and economic growthis dampened. The self-provision of water suppliesis just one manifestation of a far broader break-down of public infrastructure in India. A recent22

survey shows that 60 percent of Indian manufac-turing entities have captive power generatingunits—a figure which is just 16 percent for China,17 percent for Brazil, and 42 percent for Pakistan.

This groundwater revolution brought immensebenefits to India, playing a major role in the‘irrigation/rural development/poverty reduction’achievements. That said, it is increasingly clearthat the groundwater revolution has run its course

in the most productive agricultural and urban areasof the economy. There are, more specifically, twomajor sustainability challenges.

First is the contentious issue of the energy sub-sidies, and their inexorable increase (as the amountof electricity used in agriculture grew, as shown inFigure 1.16) to farmers for groundwater irriga-tion. Estimation of the real economic value of thesesubsidies is a cottage industry. Some see it as thefundamental problem facing the electricity sector.According to the Planning Commission,23 whilethe agriculture sector accounts for nearly one-thirdof the sales of the State Electricity Boards, therevenues from farmers account for only 3 percentof the total revenue. Others (as described in the

20 Tushaar Shah, ‘Accountable institutions’, Background Paper for this Report, 2005.21 Kyu Sik Lee, ‘Costs of infrastructure deficiencies in manufacturing in Indonesia, Nigeria and Thailand’, Policy

Research Working Paper WPS1604, The World Bank, 1996.22 Omkar Goswami, ‘The urgent need for infrastructure’, The Economic Times, Delhi, 25 April 2005.

Source: A.C. Tyagi, ‘State of India’s Water’, www.thirdworldwatercentre.org.

Figure 1.16: Increase in electricity consumption for agriculture

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23 Ramesh Bhatia, ‘Water and energy’, Background Paper for this Report, 2005.24 ibid.25 ibid.26 ibid.

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Figure 1.17: Electricity subsidy to agricultureas percentage of gross fiscal deficit , 2000–01

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

background paper by Bhatia24) have a differentview, pointing out that simplistic estimates vastlyoverestimate the value of electricity subsidies toagriculture. This is so because first, the largetransmission and distribution losses (colloqui-ally known as ‘theft and dacoity’) are routinelycounted as free supplies to farmers. And second,because the supplies to farmers are, in fact, offpeak and highly unreliable and thus do not costthe electricity system anything like the marginalor average cost of supply. The estimates of thetotal annual cost to the economy of subsidizedpower to farmers vary by a factor of 4. TheWorld Bank estimates that subsidies to farmersaccount for about 10 percent of the total cost ofsupply, or about Rs 240 billion a year.25 This isequivalent to about 25 percent of India’s fiscaldeficit and two and a half times the annual ex-penditure on canal irrigation,26 with large im-pacts on fiscal deficits at the state level, as shownin Figure 1.17.

And, it is clear that things are getting worse, notbetter, in most states, in part driven by the deeperand deeper depths from which farmers have topump water. In Gujarat, for example (as shown inFigure 1.18), electricity subsidies now dwarfother forms of farm input subsidies, and areequivalent to 20 percent of state agriculturaldomestic product.27

Second is the sustainability of the resource it-self. Average figures of water availability showthat the annual replenishable groundwater re-sources of India amount to about 430 billioncubic meters (bcm), and that net withdrawalsamount to about 160 bcm per year. There would,therefore, appear to be little problem ‘on aver-age’. But in fact, all water issues are local is-sues, and averages flatter to deceive. At local

levels many of the most highly productive locali-ties are already under severe groundwater stress.For example, in Punjab groundwater in about 60percent of blocks is either already being, or verynear to being, overdrawn, while for Haryana andTamil Nadu the figure is already around 40 per-

Figure 1.18: Farm input subsidies in Gujarat

11


cent. Figure 1.1928 gives a sense of how grave thesituation is for the state of Tamil Nadu. InRajasthan, the proportion of over-exploited blockshas risen from 17 percent to 60 percent over thelast seven years. For the country as a whole, about14 percent of all blocks are either over-exploited

Figure 1.19: The precarious state ofgroundwater in Tamil Nadu

Source: Mitra, 2005.

37

10

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26

or critical, a number which is expected to reach 60percent in just 25 years time (Sekhar, backgrounddocument).

Bad as each of these situations—electricity sub-sidies, and plummeting groundwater tables—are,the combination is lethal. Sooner or later, abstrac-tions are going to have to come into balance withthe sustainable yield of an aquifer. If this happenswhen the groundwater table is, say, at 5 meters,then use of the sustainable yield of the aquifercould proceed with modest pumping costs. If, how-ever, abstractions come into balance with sustain-able yield and the depth is, say, 150 meters, thenthis makes irrigation impossible without large andpermanent energy subsidies.

This is a grave situation, the implications ofwhich form the heart of the water challenges fac-ing India in coming decades and which frames thecentral themes of this report.

27 Gujarat, Agricultural Development for Growth and Poverty Reduction, World Bank, 2005 (draft).28 Smita Misra, ‘Groundwater Challenges for Rural Water Supply in Tamil Nadu’, powerpoint presentation to

South Asia Water Day, World Bank, February 2005.


12

Implicit in the discussion in the previous chapterwas the notion that the emerging water challengeswhich India has to face are quite different fromthose which it has faced in the past. In the wordsof the Planning Commission (Sekhar, backgroundpaper): ‘Policies and practices have to come togrips with this basic fact—to face the future andnot the past’. In exploring what some of thesechallenges might be, it is useful to consider theexperience of water transitions in other countries.As part of a similar exercise which was done re-cently with the Government of China, Figure 2.1is instructive. It suggests that the focus on the pro-vision of infrastructure has to, in various ways indifferent parts of India, be supplemented by moreeffective management of that infrastructure and ofthe underlying water resource base.

CHAPTER 2CURRENT AND LOOMING CHALLENGES

Adjusting to the Needs of aChanging Society

It is broadly recognized that India is currently inthe early stages of a profound demographic, so-cial, and economic transition. The proportion ofthe population which is urban has doubled overthe last 30 years (and is now about 30 percent);agriculture now accounts for only about 25 per-cent of GDP; and the economy has been growingat around 7 percent a year.

Life in rural areas is already in the process oflarge-scale change, particularly in the higher-productivity areas. In parts of Maharashtra, forexample, the transition to high-value agricultureis already underway for some time, with majorimplications for the use of technology, includingwater technology. Where a decade ago there wasjust one lonely company providing drip irrigationtechno-logy, the market is expanding very fast,with half a dozen such suppliers now inMaharashtra alone. While state extension servicesstagnate, the private sector is meeting the rapidly-growing demand: the original supplier of dripirrigation technology in the region is now a majorone-stop-shop for farmers, providing not onlyequipment but training on a large scale. And thereis now a travel agency in Pune which specializesin ‘agro-tourism’, organizing study tours for privatefarmers to go to Israel and other countries to learnabout the latest in ‘precision agriculture’.1

With these developments, a remarkable changeis coming in the way Indian agriculture is viewed.

Figure 2.1: Rates of return on investmenton infrastructure and management of

water resources

1 Pravan K. Varma, Being Indian, Penguin, 2004.

Source: World Bank, China Country Water ResourcesAssistance Strategy, 2002.

13

Current and Looming Challenges

Rather than being seen as a dead-end and povertytrap, new visions of Indian agriculture are emerg-ing. For example, one of India’s telecom moghuls2

has said: ‘to my mind, the next big wave—whichwill be bigger than telecoms or outsourcing—is inagriculture. India’s strength lies in its huge area ofarable land, with great weather conditions. Forthree, four, or five months Europe doesn’t grow afig—but we can grow anything. I want to connectIndia’s farms to the world.... I believe an Indianfarmer’s income can jump from Rs 5000 per acreto Rs 20,000 straight away, just by moving awayfrom rice and wheat ... tomatoes sell for just Rs 2a kilogram at the farm gate in India, and morethan 50 times that on the shelves of UK supermar-kets.’ These shifts from low-value to high-valueagriculture have profound implications for thedemand for labor and therefore for the wellbeingof the poor. Figure 2.2 shows the dramatic differ-ences in direct labor demand between staples andmany cash crops.

In many parts of the country (including theCommunist Party-ruled West Bengal3) ‘contractfarming’ is becoming increasingly important, andshows great promise (as it has in other countries4)as a mechanism for bringing unified packages oftechnology, services, and marketing, in makingthe transition to high-valued agriculture, and inlifting large numbers of people—both those whostay in agriculture and those who move into theassociated service sectors—out of poverty.

The Financial Times5 has captured the essenceof the changes underway in rural areas: more thana third of India’s rural households already derive

their income from manufacturing or services, notfrom farming; in the successful farming states ofPunjab and Haryana already over half of all ruralhouseholds have escaped agriculture altogether,and ‘the best way to escape poverty is to escapeagriculture’.6

These transformations are, of course, happen-ing organically on a massive scale—in comingyears close to 100,000 people a day will enter themiddle class.7 Many of these people will live inrevitalized rural areas, but many will inevitablylive in towns and cities.

These changes have profound implications forthe ways in which water needs to be allocated andused. It is essential that the availability of waterdoes not constrain the development of new types of

2 John Riding, ‘Heard it on the grapevine—Sunil Mittal made his billions by bringing phones to India. For hisnext project, the entrepreneur aims to connect his country’s food producers to the rest of the world’, FinancialTimes, 5 February 2005.

3 ‘Marx or McKinsey’, Indian Express, 18 April 2005.4 For example Brazil, as documented in World Bank Water Resources Sector Strategy 2003.5 Edward Luce, ‘Cure for India’s rural woes lies in ability to escape the farm: Old family plots are withering as a

new report highlights exodus to cities and to manufacturing jobs’, Financial Times, 7 December 2004.6 Ibid.7 Pravan K. Varma, Being Indian, Penguin, 2004.

Figure 2.2: Employment generationby crop


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14

economic activity in new places. And here there isa serious mismatch between the water ideology ofthe past in India—one that operates on a paternalsystem of command-and-control, with little trans-parency and little accountability—and the require-ments of the present and future. As summarized byV.S. Vyas (background paper): ‘With increase inpopulation and changes in lifestyle, the gap be-tween water demand and supply is getting aggra-vated, leading to disputes among various users’.

As a part of this report, the World Bank, work-ing with a group of eminent Indian scholars, un-dertook a major analytic study to examine theeconomic impact of flexible rather than rigid wa-ter allocation practices in Tamil Nadu8 where thereis already strong evidence of the effect of water

8 Ramesh Bhatia, John Briscoe, Ravinder Paul Singh Malik, Lindy Miller, Smita Misra, Harshadeep Rao, and K.S.Palinasami, ‘Water in the Economy of Tamil Nadu: Flexible water allocation policies offer a way out of water-induced economic stagnation, and will be good for the environment and the poor’, World Bank, New Delhi,October 2004.

9 John Briscoe, ‘Raw Water Supplies for Chennai’, World Bank, Back to office report, 1996.10 ‘SIMA for allotment of additional land for Textile Processing Park’, Business Standard, 25 April 2005.

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Figure 2.3: Total and sectoral water use in2020 under two management scenarios

Source: Bhatia et al, 2005.

shortages on industrial choices. In a drought dur-ing the 1990s, for example, major chemical andfertilizer plants outside of Chennai were closed forsix months9 because they could not get water; andit is clear that decisions on the location of indus-tries in the state is being affected by water avail-ability.10

The results of the study are striking, suggestingthat if flexible rather than rigid water allocationprocedures were adopted:

1. Water use would be dramatically different:

• total water use would be 15 percent lower(Figure 2.3);

• abstractions from aquifers (which are al-ready under great stress in the state) wouldbe 25 percent less;

• water use in agriculture would be sharplyreduced, while water for industry andurban uses would increase substantially(Figure 2.3).

2. Economic performance, too, would be quitedifferent (Figure 2.4):

• state income in 2020 would be 20 percenthigher;

• urban household incomes would be 15 per-cent to 20 percent higher for all four catego-ries included;

• there would be small losses in income forfamilies who remained self-employed far-mers and for laborers who stayed as agri-cultural workers, but rural incomes wouldbe 15 percent to 20 percent higher for self-employed and non-agricultural labor.

15


The writing, then, is on the wall: India is chang-ing very fast, and there are great environmentaland economic benefits from transforming theIndian water economy into one that is far moreflexible and adaptive.

As this transition takes place, the developmentof a vital and efficient urban water supply andsanitation sector is a major challenge. A compan-ion report by the World Bank11 examines the chal-lenges that India faces in meeting the millennialdevelopment goals. A succinct summary is thatIndia’s water and sanitation sector is woefully ill-equipped to meet this growing challenge. The sec-tor has no identity, is bankrupt, is not developing

the required human resources, and focuses pri-marily on adding infrastructure, not improvingservices.

Adjusting to Scarcity and GreaterVariability

In 1999, the National Commission on Water12

assessed the overall availability of water, thelikely demands, and the implied ‘water availablefor future use’ (Figures 2.5 and 2.6).

These figures are a stark and unequivocal por-trayal of a country about to enter an era of severewater scarcity. And there are a host of realitieswhich make the situation far worse than depictedin Figures 2.5 and 2.6.

First, water is not a national issue, but anintensely local one. Aggregates thus conceal muchmore severe situations in many localities (andless severe ones in others). Already 15 percent ofaquifers are in critical condition, a number which

11 Alain Locussol, ‘Halving by 2015 the Proportion of the People in India without Sustainable Access to SafeDrinking Water and Basic Sanitation’, World Bank, 2005 (draft report).

12 ‘The Report of the National Commission for Integrated Water Resources Development’, Ministry of WaterResources, New Delhi, 1999.

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Figure 2.4: Differences in income in TamilNadu in 2020—flexible compared to fixed

water allocations

Source: Bhatia et al, 2005.

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16

is projected to increase to a frightening 60 percentby the year 2030.

Second, in its deliberations the National Com-mission on Water gave little attention to environ-mental realities and needs.13 It, therefore, implicitlyassumed that the quantum of available water wouldbe constant, despite the fact that ever-largerstretches of rivers in India are becoming so pol-luted that their water can be used for fewer andfewer uses and the quality of water in an increas-ing number of aquifers is being similarly degradedby human use and saline intrusion.14

Third, there are strong indications that climatechange is likely to affect India in a number of

13 A.D. Mohile, ‘The evolution of national policies and programs’, Background Paper for this Report, 2005.14 George Varughese, ‘Water and environmental sustainability’, Background Paper for this Report, 2005.

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Figure 2.7: Simulated effects of deglaciation on Himalayan river flows over 10 decades

Source: Gwyn Rees et al, 2005.

17


Figure 2.9: Predicted change in number ofrainy days from the ‘decreased rainfall’

IPCC model

Source: IPCC, 2004 (personal communication fromRobert Watson).

ways. There is little uncertainty about some ofthese impacts.

As global temperatures continue to rise, thiswill affect the ‘water banks’ (glaciers) which are aprominent part of the Himalayan water systems.While there is clear evidence of deglaciation acrossthe whole of the Himalayas, the effect on riverflows is likely to be substantially different in dif-ferent areas,15 as shown in figure 2.7.

In the eastern Himalayas, high levels of snow-fall appear to retard glacial retreat, and runoffgenerated in the non-glaciated areas rapidly less-ens the downstream impacts (see, for example, themodest impacts on the Brahmaputra, before theriver disgorges from the Tibetan Plateau intoArunachal Pradesh). In the west, as illustrated bythe Indus, where precipitation is lower and thevolume of snow at high elevations does not protectthe glaciers in the hot summer months, deglaciationis more rapid (see Skardu, for example, wherethere are large increases in flows for the next half-century, followed by upto 50 percent reductionsfrom contemporary levels of runoff), and the im-pacts are felt for a considerable distance down-stream (with Indus flows predicted to be around 30percent less in the northern plains of Pakistan). Inthe Ganges there would be large impacts of de-glaciation in the mountains (see Haridwar inFigure 2.7), effects which are mitigated by non-glacial forms of runoff in the plains (as illustratedfor Allahabad in Figure 2.7).

Deglaciation is, of course, not the only way inwhich climate change is likely to affect the avail-ability and timing of runoff in the subcontinent.The Intergovernmental Panel on Climate Change(IPCC) uses 10 General Circulation models, 9 ofwhich project that precipitation during the summermonsoon will increase substantially (Figure 2.8).

The IPCC has used a regional model (curiouslybased on the one global model which showed re-duced precipitation) to explore possible changes inthe number of rainy days and in extreme rainfall.This model predicted a decrease in the number ofrainy days (Figure 2.9) but substantial increases inextreme precipitation events (Figure 2.10).

30

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Figure 2.8: Change in South Asia summerrainfall predicted by 10 General

Circulation climate models


15 Gwyn Rees and David Collins, ‘An assessment of the potential impacts of deg-laciation on the water resourcesof the Himalayas’, Draft Report, HR Wallingford, April 2004.


18

What does seem likely is that climate changewill increase the variability of already highly-variable rainfall patterns, requiring greater in-vestments in managing both scarcity and floods.

• The area affected by flooding, which hasnot changed systematically in decades (Fig-ure 2.11) is likely to increase substantiallysince many of the flood-prone areas (Fig-ure 2.12) will be affected by changes inglacial behavior and precipitation in theHimalayas.

• There are major regions, including many ofthe most highly productive agricultural andindustrial regions of India, where waterscarcity is already a fact of life (illustratedwith increasing frequency in cartoons inIndian newspapers, such as Figure 2.13, byBinay Sinha in Business Standard).

• Water scarcity is going to become widespreadin India in a future which is, given the factthat changing water use habits takes de-cades to effect, just around the corner.

Figure 2.10: Predicted change in rainfallintensity (in mm per day) from the‘decreased rainfall’ IPCC model


201816141210 8 6 4 2 0

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Source: A.C.Tyagi, ‘State of India’s Water’, www.thirdworldwatercentre.org.

Figure 2.12: Areas subject to flooding arevulnerable to climate change

Source: A.C.Tyagi, ‘State of India’s Water’,www.thirdworldwatercentre.org.

19


• Deglaciation is going to result in inadvert-ent ‘mining’ of the water banks of theHimalayas. This will lead to a runoff wind-fall for a few decades, to be followed bymajor, permanent, reductions in runoff.

• Climate change is likely to substantially in-crease overall monsoonal rainfall in India,but this is likely to be poorly distributed inthe sense that much of the additional rain-fall will probably be in high-intensity stormevents.

What, then, are the implications of thesechanges? Despite the many uncertainties, they in-clude:

• A need for large investments in water stor-age. As described earlier, India actually hasrelatively little capacity to store water. Forexample, whereas there is about 900 days ofstorage capacity on the Colorado andMurray-Darling Rivers, there is only about30 days of storage capacity in most of India’sriver basins. Accordingly, major investmentsneed to be made to increase capacity to storewater, in both surface water and ground-

water reservoirs, in projects small (likelocal rainwater harvesting) and big (such aslarge dams). In so doing, however, there isa need for concomitant adoption of quitedifferent development and managementstrategies. In addition to expanding irrigatedarea (the principal justification for mostprojects), care needs to be taken to safe-guard existing downstream uses, and atten-tion also needs to be paid for improving thereliability of supplying existing demandsand for meeting historically deprived envi-ronmental uses.

• The melting of the glaciers offers India awindow of opportunity, first, to make pro-ductive use of this ‘windfall’, but also tounderstand that this window should be usedto prepare for the very hard days, with sub-stantial flow reductions in the Himalayanregion, which lie ahead.

• While the exact shape of the future climateregime is uncertain, it is very likely thatthere will be greater variability—both ofdroughts and floods. As was shown in adetailed examination by the National At-mospheric and Oceans Administration ofUS water practices, the best preparation formanaging unpredictable future changes isto put in place a water resource infrastruc-ture and management system which is drivento a much greater degree by knowledge (in-cluding but not limited to hydrologic knowl-edge), and which is designed and operatedto be much more flexible and adaptive.

• Flooding, which already affects large areasof the poorest parts of India (including Biharand the Northeast), has yet to be effectivelyaddressed. The standard response in Indiahas been to build embankments and to ad-vocate the construction of large dams andembankments as the solutions to the prob-lem. India is only now starting to explore

Figure 2.13: Running out of groundwater

Source: Cartoon by Binay Sinha, courtesy of BusinessStandard.


20

the combinations of ‘hard’ interventions (toprotect high-value infrastructure) and ‘soft’interventions (smart adaptation to livingwith floods, including changing land usepatterns and cropping patterns, and con-struction of emergency shelters for peopleand animals), which have been used to con-siderable effect in countries as diverse as theUnited States16 and Bangladesh,17 and areglobally-accepted best practices.

• With respect to scarcity, there is a pervasivecomplacency—‘we have muddled though upto now and we will find a way to muddlethrough in the future’—on the part of manyin government and citizens. This has beencompounded by the recent perception (whichis likely to be temporary) that ‘the Indianeconomy is no longer dependent on the va-garies of the monsoon’.18 This muddlingthrough has worked because it has beenpossible for farmers, city-dwellers and in-dustries to ‘exit’19 from unsatisfactory pub-lic supply systems by tapping once-abundantgroundwater. But now the well is runningdry, and with it the exit option is becomingtenuous in more and more parts of the coun-try. The challenges, to which we return laterin this report, are: to greatly improve therobustness and flexibility of water resourcemanagement systems; to improve the flex-ibility and quality of service provided bythe major public water supply and irriga-tion systems; and to develop government/citizen partnerships for managing ground-water in a sustainable manner.

Dealing with Growing Conflicts

Conflicts over water are so ancient that the idea isincorporated into language: the word ‘rivals’ isderived from the Latin ‘rivalis’, meaning ‘the oneusing the same stream as another’.20 In the sub-continent, too, there is a long history of waterconflicts. The origin of Buddhism is related to awater dispute between the kingdoms of Shakyaand Koliya. Prince Siddharth tried to resolve thisby negotiation and compromise, but failed. ThePeoples’ Assembly of Shakya declared war onKoliya and asked Siddharth to leave the state.21

So conflicts over water are not new, either in theworld or in India. But there is no question that theincidence and severity of conflicts has increasedsharply in recent times. Over the past year, theUnion Minister of Water Resources has remarkedthat ‘I really am not Minister of Water Resourcesbut Minister of Water Conflicts’, and the UnionFinance Minister has noted a ‘growing set of smallcivil wars’ over water at all levels in Indiansociety.22

It is useful to unbundle this growing set of con-flicts, from the international down to the locallevel.

Conflicts at the International Level

At the international level, India has been a partyto several water treaties which are widely consid-ered to be global good practice. Most notable, ofcourse, is the Indus Treaty of 1960 which allocatesthe waters of the Indus, Jhelum, and Chenab to

16 Barbara A. Miller, A. Whitlock, and R.C. Hughes, ‘Flood Management—the TVA experience’, TVA, Oak Ridge,1998.

17 Ainun Nishat, powerpoint presentation on Flood Management in Bangladesh, World Bank Water Week 2005.18 ‘Growth surge: No longer a gamble on the monsoon’, The Economic Times, March 2005.19 Albert O. Hirschman, Exit Voice and Loyalty: Responses to Decline in Firms, Organizations, and States,

Harvard University Press, 1971.20 The Oxford Dictionary of English Etymology.21 M.A. Chitale, ‘The fight for water’, ICID, New Delhi, 1997.22 ‘Water Ministry seeks World Bank funding for reforms’, The Hindu, 13 January 2005.

21


Pakistan (while allowing run-of-the-river hydroon the headwaters before the rivers enter Paki-stan), and the waters of the Ravi, Beas, and Sutlejto India. The central feature of the Indus Treaty isthat the rights (and obligations) of both parties areunambiguously defined. This clarity and the per-manence of the assignment of rights has meantthat the two countries have concentrated most oftheir attention on using what is theirs effectively,rather than haggling over their entitlements.23 Simi-larly important is the Ganga Water Treaty be-tween India and Bangladesh of 1986, which onceagain rests on an agreed-upon allocation of lowflows among the parties and in which seasonedbilateral diplomats were able to find an ‘accept-able second-best’ solution for both parties.24 Asomewhat different but equally interesting case isthat of ‘benefit-sharing’ arrangements for devel-opment of the hydropower resources of Bhutan,25

which has shown the way for mutually beneficialdevelopment between India and its smaller Hima-layan neighbors. In the international arena, then,India has forged a number of examples of goodpractice; now there is a need to modernize someelements of these treaties (especially the conflictresolution mechanisms) and to put into place moresuch agreements on the substantial number of riv-ers where agreement between India and her neigh-bors has not been reached.

Conflicts at the Inter-state Level

At the next level down, among the states of theIndian Union, the situation is much less satisfac-tory. The issue is pervasive, since 90 percent of theland area of India is drained by inter-state rivers.Under the Constitution, authority is conferred onthe Union Government with respect to regulation

of inter-state rivers: Entry 56, List I states that‘Regulation and development of inter-state riversand river valleys to the extent to which such regu-lation and development under the control of theUnion is declared by law to be expedient in thepublic interest.’ In the words of the Planning Com-mission:26 ‘The Central Government has not so farexercised this authority ... (and) ... inter-state con-flicts over water sharing have been the bane ofwater resources development in the country. Tri-bunals have been constituted in the past forNarmada, Godavari, and Krishna. Tribunals forCauvery, Ravi-Beas, and Krishna (second Tribu-nal) are presently engaged in adjudication.Although time limits have now been prescribed forTribunals, still the adjudication process is a longdrawn affair. Tribunal decisions are interpreteddifferently by co-basin states and this again leadsto disputes in the operation of the Award.’ And inthe words of the former Chair of the Central WaterCommission:27 ‘Various alternate doctrines basedon, say the riparian principle, the chronology ofuse, the principle of causing no harm to the down-stream entities, on the contribution of the state tothe basin waters, as also those based on the prin-ciple of equitable distribution are available in theliterature about international water law. Theseare cited during the process of negotiations oradjudication, with each party normally preferringthe doctrine which serves its interest. Apart fromthe doctrines, there are many other commoncontentious issues, which are often discussed, butabout which no agreed guidelines are available inIndia.’

This anarchic situation means that in most casesthere is no clarity about who can use what amountof water. And when there are awards, they are

23 N.D. Gulhati, Indus Waters Treaty: An Exercise in International Mediation, Allied Publishers, New Delhi, 1973.24 Tariq Karim, ‘The Bangladesh-India Treaty on Sharing of the Ganges Waters’, Bangladesh High Commission,

Pretoria, November 1997.25 Jeremy Berkhof, ‘Hydropower in Bhutan and Nepal: Why the Difference?’, 2003 (draft paper).26 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,

Background Paper for this Report, 2005.27 A.D. Mohile, ‘The evolution of national policies and programs’, Background Paper for this Report, 2005.


22

incompletely specified and have no accompany-ing enforcement mechanisms. Unilateral actionsare the norm, with the instructions of the Tribu-nals and even the Supreme Court routinely flouted.(As noted by Maria Saleth:28 ‘as a point of contrastwith these inter-state squabbles, one notes a highdegree of respect and stability of water-sharingprovisions in international water treaties’.) Theconsequences are wide-ranging and serious.

There are major political consequences. Thereis a high level of vitriol in the endemic clashesbetween states on inter-state water issues. In somecases, inter-state water disputes have contributedto terrorist and secessionist movements.29 Becauseanything can be claimed in inter-state waters, poli-ticians raise the specter of such ‘popular responses’when justifying non-compliance with water agree-ments. And the very basis of a federal state are putinto question (as in the case of the 2004 unilateralabrogation by Punjab of all water-sharing agree-ments with other states).30

And there are major economic consequences.The lack of clear, permanent allocations meansthat states often spend more time and resourcesover ‘securing our future rights’ than they do tousing what is theirs. Three cases illustrate thisgeneral point.

First, is economic waste in an upstream state, asdescribed by Nirmal Mohanty:31 ‘The problem ofpoorly established property rights in the tribunalawards ... has encouraged states to secure inter-state claims to the headwaters of rivers by build-ing large dams regardless of the financial andenvironmental consequences, and impact on down-stream states. Maharashtra, for example, spent

heavily on the Maharashtra Krishna Valley Cor-poration to create storage capacity to get priorappropriation rights to Krishna water; because ifit did not do so, its share in Krishna awarded by theKrishna Water Dispute Tribunal would have beensubject to revision. Interest and equity paymentsfor these dams accounted for 17 percent of the statefiscal deficit in 2003/4.’

Second, is economic waste in downstream states.The Government of Tamil Nadu does not makeinvestments in improving water efficiency in thewater-starved lower Cauvery Basin, because itperceives that any demonstration of greater effi-ciency would weaken its bargaining powervis-à-vis Karnataka during the next Cauvery Tri-bunal award.

Third, are the foregone opportunities for win-win projects between states. During the vigorousdebate in 2004 on inter-basin transfers (‘linkingrivers’), a major obstacle to translating any sen-sible projects into practice was that of state waterentitlements. A reported interaction between theChair of the Task Force on Linking Rivers andLaloo Prasad Yadav, showed the only way in which‘surplus states’ would agree to share water with‘deficit states’: ‘Laloo warned that not a glass ofwater will be allowed to be diverted from the Gangabasin. A few days later, however, the de facto rulerof Bihar declared that water was like oil—if theright price was offered, he may be ready to sell’.32

And finally, there are major environmental con-sequences. Indian water managers continue toperceive of any water not directly used for humanpurposes to be ‘wastage’. As described by the formerChair of the Central Water Commission:33 ‘The

28 Maria Saleth, ‘Water rights and entitlements’, Background Paper for this Report, 2005.29 ‘Terrorism will be back if verdict goes against Punjab in SYL row’, The Times of India, 27 July 2004.30 Maria Saleth, ‘Water rights and entitlements’, Background Paper for this Report, 2005.31 Nirmal Mohanty, ‘Moving to scale’, Background Paper for this Report, 2005.32 Himanshu Thakkar, ‘Flood of nonsense: How to manufacture consensus for river-linking’, Himal, 16 August

2003, p. 27.33 A.D. Mohile, ‘The evolution of national policies and programs’, Background Paper for this Report, 2005.

23


need to balance the use of water with its deliberatenon-use in order to maintain environmental bal-ance of the riverine, estuarine, and the coastalecosystems is negated (in at least parts of the 2002National Water Policy)’. Given the lack of speci-fication of states’ water entitlements, this meansthat any water releases to estuaries, for example,would be the basis for other states to claim ‘wast-age’ and therefore an appeal to reduce the share ofthe offending state.

The lack of Union Government action on inter-state waters has become a subject on which thegovernment is widely ridiculed, sometimes evenby the government itself. The Union Secretary ofWater Resources wonders34 how it is that, 50 yearsafter the passing of the River Boards Act, the UnionGovernment has not once used that Act to dealwith inter-state river development. The Chief Min-ister of Tamil Nadu describes the Cauvery RiverAuthority35 as ‘a toothless wonder’. Sunita Narainof the Centre for Science and the Environmentsums up the situation as follows:36 ‘In the politicalminefield of river disputes, the government ... justwatches, waits for God to bring rain and tempo-rary relief, or scurries about for a new appease-ment package. All in all, it makes a farce of theissue staring it in the face: how the country is tolive and share its now-scarce water resources.’And, as always, cartoonists (Figure 2.14, showingthe Chief Ministers of Karnataka and Tamil Nadudiscussing water sharing on the Cauvery) cut to thequick.

Conflicts between Upstream and Down-stream Riparians in Intra-state Rivers

As scarcity becomes a fact so there is growingconflict between existing and new users of water,

even within single-state basins. The Vaigai Basinin Tamil Nadu was a beneficiary of the century-old Periyar scheme, whereby part of the water ofthe western flowing Periyar River in Kerala wasdiverted by the revered Colonel Pennyquick overthe Western Ghats to the Vaigai Basin in TamilNadu (Figure 2.15).

Periyar water was used to establish major canalcommands in the lower Vaigai Basin. In the 1960s,the Vaigai Dam was built to harness the naturalflow of the Vaigai. It was immediately apparent tothose who had benefited from the Periyar waterthat this posed a threat to their water entitlements.Accordingly and quite remarkably, the authoritiesat the Vaigai Dam keep two sets of books—one ofwhich records the inflows and releases of Periyarwater (which is of high reliability) and the otherwhich records the inflows and releases of the much-less-reliable Vaigai River water. Over the years,

34 D.V. Duggal at Ministry of Water Resources, Workshop on River Basin Management , New Delhi, 27 January2004.

35 Jayalalitha in The Hindu, August 2003.36 Sunita Narain, ‘The drought within’, Business Standard, New Delhi, 3 August 2004.

Figure 2.14: Chief Ministers of Karnatakaand Tamil Nadu resolving the conflict over

the waters of the Cauvery River

Source: Courtesy of The Hindu, 2003.


24

however, there has been an ineluctable increase inthe dams in the basin. Each of these has been builtto provide water to a new command area. Forexample, the Sothuparai Reservoir in the headwa-ters was recently built (with World Bank funding)to the delight of farmers in the couple of thousandhectares served by the dam. But the waters of theVaigai Basin were, if accounts were kept, alreadyfully allocated. This was, in short, nothing morethan a project (of considerable cost) which addedlittle to overall water availability, but simplyrobbed downstream Peter to pay upstream Paul.

While the basics of water balances apparentlyelude many of the state water engineers, they donot elude the downstream farmers. At a meeting ofthe incipient ‘Vaigai River basin committee’ inMadurai this was the main topic of conversation,with one downstream farmer (dubbed ‘the waterlawyer of the basin’) making a cogent (and widely-understood) presentation on water balances and

creeping expropriation of water rights. In1934, the Madras High Court, in the caseof Setharama lingam vs. AnandaPadayachi37 ‘asserts that in case the lowerriparian feels that there has been an ac-tual decrease in the supply of water to himhe has a cause for action’. But becausewater accounts are not kept and there areno formal entitlements, the de facto lawof water here (as elsewhere in India) is‘what the state gives, the state may takeaway (without informing you)’.

37 Chattrapati Singh, ‘Water Rights in India’, Water Law in India, pp 8–30.38 Sudhirender Sharma, ‘Rainwater harvesting has yet to protect India from drought’, Waterlines, vol. 21, no. 4,

April 2002 (also published in Water Policy (8), February 2006).39 Arya, Swaran Lata and J.S.Samra, ‘Revisiting Watershed Management Institutions in Haryana Shivaliks, India’,

Chandigarh: Central Soil and Water Conservation Research and Training Institute, 2001, and Kerr John,Ganesh Pangare, V.K.Pangare, and P.J.George, ‘An evaluation of Dryland Watershed Development Project inIndia’, EPTD Discussion Paper 68, International Food Policy Research Institute, Washington DC, 2000.

40 R.P.S. Malik, ‘Water and poverty’, Background Paper for this Report, 2005, and Kerr John, Ganesh Pangare,V.K.Pangare, and P.J.George, ‘An evaluation of Dryland Watershed Development Project in India’, EPTDDiscussion Paper 68, International Food Policy Research Institute, Washington DC, 2000.

Conflicts between Communities andthe State

A major phenomenon of the last five years hasbeen an explosion in community-based projectsfor ‘rainwater harvesting’ schemes, which involverehabilitating and building small check dams andtanks, and household groundwater recharge struc-tures, with over $150 million a year spent on suchprojects in recent years.38 The initial impetus wasfrom the Sukhomajri project in Punjab, with a hostof other celebrated and less celebrated communityprojects, and a substantial number of large-scale,state-sponsored projects (including the multi-stateWorld Bank-financed Shivalik Hills project andlarge state-financed projects in Andhra Pradeshand Tamil Nadu). The performance of such projectsvaries widely. Objective evaluations show thatperformance is mixed (with only 10 of 27 HillResource Management Societies functioning inHaryana,39 for example, and only 40 percent inMaharashtra,40 and other evaluations showing only

Figure 2.15: Water entitlements in the Vaigai Basin

25


25 percent or even 15 percent of such projectssuccessful41).

Virtually by definition, these projects ‘take hold’only in areas where water is already very scarce.And in all cases communities will only partici-pate, reasonably, if they can use the water, prima-rily to irrigate their crops. This means that therainwater harvesting schemes have two impacts—increased storage of water, and increased use ofwater. Since there are already very low outflowsfrom most of the highly-stressed basins, this meansthat the net additional storage is probably small.The result, in zero-sum cases, is that the new usesmean yet another set of additional claims on lim-ited water, claims which are honored only by re-ducing the availability for some anonymousdownstream user.

This has led to conflicts between the state andthe communities. Tarun Bharat Sangh is a rainwa-ter harvesting NGO led by the charismatic RajendraSingh. In one well-publicized incident, commu-nity activities led to the revival of a local stream,the water of which was then claimed by the state,which, under the Indian Easement Acts of 1882 hasthe sole right to collect, retain, and distribute sur-face water.42 So not only does the state claim theright to take away that which it has given, but italso exercises the right to take away that which ithas not given (but owns anyway).

Conflicts between Farmers and theEnvironment

As water allocation in particular basins approxi-mates a zero-sum game, without rules and institu-tions for managing who gets what, conflicts areinevitable. In an increasing number of cases thispits farmers against nature.

The Ghana National Park in Bharatpur is India’smost famous bird sanctuary and a Ramsar wet-land. (Like many such sites, it has a checkeredhistory. The wetland is entirely artificial, havingbeen created by a Maharaja who liked shootingbirds in very large numbers but who later had aconversion and turned it into a sanctuary for hun-dreds of species of endemic and migratory birds,including Siberian cranes.) Water for the wetlandis provided by a canal from a dam which is alsoused by irrigators. In recent years, competition forwater has heated up. The competition in this areahas been exacerbated by the new claims arisingfrom the Laava ka Baas Dam, a ‘rainwater har-vesting structure’, constructed in the catchment.Existing farmers claim that they have beensqueezed by this and other abstractions and bydrought, and have refused to allow releases ofwater for the Bharatpur Sanctuary. As can be seenin Figure 2.16, the previously lush and teemingwetland has been turned into a cattle pasture, leav-ing the migratory birds to the vagaries of unpro-tected wetlands and threatening a flourishing localtourism industry.

The point is that in an increasing number ofcases new entitlements (sometimes large, some-times each small in themselves but substantial inaggregate) adversely affect existing users. In anincreasing number of cases there are vigilant ‘wa-ter accountants’ downstream who know exactlywhat is happening and can see the results beforetheir eyes. Without a framework for allocatingentitlements and mediating claims, conflicts areinevitable and growing.

Conflicts within Irrigation Projects

Finally, there are an increasing number of seriousdisputes among farmers within canal commands.

41 Sudhirender Sharma, ‘Watersheds’, Waterlines, 2004.42 The National Commission for Integrated Water Resources Development, Ministry of Water Resources, New

Delhi, 1999.


26

An important recent case is that of the IndiraGandhi Canal in Rajasthan43 (the major projectfor using the substantial quantity of waters allo-cated to Rajasthan under the Indus Water Treaty).The farmers, in the first half of the project to becompleted, were allowed to share the water for thewhole project on a temporary basis, with this waterto be gradually reduced to their design share as theother command areas were completed. But thisfact was either communicated informally to thefarmers or not communicated at all. They thusbecame accustomed to having plenty of water andplanted water-intensive crops.44 When the timecame for them to reduce their water to the origi-nally envisaged amount, they perceived this as‘confiscation’ and revolted. Four farmers were killedin the summer of 2004. Once again, the core issue

was lack of clarity and certainty aboutentitlements.

Vijay Vyas45 has summarized the situ-ation well: ‘It will be infinitely better toavoid conflict situations rather than seekmechanisms for conflict resolution. Twopreconditions for minimizing conflictsat the local level are: clear definition ofusufructory rights, and dependable esti-mates of the water availability over timeand over space. If the usufructory rightsare clearly defined they can be used asan explicit provision in formal or infor-mal contracts among different waterusers and among water users and waterproviders. Ambiguity in proprietaryrights is at the root of several disputes.’

43 ‘Three farmers killed, thirty hurt in police firing’, The Indian Express, 27 October 2004.44 V.S. Vyas, ‘Principled pragmatism, or the political economy of change’, Background Paper for this Report, 2005.45 Ibid.46 G.T.K. Pitman, OED, ‘India: World Bank Assistance for Water Resources Management’, 2002. Bank investment

has been about 10 percent of India’s investment, and the Bank has invested $12 billion since 1960.47 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,

Background Paper for this Report, 2005.

Figure 2.16: The demise of the Bharatpur BirdSanctuary

Before—India’sgreatest bird sanctuary

After—a cattlepasture

Maintaining and Renewing ExistingInfrastructure

India has a large stock of hydraulic infrastructure:since 1960, the Union Government has invested ofthe order of $120 billion in water resources andirrigation,46 with the approved outlays for irriga-tion alone in the Tenth Plan being $10 billion forirrigation and $1 billion for flood control.47 Asdescribed earlier, the services provided by thisinfrastructure are critical for economic growth.But the services are only forthcoming if this enor-mous asset—which is now aging, as illustrated inFigure 2.17—is maintained and replaced. And theevidence is palpable that this is not happening.

No state in India has a modern Asset Manage-ment Plan, and thus there are no reliable estimates

27


tortion is that the public agencies which providethese services are hugely over-staffed. MumbaiMunicipal Water Corporation, for example, hasabout 35 workers per thousand connections,whereas well-functioning utilities have about 3workers per thousand connections. And the UPIrrigation Department employs an astonishing110,000 people. The politics of these public enter-prises is such that salaries have the first call onrevenues—in Haryana, for example, 83 percent ofthe allocation for irrigation operation and main-tenance goes to paying salaries.49

The second distortion is that revenue collectionis low and declining. Gross recoveries as a propor-tion of working expenses declined from 85 percentin 1975 to 42 percent in 198850 and to 35 percent(for a sample of states) in 1998.51

The result of this pattern of declining revenuesand rising personnel costs is a pattern illustratedschematically in Figure 2.18. In a financially-well-structured irrigation system (such as that in Aus-tralia), users pay for efficient operations andmaintenance and for the replacement costs of theassets which provide their services. The govern-ment pays (reluctantly!) the interest on debt accu-mulated in the past. The system (see part (a) onFigure 2.18) is clean and the incentives right (forthe users to demand efficient operations and main-tenance (O and M), and replacement only of essen-tial assets and that at least cost). The typical Indiansystem is much more complex (see part (b) on Fig-ure 2.18). First, there is an extra ‘block of pay-ment’ to be made for the extra costs incurred byhaving large numbers of unnecessary workers.Second, the user payments represent only a small

48 The Australian experience shows that the average ‘renewals annuity’, which includes the cost of both replacementand operations and maintenance, ‘is about 3 percent to 4 percent for older, and 2 percent to 3 percent for newerassets’. Personal communication, Golbourn Murray Water and the Murray Darling Basin Commission, 2005.

49 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,Background Paper for this Report, 2005.

50 R.P.S. Malik, ‘Water and poverty’, Background Paper for this Report, 2005.51 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,


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Source: A.C.Tyagi, ‘State of India’s Water’,www.thirdworldwatercentre.org.

of the cost of replacing and maintaining this infra-structure. From international experience, a typi-cal figure—assuming regular maintenance—ofreplacement and maintenance is about 3 percentof the value of the capital stock of water infrastruc-ture.48 This would imply that the cost of replace-ment and maintenance of India’s stock of waterresource and irrigation infrastructure would beabout $4 billion a year, which is about twice theannual capital budget in the Five Year Plan. It isabundantly clear that not more than a tiny fractionof this is actually being spent on asset mainte-nance and replacement.

There are a series of distortions which are lead-ing to the erosion of this asset base. The first dis-


28

fraction of the total money available for O and M(including salaries). Most of the O and M alloca-tions are from the budget (that is, paid for by alltaxpayers), but these amounts typically do notcover what is required for O and M, leaving anunfilled ‘deficit’ for O and M. At the top end theinterest on past investments is paid for by taxpay-ers. What this means is that there is a yawninggap, paid for neither by users nor taxpayers. Thismeans that O and M is not done adequately and—since it is last in the queue—there is no investmentin replacing aging assets.

There is no doubt that only a very tiny fractionof this required expenditure for rehabilitation isactually being made. The end result is the famil-iar sight for virtually all water infrastructure inmost parts of India—crumbling, rusting, leakingdams, canals, and pipes. The situation is seriouseven for infrastructure where failure would be cata-strophic, such as large dams. Where these are rev-

enue-generating hydropower fa-cilities, the situation is generallymuch more satisfactory than forthe irrigation dams which aretotally at the mercy of budgetaryfinancing.

And it means that much of whatmasquerades as ‘investment’ is, infact, a belated attempt to rehabili-tate the crumbling infrastructure,both for irrigation and for munici-pal water supplies. (Most WorldBank ‘investments’ in water infra-structure are, in fact, not invest-ment in new infrastructure, but anattempt to make some inroads intothe huge liabilities from deferredmaintenance, while simultaneouslyaiming at modernization of the in-frastructure and developing insti-

tutional and financial practices which will helpbreak out of this vicious cycle.) The contrast be-tween globally-accepted good maintenance-and-replacement practice and that of the systems inIndia—accurately described by Nirmal Mohanty52

as ‘Build-Neglect-Rebuild’—is represented sche-matically in Figure 2.18.

Two examples illustrate how serious the situa-tion has become. In the 1980s, the Government ofTamil Nadu paid for the construction of a canalfrom the Krishna River in Andhra Pradesh to bringwater to Chennai. Twenty years after construc-tion, and as a result of the usual practice of de-ferred maintenance, the canal was in very badshape. Since the state was unable to pay for reha-bilitation, the rehabilitation had to be ‘priva-tized’—it was left to the religious leader Sai Babato pay for the rehabilitation of the canal. And, ina recent national meeting on water, the CEO ofIndia’s biggest pump manufacturer told of his bit-

Figure 2.18: The financing of water services in India

52 Nirmal Mohanty, ‘Moving to scale’, Background Paper for this Report, 2005.

Source: The World Bank.

29


tersweet view of the burgeon-ing number of lift irrigationschemes. The state ofMaharashtra had bought 34large pump sets from his com-pany. ‘I was, of course, quitepleased by this for our business.But I am also a taxpayer, andwhen I know that just 2 of these34 pump sets are actually func-tioning it breaks my heart.’53

Again it is instructive (Fig-ure 2.19) to compare reason-able global practice with thatin India. In the ‘good practice’case, the stock of infrastructuregrows fast in ‘Stage 1’ (refer-ring back to the ‘Stages’ illus-trated in Figure 1) and then tailsoff in Stages 2 and 3. But asthis stock grows, so the financial demands formaintaining and replacing this stock increase. Inthe Indian case—arguably in Stage 2—the stockis still growing, but the finance available for main-taining and replacing that stock has fallen ratherthan risen.

In the context of social services, it has beenestimated that no more than 15 percent of alloca-tions actually end up being delivered to those forwhom the funds were intended. While the parallelis not precise, and numbers are not available, it isclear that the infrastructure system is similarlyleading to hugely ineffective application of re-sources. Much of what is built is not being main-tained, and that which does still function, deliversservices of a low quality. This, in turn, reinforcesthe vicious cycle—users who are receiving suchpoor services reasonably refuse to pay, meaningthat revenues decline still further and the mainte-

nance and replacement gaps widen still further.The end result is that people, supposedly beingserved by public irrigation and water supply ser-vices, vote with their feet (or, more accurately,with their tubewells) so that they have alternativesources of supply.

Later in the report, we look at some ways oftrying to approach the difficult but vital challengeof moving from a vicious to a virtuous cycle. Thereis no silver bullet for this—it will need dramaticincreases in the efficiency of the providers of thepublic services, it will require ‘transition plans’ sothat improved services can induce greater confi-dence in the services and willingness to pay forthem, and it will require recognition of a simplefinancial fact. In the words of Rakesh Mohan:‘... ture—from taxes or from user charges. As longas India is not prepared to do either or both ofthese, there is no hope for building and maintain-

53 Mr. Kirloskar, CEO of Kirloskar at FICCI seminar on Linking Rivers, New Delhi, 2004.

Figure 2.19: Depleting India’s infrastructure stock



30

ing the infrastructure necessary for a more produc-tive economy.’54

Building Infrastructure in Under-served Areas and for Under-servedPublic Purposes

In addition to the major financial challenge ofrehabilitating and maintaining its stock of waterinfrastructure, India also has to make major in-vestments in additional water infrastructure. Theneed for these new investments can be seen fromseveral perspectives.

Looking at India in a global context, the coun-try has remarkably small stocks of water infra-structure. As shown in Figure 2.20, the amount ofwater storage capacity in India is very low for asemi-arid country—whereas the United States andAustralia have capacity to store over 5000 cubicmeters for every citizen, China 2500 cubic metersper capita, and Morocco and South Africa 500cubic meters per capita, India’s storage capacityamounts to just 200 cubic meters per capita.

A different perspective is the quantum of waterthat can be stored as a proportion of average riverrunoff. In the Colorado River Basin and inAustralia’s Murray-Darling Basin this figure is 900days; in South Africa’s Orange River Basin it is350 days; but overall, India can store just 50 daysof average runoff, with wide variations—from 220days in the Krishna to just 2 days in theBrahmaputra/Barak Basin (Figures 2.21).

A complementary perspective is that of the de-gree to which India has utilized its substantialhydropower resources. Again, international com-parisons are useful—Figure 2.22 shows that richcountries have developed about 80 percent of their

economically-viable hydroelectric potential.India has substantial economically-viable hydro-power potential, but has developed only about25 percent of this potential.

Most of India’s hydropower potential is in theHimalayas (Figure 2.23), an area which has many

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54 Rakesh Mohan, then Deputy Governor of the Reserve Bank of India, at the Mumbai RBI Conference onInfrastructure, 2004.

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Figure 2.21: Days of average flow whichreservoirs in semi-arid countries can

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decade it has become clear that the availabilityof electricity is emerging as a serious constraintto Indian economic growth. Given the particu-lar importance of peaking power (a unit of whichis estimated to be worth about four times thevalue of a unit of base load55), India has appro-priately embarked on an accelerated hydropowerdevelopment program.

The accelerated hydropower program hasbrought to the fore two serious water resourcechallenges, which have yet to be effectively ad-dressed. Many of the world’s most successfulriver basin development programs—rangingfrom the legendary Tennessee Valley Authorityof the 1930s56 to the present-day Yangtze Basin

development project57—have relied on hydropowerto generate the resources necessary to fund ‘publicgoods’, such as navigation and flood control. (TheThree Gorges Dam, for example, is operated as aflood control dam, at an opportunity cost of amassive $1.5 billion a year in foregone powerrevenues.) While there is a history of successfulmultipurpose projects in India (including theBhakra Dam discussed earlier), the Government ofIndia now does not have an enabling frameworkwhich facilitates the same socially-optimal out-comes. In the Brahmaputra Basin, for example,there are large benefits from multipurpose storageprojects that are being foregone58 because powercompanies are licensed to develop ‘power-only’projects, which are typically run-of-the-riverprojects with few flood control or navigation ben-efits. This difficulty is exacerbated by the fact that‘host states’ get very large royalties (12 percent ofgross power sales) from hydropower sales. This isbest illustrated by considering the situation with

Figure 2.22: The development ofeconomically-feasible hydropower potential

in India in international context

of the world’s most environmentally and sociallybenign sites for hydropower (Figure 2.24).

Figure 2.25 shows how the level of hydropowerhas fallen relative to other sources. (Over the past6 years, installed hydropower capacity has in-creased by about 8500 MW, raising the percentageof hydro to 26 percent in 2005.) Over the past

55 Ramesh Bhatia, ‘Water and energy’, Background Paper for this Report, 2005.56 B. Barbara, A. Miller, A. Whitlock, and R.C. Hughes, ‘Flood Management—the TVA experience’, TVA, Oak

Ridge, 1998.57 Qiu Zhongen of the Changjiang Water Resources Commission titled ‘Study on the Comprehensive economic

Benefits of the Three Gorges Project’, presented at the UN Conference on Hydropower and SustainableDevelopment, October 2004.

58 George Varughese, Waters of Hope, Oxford and IBH Publishing, New Delhi, 1999.

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Source: Ministry of Power, 1998.



32

projects in Arunachal Pradesh. The Governmentof Arunachal Pradesh gives no weight to floodcontrol and navigation benefits (which would ben-efit the much larger populations in downstreamAssam) and gives high weight to any submergence(which would displace people in Arunachal). TheUnion Government has not found a formula for

getting good multipurpose outcomes from suchdevelopment opportunities.

As described earlier, while overall levels ofreservoir capacity in India are low in interna-tional terms, there is wide variation. Figures2.26a and 2.26b show, for each Indian basin,the annual flows and the number of days offlow that can be stored in reservoirs.

Noting that there are sharply diminishingadditional yield from a unit of storage oncethere is substantial reservoir capacity,59 thesefigures suggest:

• that there is little value to additional stor-age in most of the peninsular river basins,(the Cauvery, Krishna, and Godavari) andin the Narmada and Tapi;

• there are likely to be a number of attrac-tive possibilities for storing water in someof the ‘low storage basins’ (including es-pecially the Brahmaputra, Ganga,Brahmani, and Subarnarekha, as well asthe west-flowing rivers south of the Tapi

and, to a lesser degree, the Mahanadiand Godavari).

The idea of ‘linking rivers’ has sur-faced several times in India’s history.In 1984, the National Water Develop-ment Authority (NWDA) was set up toidentify appropriate inter-basin trans-fers and to undertake feasibility stud-ies for these. Figure 2.27 shows the linksbeing considered by the NWDA.

The idea of these inter-basin trans-fers has provoked much discussion andcontroversy in India. On the one hand,the idea seems obvious to most laypeople who observe annual cycles ofsimultaneous drought in some parts of

Figure 2.25: The declining role of hydropower in India

Source: National Commission on Water.

59 Walter Langbein, ‘Water Yield and Reservoir Storage in the United States’, USGS Circular, Washington DC, 1959.

Figure 2.24: Environmental and social indicatorsfor hydropower dams


33


the country and floods in others. On the otherhand, there are many legitimate (and some lesslegitimate) causes for concern. The legitimateconcerns are that each ‘link’ needs to be evaluatednot just from an engineering perspective but fromeconomic, financial, environmental, social, andpolitical perspectives. The politics are importantboth domestically and internationally. Domesti-cally, because such links could only materialize ifthere are willing ‘givers’(who would need to becompensated) as well as ‘takers’ (who would needto compensate). And internationally, because suchinter-basin transfers would affect neighboring coun-tries, who would necessarily have to be consultedand have their concerns taken into account.

The less legitimate concerns are those whichconsider any inter-basin transfers to be ‘un- natu-ral’ and even ‘causing mutation in the DNA ofrivers’! In fact, many arid countries have investedin major inter-basin transfers. In South Africa, forexample, 7 of the 9 provinces get more than 50percent of their water from inter-basin transfers.60

Figure 2.26a: Flows in billions of cubicmeters per year in the major river basins

of India

Source: GIS presentation by IWMI.

Figure 2.26b: The number of days ofaverage flow that can be stored in

different river basins in India

Source: GIS presentation by IWMI.

> 250

< 2020–5050– 100100–250

< 5 days30–70 days70– 100 days100–150 days150–200 days200–250 days

Figure 2.27: Possible inter-basin watertransfers

Source: NWDA.

60 Thinus Basson, Department of Water Affairs and Forestry, Pretoria, personal communication.


34

And India itself has benefited from a substantialnumber of beneficial inter-basin transfers (someold, like the Periyar project and some more recentsuch as the Bhakra-Beas system). The LinkingRivers Task Force headed by Suresh Prabhu, MP,functioned in a refreshingly different manner fromthe normal, ‘behind-closed-doors’ approach takento water issues in India. There were dozens ofpublic hearings and much public debate. Unfor-tunately, the quality of this debate was compro-mised because, despite numerous assurances tothe contrary, the NWDA has never made public(with one recent exception) the feasibility studieswhich it says exist.

There remains very substantial ‘unfinished busi-ness’ in the provision of irrigation and water andsanitation services, too.

Noting that there were a large number of irri-gation projects which had been started and notcompleted (some for 50 years!), and that therewere other situations where headworks were con-structed but command area development was in-complete, the Union Government wisely gave andgives high priority to the completion of that whichhas already been started. The Accelerated Irriga-tion Benefits Program is designed to completeprojects which would eventually serve 10 millionhectares, with about 2 million hectares completedto date. It will take about $10 billion to completethis program.61 Similarly, the Command AreaDevelopment and Water Management Program isdesigned to complete distribution services in an-other 10 million hectares.

While the returns to new irrigation investmentsare declining (Figure 2.28), it is clear that govern-ment will still need to make very substantial in-vestments in new irrigation in coming decades.The ‘India Water Vision 2025’62 estimated thatgovernment would need to invest about Rs 80 bil-lion a year for irrigation for the next 20 years.

As shown in Figure 2.29, the proportion of planexpenditures allocated to these sectors has beenfalling over time, with the Ninth Plan allocations toirrigation and flood control being about Rs 80 bil-lion a year.63 The Tenth Plan, however, representsa large increase, with annual allocations averagingabout Rs 170 billion a year.64 In addition to theseallocations, the water-related sectors absorb sub-stantial sums of hidden subsidies (Figure 2.30).

61 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,Background Paper for this Report, 2005. Gives the data: up until March 2003, Rs 85 + Rs 30 = Rs 115 billionhad been spent to create 2 million hectares of irrigated area. Unit cost is thus about Rs 60,000 per hectare. Theremaining 8 million hectares would therefore be expected to cost roughly Rs 480 billion, or roughly $10 billion.

62 India Water Partnership and Institute For Human Development, ‘India Water Vision 2025’, IHD, 2000.63 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,

Background Paper for this Report, 2005.64 Ibid.

0.6

0.5

0.4

0.3

0.2

0.1

0

19

73

–77

19

77

–78

19

83

19

87

–88

19

93

–94

19

99

–20

00

How much percentage of the poor is reduced whenthere is a 1 percent increase in the proportion of

cropped area which is irrigated

Figure 2.28: The poverty-reducing impactof irrigation is declining

Source: Analysis of 14 states by Dr. R.P.S. Malik,2005.

35


percent in urban areas. These num-bers are probably a better indica-tion of the infrastructure that hasbeen built than the services that areactually provided65—there are largenumbers who do not have adequateservices. The large subsidies, justi-fied in the name of the poor, in factbenefit those who get water (peoplewho can exert influence on rationedsupplies, and are therefore not thepoor) and those who use a lot of water(the middle class and rich). The pri-mary immediate challenges for thewater and sanitation sector are toextend services to the unserved, toimprove the quality of services tothose who are nominally served, andto do this through utilities which are

efficient and accountable. Most of the rev-enues for these services are going to haveto come from users, because (as discussedlater) the urban authorities are going tohave to invest massive amounts of publicmoney in the sewerage systems needed toclean up the polluted rivers.

The India Water Vision has estimatedthat it will require about $1.6 billion ayear for the next 25 years, if all are to beprovided with water supply services, andabout $0.8 billion a year for householdsanitation.

Finally, it is obvious that there are hugefinancial needs for addressing the waterenvironment. There is no systemic study

of what the aggregate ‘needs’ are, or what the pri-orities are. And there are only very patchy data—the report of the National Commission on IntegratedWater Resources Management, for example, doesnot give a single piece of hard data on water qual-

65 Smita Misra, World Bank, personal communication

20

15

10

5

0

% o

f to

tal

Agriculture, R

ural Developm

ent

Irrigation & Flood C

ontrol

EnergyIndustry &

Minerals

Elementary Education

TransportSecondary Education

Medical &

Public Health

Other Education

General Econom

ic Services

Water Supply &

Sanitation

Social Welfare &

Nutrition

Housing

Other Subsidies

Source: Morris, 2005.

Figure 2.30: Subsidies to water-related sectors

On the water supply and sanitation side, offi-cial figures show coverage with water supply to be94 percent in rural areas and 90 percent in urbanareas, and sanitation 24 percent in rural and 62

Figure 2.29: Allocations to major water infrastructureare declining



36

ity. The magnitude of the organizational and fi-nancial challenge for dealing with the major issueof river pollution is illustrated in a brilliant recentstudy by the Centre for Science and the Environ-ment66 of the Yamuna Action Plan (see Box 2.1).

The Yamuna case shows the dismal and deterio-rating state of one of India’s major and most sa-cred rivers. It also shows the scale of theorganizational, planning, and financial effort re-quired to even make a dent in the problem, andsuggests both the importance and limitations of alitigation-based approach to dealing with theseissues. It does show that there is a rising awarenessabout the importance of environmental issues, anda growing willingness to use financial and othertools to address these.

In summary, the water sector in India faces amassive financial challenge. The annual require-ments for rehabilitating the existing infrastructureprobably amounts to Rs 200 billion. The India WaterVision projects need new investments—with verymodest allowances for sewage treatment—of aboutRs 180 billion a year.67 Annual allocations in therecent past have varied between Rs 90 and Rs 170billion a year.68 At the same time, there are heavy(and reasonable) demands for public investmentsin other infrastructure. It is estimated, for example,that the investments needed in roads, ports, rail-ways, airports, and telecoms for the next decadewill average Rs 2000 billion a year, and that thegovernment will be about to finance, at most, aroundtwo-thirds of this.69

66 Sunita Narain and Suresh Babu, ‘The political economy of defecation’, Down to Earth, 30 April 2005, pp. 22–33.

67 A.D. Mohile, ‘The evolution of national policies and programs’, Background Paper for this Report, 2005.68 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,

Background Paper for this Report, 2005.69 Omkar Goswami, ‘The urgent need for infrastructure’, The Economic Times, Delhi, 25 April 2005.70 The Sarkaria Commission, in A. Sekhar, ‘The evolution of water development and management: the perspective

of the Planning Commission’, Background Paper for this Report, 2005.

Box 2.1: Water environment challenges—the case of the Yamuna River around Delhi

There are several bits of ‘good news’. First, that India has such competence in the environmental watchdog sector

that produces first-rate analyses, such as this piece on the Yamuna, and gets it into the public domain and to

the attention of politicians, the courts, and the government. Second, that over the past 15 years the Supreme

Court has played an active role in pushing for greater attention to environmental issues, not least on the Yamuna.

Third, that in some instances at least—and the Yamuna Action Plan is one of these—the government, with the

support of donors (the Government of Japan, in this case), are investing heavily in environmental improvement

projects, with about Rs 1500 crore invested in the Yamuna Action Plan (about Rs 600 crore of which were

invested in Delhi).

There is, however, ‘bad news’, too, and lots of it.70 First, is the fact that this important start has barely scratched

the surface of what is needed. Repairing the plumbing that feeds into sewage treatment plants is a huge and very

difficult task. A large portion of the 5600 kilometers of sewers are silted or settled, with only an estimated 15

percent of the 130 kilometers of trunk sewers in order. And the 17 sewage treatment plants have a capacity to

treat only about half of the sewage produced, which in turn covers only about 60 percent of the population of

Delhi. Second, are the problems of operation—only about 60 percent of the capacity of the existing treatment

plants is actually used. The end result is that less than 20 percent of the pollution load into the river is actually

37


treated. Since the BOD load on the river has more than doubled in the last 10 years, it is no surprise that conditions

in the 22-kilometer stretch of the Yamuna around Delhi have gone from terrible to appalling. As shown in Figures

B2.1 and B2.2, the river is dead (there is no dissolved oxygen in the water), and there are more than 10 million

fecal coliforms per 100 ml, a level over 10,000 times what is considered a threshold for ‘bathable water’. Third,

there are questions about the implementability of the rulings of the Supreme Court. In 1985, the court ordered

1996–2003: Levels of Dissolved Oxygen (DO) havedrastically reduced, even in the cleaner stretches

Taj

ewal

a

Kal

anau

r

Sone

pat

Palla

Niz

amud

din

Agr

a ca

nal

Maz

awal

i

Mat

hura

U/S

Mat

hura

D/S

Agr

a U

/S

Agr

a D

/S

Bat

tesh

war

Eta

wah

UD

I

Aur

aiya

Juh

ika

Dilutedstretch

16

12

8

4

0

Himalayan stretch

Upperstretch

Del

hi s

tret

ch Eutrophicated stretch

DO

in m

illi

gram

per

lite

r

Minumum for bathing

4.9

11.7

8.146.1

Figure B2.1: Yamuna River dissolved oxygen

Source: CSE, 2005.

100,000,00010,000,000

1,000,000100,000

10,0001,000

1000

Taj

ewal

a

Kal

anau

rSo

nepa

t

Paila

Niz

amud

din

Agr

a ca

nal

Maz

awal

iM

athu

ra U

/S

Mat

hura

D/S

Agr

a U

/S

Agr

a D

/S

Bat

tesh

war

Eta

wah

UD

IA

urai

ya J

uhik

a

1996–2002: Levels of fecal coliform increased allround, indicating greater bacterial contamination

Himalayan stretch

Upperstretch

D e l h istretch

Eutrophicated stretch Dilutedstretch

20,400

9,062,22Desirable for bathing

mpn

per

100

ml

11,850

752.5

1996 2002

Figure B2.2: Yamuna River quality—fecal coliforms

Source: CSE, 2005.


38

the construction of Common Effluent Treatment Plants to treat 190 mld of industrial sewage; 20 years later,

only 53 mld can be treated. In 2001, the Supreme Court ordered the government to ensure a level of dissolved

oxygen of 4 parts per million within 2 years; today, the level of dissolved oxygen is zero. In 1992, the Supreme

Court heard a plea to ensure that all of the waters of the Yamuna could not be diverted before it reached Delhi—

the ‘minimum flow case’, ‘is still on’. The lessons are that judicial activism can not and should not be a substitute

for effective government action.

A State in Disrepute

As described in detail in chapter 2, India faces adaunting set of water-related challenges. There isstill much new infrastructure to be built, but by farthe most important and serious challenges are thoseof management—of existing infrastructure, and ofthe water resources itself. And here there is a majorproblem—governments at both the Union and statelevels remain focused, in the words of the PlanningCommission ‘on the problems of the past’, and(with a few notable and partial exceptions) are yetto even initiate a discussion of the changes whichare necessary to confront the urgent and majornew challenges of water management in India.

As the problems with the current system becomemore clear and serious, numerous high-level com-missions have been appointed over the past 15years—among others to examine Union responsi-bilities on inter-state rivers,1 pricing,2 and dealingwith integrated water management3—and newnational and state policies have been promulgated.In many cases the recommendations are sensible,but in most instances the commissions come andgo, the policies are promulgated, and the machinegrinds on unchanged. In the words of a majorGovernment of India/World Bank review in 1998:‘in recent years there has been realization andpolicy pronouncements regarding the need to

CHAPTER 3AN INVIGORATED INDIAN WATER STATE FORTHE 21st CENTURY

address these problems; however, the policies havenot been translated into action’. Some experiencedcommentators have argued that reform of govern-ment machinery for managing water in India is ahopeless case. Tushaar Shah4 suggests that, ‘indesigning water governance strategies for India, itseems sensible (in the intermediate run) to take the‘nature of the state’ as given ... rather than assumethat the nature of the state will change to resolvewater sector problems’.

This disconnect between problem/pronounce-ment and practice has led to widespread loss oflegitimacy and credibility of the state apparatusfor water development and management. This isevident most obviously in the fact that most citi-zens have come to rely on informal mechanismsfor getting the water they need to grow their cropsand for their household needs. It is patent in everyencounter between the state and citizens on watermatters, and it is expressed acerbically every dayin the press—‘(government) makes a farce of theissue staring it in the face: how the country is tolive and share its now-scarce water resources’5 —and in the numerous water-related cartoons.

To an observer who has interacted with Indiaover the last 30 years, the greatest and most prom-ising change has been that the standard response toany discussion of reforms has changed from ‘well

1 The Sarkaria Commission , in A. Sekhar, ‘The evolution of water development and management: the perspectiveof the Planning Commission’, Background Paper for this Report, 2005.

2 Vaidyanathan Committee, Report of the Committee on Pricing of Irrigation Water, Planning Commission, NewDelhi, 1992.

3 The National Committee on Integrated Water Resources Management, 1999.4 Tushaar Shah, ‘Accountable institutions’, Background Paper for this Report, 2005.5 Sunita Narain, ‘The drought within’, Business Standard, New Delhi, 3 August 2004.


40

that cannot work here, because India is such aspecial case’ to ‘why not?’. Regrettably, much ofthe water bureaucracy of India still lives in the ‘nothere’ rather than the ‘why not?’ world.

To a large degree, this crisis of the water stateis a reflection of the general set of challengesfacing the government in a rapidly evolving In-dia. A recent book, Governance, by a prominentminister in the last Union Government states thegeneral case:

‘The malaise affects all the institutions of state....The malaise is well known to those in the system,too. Proposals for reforming that system are adoptedfrom time to time and decrees go out to implementthe measures ‘in a time-bound manner’. But inevery case the proposal is put through the samemill ... and ground to dust.... Mere announce-ments amounted to reform.... (many) spelled amajor advance ... but now actual governance hasto be changed ... and the way to reform the systemis not to tinker with this procedure or that institu-tion, but to jettison the function, to hack away thelimb whenever this is possible.... Continue to trans-fer functions and power from the state structure tosociety. A leaner machine, like a leaner body, willthen be easier to improve. For we need to improvethe state (because) there are several tasks that onlythe state can discharge’.6

The Central Institutional Challengesin Building ‘the new Indian waterstate’

Water management is one of these ‘several taskswhich only the state can discharge’. Chapter 2 ofthis report describes a wide range of tasks which(a) the state currently undertakes and performspoorly (maintain stocks of infrastructure andensure that they provide good services in a finan-

cially sustainable way), and (b) only the state canperform, but about which it does little (including,clarifying who has an entitlement to use water atall levels, from the inter-state to the canal distribu-tary; regulating groundwater; providing publicgoods including flood protection and seweragetreatment).

Chapter 2 also describes the coping mechanismswhich farmers, households, and industry have dev-eloped to ‘work around’ a poorly functioning pub-lic water sector, and how these ‘exit options’ arebecoming less and less feasible as resources—andespecially groundwater, which has been the ‘safetyvalve’—become scarce.

If it were easy to change the way in which thestate performs, this would have been done sometime ago. There is ample evidence that changes inorganizational arrangements within the existingsystem of incentives is akin to shuffling the deck ofchairs on the Titanic, and will make no difference.For this reason this report will not examine propo-sitions such as the much-discussed one of ‘creatinga single Union Ministry which will deal with allwater issues’, because such a change would makelittle fundamental difference in the way in whichthe state operates.

The only way in which change will take placeis if reform-minded political leaders shift the bal-ance of power between the state machinery on theone hand, and users (farmers, citizens, industries)on the other. The state needs to surrender thosetasks which it does not need to perform to others,and develop the capacity to do the many thingswhich only the state can do. Figure 3.1 gives aschematic representation of how the Indian watersector looks ‘now’, and a vision of how, on thebasis of what works in well-performing water sec-tors in other countries, it might look ‘then’, afterthe needed changes.

6 Arun Shourie, Governance and the Sclerosis that has set in, Rupa & Co, New Delhi, 2004, p. 21.

41

An Invigorated Indian Water State for the 21st Century

The main features of the changes are:

1. that the public sector will continue to havean important role in providing irrigationand water supply services but;

2. this will now be in competition with a largeand vibrant non-governmental sector—in-cluding the private sector, NGOs and coop-eratives—for provision of formal irrigationand water supply services;

3. as service provided by this mixed servicesector improves, large numbers of peoplewill move from the informal, self-providing,water economy into the formal servicesector;

4. the public sector will play an expanded rolein the financing and provision of publicservices (such as flood control and sewagetreatment);

5. the government will develop a set of laws,policies, capacities, and organizations fordefining and delivering an enabling envi-ronment, with special emphasis on theestablishment and management of water en-titlements, and the regulation of services.

Keeping this desired evolution in mind, andbuilding on the analysis presented in chap-ter 2, this section describes some of the criti-cal changes which can get this reformstarted, discusses some of the areas in whichprogress is being made in India, shows whatchanges other countries faced with similarchallenges have made and how they havemanaged the process, and offers some ‘rulesfor reformers’ who are part of this changeprocess.

Instruments, not OrganizationalForms, are Key

Discussions about ‘water strategy’ in India aretypically dominated by ‘we need to spend more onflood control, or on rehabilitating tanks, or link-ing rivers, or on rainwater harvesting or on de-salination’, with the answers usually dependingon the regional experience of the minister or bu-reaucrat who is leading the discussion. In someinstances, these are supplemented by extensive setsof recommendations of a very specific nature—what crops should be grown where, how tariffsshould be manipulated to achieve a host of objec-tives. The nature of these discussions reflects, in

THENNOW

1. Public provision of services

2. Services by the private sector

& other non-govt suppliers

3. Informal provision of services

4. Public provision of public goods

5. Enabling environment

functions not performed 6. A functioning

enabling environment

Figure 3.1: The desired evolution of functions and actors


42

the words of the former Chair of the Central WaterCommission, a view of water that is embedded inthe command-and-control view of the economy.7

The dialog within the water sector, with someimportant exceptions, has not adjusted to eitherthe broad liberalizing economic changes initiatedin the Indian economy in 1991, and has not inter-nalized the lessons from water management re-forms throughout the world.

These discussions have seldom involved an as-sessment of the incentives which give rise to presentperformance and what must be done to changethose incentives (and thus behavior). The memberof the Planning Commission who is responsible forwater and power has said it well: ‘... it is theabsence of sound incentives which is the funda-mental problem facing water management in In-dia’.8 What would such an incentive-basedapproach to water reform in India involve?

Most fundamentally it would involve, as sug-gested in Figure 3.1, a major change in the role ofthe state. The government would allow others (in-cluding the private sector) to compete for the rightto supply water and irrigation services, while thegovernment would turn its attention to the financ-ing (and in some cases the delivery) of flood con-trol, sewage treatment, and other public goods andwould have as its central task the development andimplementation of an integrated package of instru-ments—entitlements, pricing, regulation—whichwould structure the relationships among water usersso that water is used efficiently, and environmentaland financial sustainability is assured.

Many discussions of water reform in India (andelsewhere) focus on organizational issues—the

perennial favorites being Participatory IrrigationManagement (PIM)and a single ministry coveringall water (for water resource management). Theperspective of this report is that the primary em-phasis for institutional reform should be, in thewords of Nobel Laureate Douglass North,9 ‘on therules of the game’ that shape behavior. That is, theprimary focus should be on instruments, ratherthan organizational forms. (Organizations do, ofcourse, matter. For example, all well-functioningwater systems separate the providers of servicesfrom the overall water resources managementauthority. But this is something that is much moreabout the instruments that govern the relation-ships between regulator and user, than it is aboutnew names and separation of cadres, the issueswhich too often occupy center stage in discussionsof Indian water reforms.) Accordingly, this sectiondescribes each of the central instruments that wouldform part of an institutional package of reforms,stressing continuously that this is an integratedpackage in which the whole is more than the sumof the parts.

Consider, for example, the issue of irrigationservices. In his excellent book on the politicaleconomy of water in peninsular India, DavidMosse10 describes the necessary set of interlockingchanges well: ‘Since irrigation involves widerhydraulic systems which are beyond the control ofWUAs and which inevitably render them dependentupon the state, farmers organizations have littlechance of surviving as independent self-managedsocial organizations. The next step therefore doesnot lie in knowing how to organize farmersorganizations ... but how to overhaul theadministrative system so that the state irrigationdepartments and farmers can be bound into

7 A.D. Mohile, ‘The evolution of national policies and programs’, Background Paper for this Report, 2005.8 Kirit Parikh, at the Ministry of Water Resources National Meeting with the States, New Delhi, 2004.9 Douglass C. North, ‘Economic Performance Through Time’, Nobel Prize Lecture, 9 December 1993, in Nobel

Lectures, Economics 1991–1995, Torsten Persson, World Scientific Publishing Co., Singapore, 1997.10 David Mosse, The Rule of Water: Statecraft, Ecology, and Collective Action in South India, Oxford University

Press, New Delhi, 2003.

43


productive relations. PIM cannot become a realitynor can it become self-sustaining without therestructuring of state irrigation departments....What is striking in India’s IMT/PIM programs ishow little attention is given to water rights. Thegovernment’s rights to water are unchallenged,while its obligations to deliver water to WUAs israrely legally binding ...’. In short, as illustratedin Figure 3.2, a sound irrigation service modelrequires mutually-reinforcing changes in all three‘legs of the stool’.

irrigation and water supply services is the mostdamning testimony to the failure of the govern-ment-dominated formal service provider model.There are a couple of exceptions—TISCO inJamshedpur,12 for many years, and recently thetextile town of Tirapur in Tamil Nadu—whereindustry has such a dominant presence in a par-ticular town, that it has simply taken over theresponsibility for providing water supply servicesto households. In these cases, service quality hasimproved substantially. But they have largely beenseen as anomalies rather than models on which tobuild. The situation in India remains one in whichpublic monopolies face no competition either ‘inthe market’, or ‘for the market’ (where head-to-head competition is not possible).

The one over-riding lesson from the global revo-lution in the provision of public services is thatcompetition matters. In some cases competition‘in the market’ is possible. For example, it is tech-nically quite conceivable, in the large irrigationsystems, to unbundle the bulk and distributionfunctions and then have a variety of forms—coop-eratives, the private sector—for providing distri-bution services to farmers. As has happenedelsewhere (in the airlines and telecoms sectors inIndia, for example, and in a plethora of publicservices around the world) such changes wouldunleash a chain of healthy systemic changes whichwould transform the business of the provision ofpublic services. First, it would require a clear con-tract between the bulk provider (the Irrigation De-partment) and the non-governmental providerwhich would define the rights and responsibilities(for water and for payments) of both parties. (Sucha contract between the Delhi Jal Board and theprivate operator of the Sonia Vihar water treat-ment plant in Delhi, shows this process at work.

11 Tushaar Shah, ‘Accountable institutions’, Background Paper for this Report, 2005.12 R. Bhatia, R. Kumar, S.Misra, and N. Robins, ‘Full Cost Pricing of Water—Options and Impacts: A Case Study

of the Impacts of Moving to Full Cost Pricing on Freshwater Demand, Recycling and Conservation at the TataSteel Company, Jamshedpur, India, UNIDO-IIED, 2000, (draft)

Figure 3.2: The basis for sound irrigationservice provision

Stimulating Competition in and forthe Market of Water Supply Services

As described in chapter 2, the provision of formalirrigation and water supply services in India is thevirtual exclusive monopoly of government agen-cies, which do not provide services to many—es-pecially the poor—and provide poor qualityservices to those who do have access. As TushaarShah11 has noted, the large-scale self-provision of


44

Delhi Jal Board is responsible for ensuring thebulk water supply for the plant, and pays a fine ofRs 50,000 a day if the bulk supply is not provided.This has led to the DJB making unusually ener-getic efforts to ensure provision of bulk water sup-ply for the plant13 and, coincidentally for the peopleto be served. That said, these efforts remain fraughtwith the usual problems arising from lack of clar-ity about water entitlements—one day the Govern-ment of Uttar Pradesh says it is committed tosupplying water to Delhi, the next day the situa-tion has changed,14 with the fate of water supply toone of the world’s largest cities depending on short-term political haggling.) Second, it would requirea clear contract between provider and those whoreceive services (probably Water Users Associa-tions in most irrigation cases). The absence of suchcontracts is one of the major reasons why themonopoly-providers remain unaccountable tousers, and information remains so poor and opaque.As always, discretion and lack of accountability isthe handmaiden to corruption. (In Klitgaard’s15

famous equation ‘corruption = monopoly + discre-tion – accountability’.) The Vaidyanathan Com-mission on the Pricing of Irrigation Water16 putsthis clearly in the Indian context: ‘... the discre-tionary powers of the bureaucracy ... provided bythe existing system are powerful reasons for thefunctionaries to oppose any change which reducestheir power and enhances the role of user in deci-sion-making’. Third, it would require that costsare ‘revealed’, as also the distinction between le-gitimate costs and those—such as massive over-staffing—which should not be passed on to users.Fourth, the entry of private and other non-govern-mental providers would naturally lead to com-parisons between the costs and quality of servicesprovided by different providers, and thus pres-

sures—for the first time—on public providers toimprove their performance. (This latter factor has,arguably, been the single biggest advantage of theintroduction of the private sector in other coun-tries. In the US, for example, public water utilitieshave improved, in large part, as described in astudy by the US National Academy of Sciences,17

‘because if public utilities did not improve theywould be taken over by the private sector’.)

Until quite recently, it was assumed that theprivate sector could play a role in the provision offormal water services in cities and towns, but thatthis would never happen in irrigation. Indeed, themix of public and private financing for the provi-sion of services does vary widely for different typesof infrastructure (Figure 3.3).

But recent developments have shown that whilemost canal irrigation services will remain in pub-lic hands for the foreseeable future, the privatesector can play the same stimulating, competitiverole that it plays in water supply. Pakistan is con-sidering experimenting with ‘professional man-agement’ contracts, whereby a canal commandwould be given under management contract to aprivate sector operator who would operate underlicense to provide farmers’ organizations with theirwater entitlements. In other countries—Chile andMorocco—for example, the authorities have gonefurther and given out ‘reverse concessions’ wherebyprivate operators operate public irrigation sys-tems, with the ‘winning operator’ being the onethat requires the smallest subsidy to provide theservices. There are many advantages of such delega-tion to the private sector, and it is an approachwhich has worked well in other sectors—such ashighways—in India, as described by Nirmal

13 ‘Delhi seeks Uttaranchal Water’, Asian Age, Delhi, 23 April 2005.14 ‘Day after, UP turns tap off, on’, Hindustan Times, 17 June 2005.15 Robert Klitgaard, Controlling Corruption, Berkeley and Las Angeles: University of California Press, 1988.16 Report of the Committee on Pricing of Irrigation Water, Planning Commission, New Delhi, 1992.17 National Research Council, ‘Privatization of Water Services in the United States: An Assessment of Issues and

Experience’, Washington DC, 2002.

45


Mohanty18 and Sebastian Morris.19 These and other‘special purpose vehicles’ were being explored aspart of the work of the now-disbanded Task Forceon Linking Rivers. Important as such innovationsare, it is important to realize that they do notcreate something out of nothing and that the basicfinancial arithmetic remains that revenues still haveto come from either users or taxpayers.

Similarly, in the historically-public business ofwastewater treatment, there is much innovationtaking place. In relatively advanced developingcountries, typically less than 25 percent of sewagetreatment plants actually function.20 Three yearsago, the Federal Government in Brazil took aninnovative approach to this problem. It set up a

fund called ‘Compra de Esgoto’ (or ‘buying treatedsewage’), whereby municipalities are paid for theproduction of treated sewage, not for the construc-tion of treatment plants. The program is workingwell, and producing much better outputs than thetraditional ‘pay for inputs’ approach.

Sebastian Morris21 has described in detail someof these possibilities and their advantages, andNirmal Mohanty22 describes how such arrange-ments have performed well where they have beentried in India (for example, with annuity contractsin the National Highways Development Program).And Vijay Vyas23 notes that the model of having‘bulk water provided to private parties who canretail it to actual users has worked well with coope-rative institutions’.

18 Mohanty, Background paper for this Report.19 Morris, Background paper for this Report.20 World Bank, ‘The Environment and Development’, The World Development Report, Washington DC, 1992.21 Sebastian Morris, ‘Pricing and financing’, Background Paper for this Report, 2005.22 Nirmal Mohanty, ‘Moving to scale’, Background Paper for this Report, 2005.23 V.S. Vyas, ‘Principled pragmatism, or the political economy of change’, Background Paper for this Report, 2005.

√ Telecoms

Public

√ Multipurpose dams

√ Rural electrification

√ Rural roads

√ Canal irrigation

√ Sewerage/Sanitation

√ Rural water

Private

√ Run of the river hydro

√ Urban water supply

√ Groundwater irrigation

√ Bulk water supply

√ Thermal power generation√ Solid waste

√ Gas pipelines

√ Bus transport

√ Passenger trains

√ Metro√ Roads

√ Rail freights

Figure 3.3: Typical public and private roles in the provision of infrastructure


46

As described by Sekhar,24 in recent years therehas been a lot of discussion about ‘benchmarking’in irrigation services, worldwide and in India. TheInternational Commission on Irrigation and Drain-age and others have developed a useful set of prac-tical tools for ‘benchmarking’ of irrigationservices,25 and the Asian Development Bank hasproduced similarly important material for com-paring the performance of water utilities acrossAsia.26 The common reaction to these materialshas been for the public utilities to see these astechnical inputs to be considered by the engineersof the agencies when considering if and how theymight change their modus operandi.

This misses the central value of such tools, whichis to expose monopolies to forms of ‘comparativecompetition’, and in which public discussion andtransparency are as important as the technical in-formation. In some cases, technical benchmarkinginformation has been supplemented by ‘account-ability’ scorecards in which users are directly askedtheir perception of critical service issues. Thesehave been done by the Public Accountability Cen-ter in Bangalore.27 The Irrigation Department, whichparticipated in this experiment, saw this initiativeas a threat and refused to cooperate in disseminat-ing the information or in extending the idea.

The stimulation of ‘competition in the irriga-tion distribution market’ is of high priority. It willrequire a lot of technical assistance from profes-sionals from countries who have done this (withAustralia being a ‘best practice’ case). Importantquestions include: How does one ensure a levelplaying field? How might workers in the Irriga-tion Departments be encouraged, as was done in

Mexico City,28 to form their own irrigation ser-vices companies, thus ensuring that their expertiseis put to work, that resistance to the change isreduced, and even that this helps retrench a heavilyover-staffed state? How should auditing of perfor-mance and flows of water and money be done sothat audits are trusted by all? How does one writeenforceable contracts ‘up’(between the serviceprovider and the government), and ‘down’ (be-tween the service department and the users)? Noth-ing like this has been done in India, but some stateswhich are working with the World Bank—includ-ing Maharashtra and UP—are now consideringsuch experiments. It is essential that these effortsbe given high priority and supported with the nec-essary technical assistance and capacity buildingsupport.

Empowering Users by giving themClear, Enforceable WaterEntitlements

Chapter 2 argued that the absence of clear, en-forceable water entitlements at all levels is at theroot of many of the service shortcomings, wateruse inefficiency, corruption, financial problems,and conflicts which plague the water sector in India.

In a definitive legal review of water rights inIndia, Chattrapati Singh29 provides an elegantoverview of the history and politics of water rightsin India. Singh notes that ‘... right over water hasexisted in all ancient laws, including our owndharasastras and the Islamic laws ...’. He notesthat ‘the pre-capitalist customary conceptions ofgroup rights have competed with a parallel set ofpost-capitalist individual rights’, and that the vari-

24 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,Background Paper for this Report, 2005.

25 ICID and others benchmarking.26 Asian Development Bank, Utilities Data Book, Manila, 2003.27 Public Affairs Centre, ‘Towards user report cards on irrigation services: Learning from a pilot project in India’,

Bangalore, December 2002.28 Manuel Contijoch, personal communication.29 Chattrapati Singh, ‘Water Rights in India’, Water Law in India.

47


ous 19th century irrigation and canal acts ‘impli-citly recognize individual rights in granting thatthe government will grant compensation for dam-age done in respect of any right to water’.

In India, there are excellent cases of clear en-titlements at the international level (the Indus andGanga Treaties). In India, as in all parts of theworld where water is scarce, informal water mar-kets have arisen, in which those who have (im-plicit) rights sell water to those who need it.

Moving towards a formal water entitlement sys-tem first requires clarifying that water is publiclyowned and that a water entitlement is usufructory—it is a right to use, not a right to own water.30 Asstated by Chattrapati Singh: ‘... the only kind ofrights that can become operative for anyone areusufructory rights, that is right to use water. Thereal question is who has what kind of right touse water, and what corresponding dutiesattached to it.’

In all cases, including in India, the ownershipof water resides, and must continue to reside, withthe state. The essence of the change to a formalsystem is that water entitlements (of individualsand communities, including traditional users) areseparated from land rights (although land rights,along with traditional rights of non-landholders31

would logically be the major factor in theassignment of the original rights32), and then en-joy the same legal certainty as land and otherproperty rights.

Experience throughout the world33 has shownthat, after lengthy debates about entrenching ex-isting privileges, the only politically-feasible solu-

tion to the establishment of initial entitlements isto recognize de facto existing rights, making ad-justments where the sum of existing uses exceedssustainable use (which is the case in many aqui-fers). As described by Maria Saleth,34 the usualmechanism is for users to apply, within a specifiedperiod, for a formal entitlement or license, basedon proof of their water use over the preceding 5years. Licenses are generally waived for smallabstractions for meeting immediate domestic uses.

Once established, such entitlements give rise toa series of fundamental and healthy changes. First,those requiring additional water (such as high-value agriculture and people living in growingcities) will frequently be able to meet their needsby acquiring the entitlements of those who areusing water for low-value purposes. (As describedin Box 3.1, there is an important recent example ofsuch ‘trades’ in India. In 2003, 70 percent of allwater used by the city of Chennai was leased fromthe wells of nearby farmers.)

Second, there are strong incentives for low-valuewater users to voluntarily ‘forebear’ from use,making reallocation both politically attractive andpractical. For example, in the pioneering water-shed management project in Sukhomajri, initialentitlements were distributed to all in the village,giving people a valued new asset. Many of thepoor later chose to cash in their entitlements byselling them to landowners who could put the waterto better use.

Third, the establishment of formal water en-titlements gives rise to strong pressures for im-proving the data required to manage the resource.And fourth, this reduces the pressures of a ‘race to

30 World Bank, Water Resources Strategy 2003, Washington DC.31 Chattrapati Singh, ‘Water Rights in India’, Water Law in India.32 Ibid.33 Maria Saleth, ‘Water rights and entitlements’, Background Paper for this Report, 2005, and John Briscoe,

‘Managing water as an economic good: Rules for reformers’, Water Supply, 15 (4), 1997.34 Maria Saleth, ‘Water rights and entitlements’, Background Paper for this Report, 2005.


48

Box 3.1: Incipient water trading around Chennai

The city of Chennai suffers from chronic and severe water shortages. In the past it has meant that major industries

(fertilizer and chemical factories) have closed for months because of water shortages. And it has meant, and

means, that people in this city have learned to live with small amounts of water for a few hours a day. The standard

coping strategy—sinking household tubewells—became ineffective as water tables dropped and as salt water

from the sea intruded into the aquifer under the city. There were a number of different proposals for augmenting

the meager supplies of water to the city (in addition to strenuous efforts to repair leaks, and more generally

improve the quality of the utility—Metrowater—and its infrastructure). In 1996, Metrowater and the World

Bank did an assessment of the feasible alternatives for supplying additional bulk water to the city. The major

sources being considered by the city were the Veeranum Tank (which required the construction of a 250 kilometer

pipeline) and desalination, both of which were very expensive, especially relative to the domestic tariff of Rs 2

per cubic meter. But what was striking was that, while the city suffered from water shortages, there were large

areas growing paddy just north of the city, using water from the AK aquifer. A detailed prior hydrogeological

study indicated that the sustainable yield of the aquifer was very large, and back-of-the-envelope calculations

showed that the water would cost the city just a small fraction of the cost of water from any other source, as

shown in Figure 3.4.

‘This is all well and good,’ explained the Metrowater officials, but ‘that water is used by farmers, who are a

strong lobby and who will not permit us to take their water’ (showing, incidentally that the ubiquitous Indian

55

50

40

35

30

25

20

15

10

10

5

00 1000 2000 mld 0 100 200 300 400 500 600 700 800 900 1000 MCM/year

Quantity of raw water

Recycledsewageforindustry

Desalinationof sea water

Existingsources

Palaraquifer

Chembaram-bakkamTank

Krishnasupply

VeeranumTank

AKAquifer

Cos

t of

wat

er, r

upee

s pe

r cu

bic

met

er

Figure 3.4: Cost and quantity of raw water from different sources for Chennai

49


the bottom’, since those who have entitlementshave a powerful interest in the sustainability of theresource base. This is not to suggest that there isunanimity on the concept of water entitlements,for some see this as an unhealthy commodificationof public goods. Nor is it meant to imply that it issimple to introduce entitlements-based systems fora fugitive resource with deep cultural implicationsin administratively weak environments and in onesin which there are millions of small users. None-

theless, the last 10 years have seen enormousprogress globally in the use of formal waterentitlements—with well-functioning systems nowworking in Australia, Chile, Mexico, Argentina,and South Africa. (Box 3.2, from Australia, pro-vides a particularly clear description of the centralbut quite different roles of water entitlements andpricing in sustainable water management.) It isnoteworthy that all such established systems areworking, often after initial adjustments, and are

BOX 3.2: Water entitlements are the principal mechanism for ensuring efficiency,sustainability, and voluntary reallocation of water

Letter to the Editor (Unpublished), The Economist, July 2003:

Your special survey on water (‘Priceless’, 19 July) embodies in its title a prejudice that experience from the

real world rarely justifies. You refer specifically to the experience of the Murray-Darling (M-D) basin.

In the M-D, water use is constrained to equal the sustainable supply through a complex system of water rights,

defined in terms of volumes and security of supply. In this drought year—the worst for more than a century—

many users are receiving less than 16 percent of their ‘normal’ entitlement, and that restriction is enforced entirely

through the water rights system—not through pricing mechanisms.

policy of ‘priority for drinking water then agriculture’ was impossible to implement in practice). ‘But what if you

bought the water from the farmers,’ they were asked. ‘No, our farmers are very wedded to growing paddy, they

would not be interested in giving up their water ...’. The seed of this idea was, nevertheless, planted, and in 2003,

70 percent of the raw water for the city came from buying water from farmers in the AK aquifer! ‘Did the farmers

react unfavorably as you thought?’ Metrowater was asked. ‘The farmers are not happy,’ was the reply. ‘Why?’

‘Because all the farmers want to sell their water, and we cannot buy from all of them!’ was the reply.

There is both good news and bad news in this story. The good news is that the experience unequivocally

showed that farmers were quite willing to accept ‘forbearance payments’ to desist from irrigated crops, when

they got more money that way than from planting water-guzzling crops like paddy. And in this is one of the very

rare cases where a ban on additional wells is actually enforced. However, there is a darker side to the story, too.

Eight years ago, Metrowater had funding for a major study which would look both at the hydrogeology (how

much water could the aquifer yield on a sustainable basis?) and at institutions (how to set up formal water

entitlements which would add up to the sustainable yield and which could be leased or sold to the city?). As is

standard for Indian water institutions, Metrowater showed little interest in the second, which has not yet been

done. In fact, they did worse—they pumped far more from the wells than could be sustained over time, and did

nothing to put in place arrangements to safeguard the aquifer.


50

Formally codifying these property rights—in systems that were already well managed and orderly; where

customers were educated and accustomed to following rules; and allocation rules were already broadly in place

and enforced—took a number of decades. Once this process was complete, it was possible to introduce a system

of trading in these codified property rights, allowing managers the flexibility to better manage their enterprises

(in some areas last year as much as 80 percent of water delivered was traded). The water rights system also

provides the basis for improved environmental management. The parallel system of charging for water services

in the M-D is quite separate from the sale and purchases of water rights, and exists to ensure that the income

of water supply agencies is adequate to cover ongoing maintenance and projected major capital replacements.

Three lessons may be drawn from this successful achievement of sustainable financial management and

sustainable resource use: First, the primary means of balancing supply and demand for water resources is

definition of water rights consistent with available supply. This is the approach followed in Australia, Israel, the

US, and elsewhere. Second, defining water rights is contentious and difficult at the best of times. Where water

is already over-allocated so that ‘tail enders’ often get no water, or fresh aquifers are consistently overdrawn

to meet current demand, defining and enforcing sustainable water rights is an enormous political and social

challenge. This is the case in many water-short developing countries. Third, the primary role of water pricing

in irrigation is not to balance supply and demand, but rather to achieve sustainable financing. Implying, as the

Economist article does, that pricing water has a central role in achieving the required resource balance is to grossly

mislead policymakers facing the challenge of reducing water consumption to a level consistent with long term

availability and proper environmental management. The solution inevitably requires stable and well specified

access rights to water, institutions with the capacity to manage the water access regime, and appropriate water

pricing to ensure the long term operation of the infrastructure.

Don Blackmore, Chief Executive, Murray-Darling Basin Commission, Australia.

Chris Perry, Professor, Economics of Irrigation, Cranfield University, UK.

Box 3.3: The Maharashtra Water Resources Regulatory Authority Act of 200535

As described in the background paper by Maria Saleth: ‘The creation of water entitlements system is at the heart

of the MWRRA bill. The bill clarifies the legal issues and contemplates the establishment of the institutional

arrangements needed for the distribution, enforcement, and monitoring of the entitlements. While the establish-

ment of individual and transferable water entitlements is the long term strategy, the bill adopts a politically and

administratively pragmatic intermediate strategy of establishing bulk water entitlements for entities such as water

user organizations, urban and rural water supply agencies, and industries. Notably, water entitlements are not

ownership rights but only usufructory rights defined in volumetric sense. Such entitlements cover both surface

and sub-surface water sources. The water quota implied in the water entitlements can be transferred, sold, and

bartered either in part or in full. Water entitlements also carry with them the correlated duties including payments,

efficient use, and quality maintenance. The bulk water entitlements will be defined and implemented within a basin

and sub-basin framework. While the MWRRA will allocate bulk rights, the basin organizations and user

organizations at lower level will have responsibility in the day-to-day monitoring and enforcement. Adequate

provisions are also made for resolving conflicts and grievances both at the local and regional levels.’

35 Maria Saleth, ‘Water rights and entitlements’, Background Paper for this Report, 2005.

51


performing well. In none of the countries that haveadopted such systems is there any thought to re-turning to the previous government-managed allo-cation procedures.

In India, there are pressures at all levels forclarity and formalization of entitlements to use anever-scarcer resource. This ranges from the locallevel (villagers who have stored rainwater inRajasthan, and downstream irrigators in the VaigaiBasin, for instance, as described in chapter 2) tothe international level (between India and its neigh-bors, for example).

After years of academic discussion of waterentitlements, there has recently been an importantdevelopment, since the state of Maharashtra has,after years of study and extensive consultationswith community and all political parties, passed(in April 2005) the Maharashtra Water ResourcesRegulatory Authority Act, the heart of which is thecreation and management of a water entitlementsystem (Box 3.3).

The issue of water entitlements is a sensitiveand controversial one, in India and elsewhere. Theexperienced Indian consultants who contributed tothis report—several of whom served or serve inhigh positions in the Union Government—considerthis issue to be central, and one that has to beaddressed and resolved. And every discussion withusers comes back to the pervasive question of lackof clarity of who has the right to use what water.

There is no issue more central for the effectivemanagement of water in India, and more importantin reducing what the Finance Minister hasdescribed as the ‘growing number of little civil

wars’36 over water. This is an issue on which theUnion Government should be taking aggressiveleadership, since, in the words of Chattrapati Singh‘to make the state accountable and make wateruse equitable for all, a number of amendmentsare required in the Easement Act, the Irrigationlaws, Panchayat and Municipal Corporation laws,Water Supply Acts and other laws related towater’.37 Far from doing this, the position of theUnion Government is to actively discourage publicdiscussion of water entitlements, ‘because it istoo sensitive’.

One of the great transformations in India overthe past 15 years is that there are large areas of theeconomy in which the response to new ideas is nolonger ‘no, that will not work in India’ and israther ‘why not?’. But in the government-dominatedwater sector, this change of perspective is partialat best and most new ideas are rejected as ‘this isokay for advanced economies, but cannot be donehere’. In this context, it is instructive to note thatChina is now committed to putting in place a systemof water entitlements,38 and to see that inneighboring Pakistan Punjab a better-defined waterentitlements system has been in place since 1991 atboth the provincial and canal command levels,and that, as described in Box 3.4, the federal andprovincial governments are moving to make theimplementation of this water entitlement systemmore transparent and verified.

One of the many virtues of an entitlement sys-tem is that, once started, it induces a strong de-mand from users for better measurement,transparency, regulation, and information—issueswhich are an integral part of ‘the water instrumentpackage’ and to which we now turn our attention.

36 ‘Water Ministry seeks World Bank funding for reforms’, The Hindu, 13 January 2005.37 Chattrapati Singh, ‘Water Rights in India’, Water Law in India.38 Wang Shucheng, Minister of Water Resources, People’s Republic of China, ‘Promote Sustainable Social and

Economic Development with Sustainable Utilization of Water Resources’, Address at the Ministerial Conferenceof the 3rd World Water Forum, 22 March 2003, Kyoto.


52

Box 3.4: Towards a transparent water entitlement regime in Punjab, Pakistan

The Indus Waters Treaty shows very clearly that a well-defined set of entitlements, which are monitored by both

stakeholders, and which have clear enforcement mechanisms, can provide a high (not perfect) level of trust, even

when the parties involved have literally gone to war several times. The IWT is a great example of how ‘good fences

make good neighbors’.

Within Pakistan the issue of provincial water entitlements is, as in India, a controversial issue. In 1991,

Pakistan’s four provinces concluded a ‘Water Accord’ which allocates the waters of the Indus Basin, and defines

the way in which additional assured water will be shared. There have been important deficiencies in the trans-

parency with which the Accord has been implemented, deficiencies which Pakistan is now moving to overcome.

A very important element of the Accord is that it formalized the entitlements at the intra-provincial level.

Consider the case of Punjab as an example. The allocations to the 24 canal commands are specified for 10-daily

periods in both the kharif and rabi seasons in the annex to the Accord, based on the historic allocations for a

five-year period in the late 1970s (Figure 3.5).39 The administrators of the allocation system in Punjab apparently

respect these, for the most part. The Irrigation Department keeps detailed records of the entitlements for each

season, of the amounts of water actually delivered, and of the ‘balances’ for each canal command. (For example,

as can be seen in the first few entries for the current season, a number of canal commands did not wish to receive

their full shares, but they get ‘credit’ for this, and can use these saved amounts later in the season.) This system

is very close to something that would be ideal. The one big missing piece is the transparent, verified, implemen-

tation of the allocations, a direction in which Punjab is now committed to move.

39 Indus River System Authority, ‘Apportionment of Waters of Indus River System between the Provinces ofPakistan: Agreement 1991 (A chronological expose)’, undated.

10-day seasonal system wise adjusted allocations (excluding flood flows & future storages)

Punjab-Kharif

Period F.I.C. MR CBOC S.Y.C S.V.C Taimmu Panjnao Thal Taunsa Dabc Greater Total

INT (Upper) (Lower) Thal Noo% Cs

APR 1. 24.2 0.1 1.8 8.3 3.9 2.9 4.3 6.0 4.9 1.3 2.6 60.3

2. 24.7 0.3 1.8 10.8 3.7 3.4 5.1 6.4 4.3 0.18 3.4 64.7

3. 28.1 1.1 2.0 13.3 5.5 5.5 7.3 6.4 7.9 0.5 4.9 82.5

MAY 1. 30.1 1.3 2.1 16.0 8.0 5.9 7.6 6.6 10.0 0.7 5.4 93.7

2. 30.8 2.0 2.1 17.2 8.7 6.1 9.0 6.8 11.5 1.1 5.5 100.8

3. 31.6 2.4 2.2 18.1 9.2 6.3 9.5 6.8 11.9 1.3 5.5 104.8

JUN 1. 32.3 2.6 2.3 18.5 9.4 6.6 10.5 6.8 13.0 1.7 504 109.1

2. 33.2 3.6 2.2 18.7 9.7 6.7 10.4 6.9 13.5 1.8 5.5 112.2

3. 34.0 4.0 2.2 19.2 9.6 6.7 10.7 6.7 14.0 1.8 5.7 114.6

JUL 1. 32.7 5.4 2.2 19.2 9.9 6.6 10.4 6.6 14.3 1.7 5.8 114.8

2. 29.6 5.0 2.0 17.9 8.7 5.7 0.0 6.3 12.5 1.7 9.1 104.4

3. 27.8 6.1 1.8 16.8 8.7 5.1 9.6 5.8 11.8 1.8 4.7 100.0

AUG 1. 28.2 5.8 1.7 17.4 8.2 5.3 9.6 6.0 11.5 1.8 4.8 100.3

2. 31.5 6.1 1.8 19.3 9.3 6.3 10.6 6.3 11.3 1.8 5.4 109.7

3. 34.6 4.9 2.0 20.6 10.1 6.8 11.1 6.6 13.9 1.8 5.9 118.3

SEP 1 33.9 4.4 2.1 21.0 10.0 6.8 11.1 6.8 14.4 1.8 5.9 118.2

2. 33.9 3.7 2.1 20.6 9.8 6.8 10.8 6.8 14.0 1.8 5.8 116.1

3. 33.1 2.3 2.2 19.6 9.9 6.9 11.0 6.8 13.0 1.8 5.5 112.0

Total Maf 11.18 1.24 0.74 6.31 3.07 2.15 3.40 2.37 4.19 0.55 1.87 37.07

Table 3.5: Pakistan Punjab canal entitlements from the 1991 Water Accord

Source: Government of Pakistan, 1991.

53


Ending the Culture of Secrecy andMaking Transparency the Rule

A central feature of modern water management ina liberalized economy and democratic environ-ment is that of openness and transparency. In mostcountries now all relevant information—hydrologi-cal, performance, planning—is available publicly,on the web and in real time. Representative websites show this clearly: TVA in the US (www.tva.gov),the Murray-Darling Basin Commission in Austra-lia (www.mdbc.gov.au), the Ministry of Water andForestry in South Africa (www.dwaf.gov.za),the National Water Agency in Brazil(www.ana.gov.br), to cite just a few examples.

Despite being one of the world’s IT centers (andthus having immense capacity), India has beenslow and uneven in adapting to this changed infor-mation environment. It remains very difficult fora user to even find out what data might be avail-able—the web site for the Ministry of Water Re-sources (http://wrmin.nic.in) does not provide anydisaggregated or real-time hydrologic informa-tion. After much diligent enquiry, a persistent andconnected user is directed to a web site set up bythe Central Water Commission under the WorldBank-funded National Hydrology Project(www.india-water.com). And then, even a userwith a high-speed connection and moderate skills,finds it impossible to located what data are actu-ally available and how to get them. The situationfor state governments is the same, even for theleading IT states (http://waterresources.kar.nic.in,and http://www.aponline.gov.in).

In India, the ‘hydrologic data secrecy’ culturehas changed slowly in recent decades, even bystandards of the subcontinent.40 The state of af-

fairs is illustrated by the most highly-discussedwater issue in recent years in India—that of ‘link-ing rivers’. The NWDA had been studying pos-sible inter-basin transfers since 1984. Those whochampioned the idea, and the many who had res-ervations, quite reasonably requested to be shownthe data, the analysis, and the plans. Despite 20years of study, none of the data were made avail-able. This denial of information naturally leads tosuspicion about ‘secret plans’, and about incom-petence and poor performance hiding behind themantra of ‘national security’.

Recently, there has been some modest progress.Now the ‘linking rivers’ web site does have thefeasibility study for one of the proposed links (theKen-Betwa link) online (www.riverlinks.nic.in).Under the National Hydrology Project ‘... theHydrology Information System data is currentlygenerally accessible to the user community, ex-cept in situations where data is considered sensi-tive and higher-level authorization is required.’41

‘Generally available’ is a relative term—a Googlesearch turns up no reference to these data on theweb, and requests have to be made in writing tothe government.

In other areas, Indian practice is changing—asillustrated by Indian Railways. To someone famil-iar with the drama of getting tickets on IndianRailways in the past, the current system was un-imaginable. Now reservations can be made easilyonline, in which tickets are delivered to Delhi ad-dresses within 12 hours, and in which electronicrefunds take place in a week. If other democraticcountries (who also have neighbors with whomthey share water, and several of whom have fed-eral structures with complex inter-state watermatters) can make all water data—including hy-

40 An interesting illustration of this relates to a Ph.D. thesis done on the process of negotiating the Indus WaterTreaty. Pakistan gave the researcher access to their archives; India refused such permission. Undula Alam, ‘WaterRationality: Mediating the Indus Waters Treaty’, Ph.D. dissertation, Durham University, 1998.

41 Implementation Completion Review, National Hydrology Project, World Bank, 2004.


54

drological data, reservoir status and operation,water deliveries, budgets, costs, agency perfor-mance, etc.—easily accessible in a user-friendlyformat on the web in real time, why can this not bedone in India? It is obviously not a question ofcapability, but one of will and attitude. There is nodoubt that this change would stimulate a chainreaction of accountability, participation, anddemand for more and better data which wouldtransform the culture of water management in thecountry.

Finally, there is a powerful feedback loop be-tween data availability, quality, and support fordata collection activities. Global experience showsthat hydrology data systems will be maintainedonly when there are users who can get easy accessto the information, who find the data they need ina user-friendly way, and who then become pres-sure groups on government to commit the neces-sary funding to the data collection activities.Making this change is a central objective of thefollow-on World Bank-supported National Hydrol-ogy Project.

Introducing Incentive-based,Participatory Regulation of Servicesand Water Resources

This report has made clear that in the future therewill be two primary challenges facing the Indianwater sector—first, to improve the quality andcoverage of formal public water supply and irriga-tion services, and second, to regulate the use ofgroundwater. In both cases, the government has toplay a significantly different role from that whichit currently plays. On the provider side the govern-ment has to corporatize the government-run ser-vice providers, and allow the entry of private andcooperative service providers. This means that the

service sector will increasingly be characterizedby contracts between (public and private) provid-ers on the one hand, and users on the other. Thesecontracts will describe the rights and responsibili-ties of the two parties, in terms of both water andmoney. A key requirement, therefore, is that gov-ernment develop regulatory capacity for balanc-ing the disparate interests of the providers, theusers, and the government itself (as shown in Fig-ure 3.6). There is now growing experience in Indiawith independent regulation (in the telecommuni-cations and electricity sectors). The MaharashtraWater Resources Regulatory Authority is an im-portant first step towards building such capacity.

It will take some years and a process of trial anderror to find the right forms for such regulation,especially in a sector in which the notion of con-tracts, competition, and transparency have beenalmost entirely absent. It is critical to take a learn-ing approach to this, and not see the first signs ofdifficulties as a reason to go back to ‘the old ways’.

On the second great challenge—groundwatermanagement—the issue of regulation is also veryimportant. Global experience shows that movingfrom an anarchic groundwater management sys-tem to one where there is a balance between ab-stractions and recharge is a very difficult one, whichis less than perfect even in very good governanceenvironments. Experience also shows that com-mand-and-control type of approaches—‘prohibit-ing more abstractions’—simply do not work, againeven in relatively easy environments.42 The essen-tial ingredients of ‘the least unsuccessful approach’are clear.43 Groundwater management requires: alegal framework which constrains the rights ofpeople to pump as much water as they wish fromtheir land; the separation of land rights and waterentitlements, with the latter usually based on his-

42 Stephen E. White and David E. Kromm, ‘Local groundwater management effectiveness in the Colorado andKansas Ogallala Region’, Natural Resources Journal, vol. 35, 1995.

43 Karin Kemper and John Briscoe, Mexico: Policy Options for Aquifer Stabilization, World Bank, 1999.

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torical use; strong government presence to givelegal backing for the development of participatoryaquifer management associations, and to providethe decision-support systems which enable aquiferassociations to monitor their resource; and, aboveall, clarity that the primary responsibility for themaintenance of the resource on which they dependis with those who have entitlements to use waterfrom a particular aquifer.

There are many difficult technical details to beworked out—for example, the tradeoff betweenhydrological reality (which would suggest largeaquifer associations in the many extensive aqui-fers) and the transactions costs of including largenumbers of small farmers (which argues for smallerassociations). Experience in other very large aqui-fers (such as the Ogallala aquifer which runs fromMinnesota to Texas and in Mexico) shows that itis perfectly practical to chop a single aquifer upinto a large number of ‘semi-independent’ aquiferswhich are run by a reasonable number of users.44

In this case, it is very important that the best doesnot become the enemy of the good!

Putting the Sector on a SoundFinancial Footing

As described in chapter 2, the ‘water sector’ inIndia is in severe financial distress. Nirmal Mohantyhas aptly described the prevailing model as ‘Build-Neglect-Rebuild’. There is an enormous liabilityfrom deferred maintenance. And the stock is suchthat even, once rehabilitated, the annual require-ment for maintenance and rehabilitation would beabout equal to all public funds currently invested.But then there are also major new needs—for pro-viding services to those who do not have services,for meeting the needs of a growing population andeconomy, and for the massive investments neededto meet the ‘debt to the aquatic environment’.

In addressing this issue, there are some ‘redherrings’ which have to be addressed. First, al-though the massive distortions in the pricing ofwater services are justified ‘in the name of thepoor’, it is, paradoxically, the poor who are themajor victims of these distortions. And, as pointedout by Vaidyanathan,45it was ‘in the era of redis-tribution (from 1964 onwards) that prices began toget out of line with costs’.

Rajiv Gandhi famously said that no more than15 percent of the benefits of public distributionprograms actually reached the beneficiaries, a fig-ure which is believed to have changed little. In thecase of water subsidies this is probably true, too,because the subsidies go where the water goes, andthis is to those who can manipulate the system andget access. Those without power—the poor—arerationed out of the system. Far more equitable, asdescribed by Sebastian Morris,46 would be a sys-tem which provides subsidies to people, not pro-viders, along the lines of the ‘water stamps’program in Chile. In this program, the poor are

44 Stephen E. White and David E. Kromm, ‘Local groundwater management effectiveness in the Colorado andKansas Ogallala Region’, Natural Resources Journal, vol. 35, 1995.

45 A. Vaidyanathan, ‘Managing Water’, Economic and Political Weekly, Mumbai, January 2004.46 Sebastian Morris, ‘Pricing and financing’, Background Paper for this Report, 2005.

Figure 3.6: Participants in modernregulation


56

given vouchers for the purchase of water, for whichall pay the tariff required to cover operation, main-tenance, and capital costs.

The disconnect between prices and costs inducesvery large overall economic costs. As pointed outby Sebastian Morris,47 ‘price based subsidizationhas the major infirmity that it robs prices of theircrucial role ... of informing investment and inputchoices and the direction of technical change’.Morris48 also points out that ‘arbitrage of the dif-ference between tariffs and willingness to pay’ isthe fundamental source of the endemic corruptionin these services.

Again, there is a massive and growing gulf be-tween principles, policy statements, and practice.The 1991 report of the Vaidyanathan Commissionon Irrigation Pricing lays out most of the criticalissues:

• ‘much of the information which is crucialfor a proper assessment of the performanceof irrigation systems is hardly even com-piled regularly, much less analyzed’;

• ‘the all-round deterioration in the financialperformance of irrigation projects is starkand nearly universal’;

• ‘it is difficult to accept the case for subsidizingsuch a user-oriented (sector) as irrigation’;

• ‘the government is not in a position to sus-tain subsidies on irrigation on the presentscale’;

• ‘it is not possible to determine how much ofthe implicit subsidy is attributable to ineffi-ciency and how much really benefits farm-ers because of the underpricing of water’;

• ‘the discretionary powers of the bureaucracyand the attendant opportunities for “rent-seeking behavior” provided by the existingsystem are powerful reasons for the func-tionaries to oppose any change which re-duces their power ...’

So what can be done to start the arduous butcentral process of arresting the rot and putting thewater sector in India back on track?

First, is a realization that there is no such thingas free lunch. There are only two sources of rev-enue to pay for the (rising) costs of these services—taxes or user charges. If governments are not willingto raise either of these then, as emphasized byRakesh Mohan,49 there is simply no way forward.For the foreseeable future, there will be need tobudget support (taxpayers’ money) for irrigation.But it is also obvious that user charges simply mustbe increased, for a host of reasons. That said, it isclear that starting with the idea of increasingcharges (for bad services provided by corrupt andinefficient agencies) will quite reasonably be re-sisted. For this reason, the idea of bringing tariffsinto balance with costs must be the third leg of atriangle in which the first two legs must be ‘im-prove services first’, and ‘provide those services inan efficient and accountable manner’. ‘You willpay for the costs of those services’ can come onlyafter the first two have been clearly done and areso perceived by users. Figure 3.7 gives an interest-ing example of how this was done in an urbanwater project in Africa. Providing subsidies for the‘transition costs’ for moving a low-level to a high-level equilibrium (the triangle in the figure) is whatthe Union Government, the World Bank, and otheragencies should be supporting.

47 Ibid.48 Ibid.49 Rakesh Mohan, then Deputy Governor of the Reserve Bank of India, at the Mumbai RBI Conference on

Infrastructure, 2004.

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A particular challenge in India is that house-holds have made such large personal investmentsin ‘coping with poor public services’. This has notworked badly—a middle-class family in any of themajor cities actually gets water 24 hours a day,even though the water from the utility comes forjust an hour or two. Middle-class families havedone this by making large investments to cope. Butthe existence of these ‘sunk costs’ poses a particu-lar challenge, because these users would actuallybenefit little in the short run from more reliablesupplies. This means that, again in the short run,they would oppose higher user charges, even ifservice quality improved (as is evident in Delhi in2005). They would only become supporters in themedium run when they understand that they do notneed to replace their assets (their pump, overheadtanks, and water filters) because they could now

rely on the piped distribution system. At the veryleast, this requires that information on improve-ments, and the savings this brings in the short run(lower electricity costs) and medium run (no re-placement of equipment for coping) needs to bemade clear and communicated effectively. It alsomeans that the time span for bringing tariffs in linewith costs needs to be tailored to this reality.

An additional factor that needs to be factoredinto the design of tariff reform is the fact that thestatus quo is quite satisfactory to many in the pub-lic agencies who profit from the discretion whichthey exercise. This is (see the last quote from theVaidyanathan Commission) a central, perhaps thecentral challenge for a progressive government.As David Mosse notes in his book on water man-agement in Tamil Nadu:50 ‘Only the rare engineersupports PIM. Most consider it a fad that shouldwear itself out in time ... with fear for the loss of

gratuitous incomes should farm-ers begin to function independentof the irrigation department.’

The anti-reform rhetoric of ‘in-creased tariffs will hurt the poor’and ‘this will cost jobs’ have beenhoned to a fine art, and have thestrong support of some politicalparties. There is no easy answerto this issue, but it is clear whatsome of the elements that need tobe addressed are. On the ‘carrot’side, there are creative ways ofproviding new opportunities forthose in the public sector agen-cies to participate in a new ser-vice arrangement. As was donein a successful process in MexicoCity, public workers were giventraining, capital, and preferential

50 David Mosse, The Rule of Water: Statecraft, Ecology, and Collective Action in South India, Oxford UniversityPress, New Delhi, 2003.

Figure 3.7: From low-level to high-levelequilibrium in Conakry


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access in setting up firms who could compete forcontracts which were handed over to the privatesector. On the ‘stick’ side, the government itself iscomplicit in, and even the architect of the presentarrangement, and is unlikely to be an effectivechange agent. What is needed, as described ear-lier, is to bring as much as possible ‘into the lightof day’—Who has entitlements to the water? Whatis the contract between the provider and the user?What are the penalties for non-performance? Whatis the performance of the different providers?

Finally, it is important to note that, as SebastianMorris51 has aptly noted: ‘the issues of pricing,subsidies, water rights, and financing (and he mighthave added inefficiency, lack of accountability,and corruption) are deeply interlinked’. An illus-tration of this is that, as described earlier, the lackof definition of entitlement to Krishna River waterhas led to ill-advised investments in Maharashtrawhich contribute to about 18 percent of the fiscaldeficit of the state.52

Investing Heavily in HumanResource Development

India has a long and justly-proud tradition of build-ing and managing some of the largest and mostcomplex hydraulic engineering works of the world.And India, justifiably, takes great pride in the worldstanding of some of its institutions of technicaleducation.

Yet the fact is that, compared with all devel-oped and middle-income countries, India hasnot developed the human resources necessaryto meet the water needs of a growing and chang-ing country. The mindset of the state bureau-cracies is one that may have been appropriate

40 years back, but it is not well adapted to thenew challenges.

The major reason why this is so is, of course, theset of incentives which stultify individuals in thepublic water organizations of India today. The Plan-ning Commission53 has described some of the thingsthat need to change: ‘The approach of the govern-ment is normally hierarchical rather than func-tional, and the lack of due importance to professionaland functional aspects tends to blur responsibili-ties and inhibits specialization. Inter-disciplinaryteamwork, which is so essential in the water sectoris absent. The links between academic institutionsand water sector personnel are poor, with the resultthat the academicians are kept away from impor-tant practical issues and problems, and watermanagers are not exposed to latest technologies.’To this list could be added another stark contrastwith many other developing countries. The waterprofessionals of India, with few exceptions, havehad no protracted exposure to modern water man-agement practices in other countries, either througheducation, post-graduate training, work experience,or even study tours. The weltanschauung of theIndian water sector is parochial.

Unquestionably, the change in the way in whichgovernment water organizations function is at theheart of the needed water reforms in India. And asthese organizations evolve, they will need quitedifferent types of water professionals. Vijay Vyas54

notes: ‘Till recently water management was iden-tified with irrigation management, and withinirrigation department, irrigation engineers domi-nated in controlling and supervising water re-sources. Even now, the role of other disciplines isnot fully appreciated.’

51 Sebastian Morris, ‘Pricing and financing’, Background Paper for this Report, 2005.52 Nirmal Mohanty, ‘Moving to scale’, Background Paper for this Report, 2005.53 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,

Background Paper for this Report, 2005.54 V.S. Vyas, ‘Principled pragmatism, or the political economy of change’, Background Paper for this Report, 2005.

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As with most other statements on a country socomplex and large, this is not exactly true. In the1970s, there was a substantial Ford Foundation-funded program managed by the Harvard WaterProgram and involving Indian water professionalsfrom some of the elite institutions (such as theCWC) and universities (including Roorkee, theDelhi University Institute for Economic Growth,and the IITs). A substantial and impressive cadreof multi-disciplinary Indian professionals wastrained and returned to India. They describe, 30years later,55 a great personal experience that some-how died upon their return. The factors appear tobe complex. There are ‘pull’ factors, including thespectacular opportunities in IT which most of thebest students cannot resist. And there are ‘push’factors, because bright students do not want to becondemned to a lifetime stuck in antiquated gov-ernment institutions.

Whatever the cause, the bottom line is that acentral part of any reform program would be amassive investment in improving the quality anddiversity of professionals engaged in the watersector.

Ensuring that Local People are theFirst Beneficiaries of Major WaterProjects

The era in which major water infrastructure wasbuilt in India was one in which the hegemonic ideawas that the adverse effects on affected people wasa price that had to be paid for the progress of themajority. In the intervening decades this tradeoffhas proved to be false, on both ethical and practi-cal grounds. As shown by World Commission onDams (Figure 3.8), there have been major improve-ments in the ways in which affected people partici-pate in and are affected by major water projects.

India remains a country in which there are se-rious issues about how affected people—many ofwhom are from Scheduled Tribes—are dealt within major infrastructure projects. There has beenconsiderable progress, especially by modernizinghydropower companies, but there is still a longway to go before practice in India can comparefavorably to practice in, say, China, where re-settlement is considered to be ‘a development op-portunity’ rather than a cost.56

Much of the major water infrastructure whichwill be built in India in coming decades includeshydropower. Hydropower projects generate large

revenues, and in most cases the number of peopleto be resettled by hydropower projects in Indiawill be relatively small (Figure 2.29). It is there-fore a doable task, with few difficult tradeoffs, toensure that local people are major beneficiaries ofsuch projects. This is not only ethically the rightthing to do, but it means that costly delays inproject implementation can be avoided.

55 Conversations with Professor Chaturvedi of IIT Delhi, Professor Ramaseshan of IIT Kanpur, and ProfessorBhatia of the Institute of Economic Growth.

56 Operations Evaluations Department, Recent experiences with involuntary resettlement: Overview, WashingtonDC, 1998.

Source: World Commission on Dams, 2000.

<1950 1950s 1960s 1970s 1980s 1990s

100

80

60

40

20

0

Anticipating ecosystem impacts

Information disclosure

Participation by affected people

Figure 3.8: How social and economicperformance of dams has

improved globally

in %


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This means that developers need to see the eco-nomic and social development of local communi-ties to be as important as the technical aspects.Dam developers in India need to recruit and valueexcellent community developers, just as they re-cruit and value excellent engineers.

There are important issues of responsibilitywhich need to be worked out between project de-velopers and state governments (to whom non-state developers pay massive royalties of 12 percentof the gross value of the power generated). Prior toproject approval, developers and state governmentsmust agree on who will finance and manage localdevelopment activities so that affected people be-come the first beneficiaries of such projects.

The bottom line is that these new hydropowerprojects should be a big boost to local economies,and that the aspiration of developers and host gov-ernments should be to make such projects so at-tractive to local people that communities competewith each other to become ‘host communities’ forsuch projects.

Making the Environment aHigh Priority

As demonstrated in this report, the pri-mary water challenges facing the Unionand state governments include: to dra-matically improve the quality of publicirrigation and water supply services; tomodernize the systems for allocating andmonitoring surface water and ground-water resources, and to improve thequality of the poor and deterioratingwater-related environment.

It is instructive to differentiate twodifferent water-related environmental

challenges. Category One are issues of environ-mental degradation that would improve dramati-cally if water were used and managed moreeffectively and efficiently; and Category Two areissues that require supplementary actions and re-sources.

Two messages come out of the background paperon the environment by George Varughese.57 First,if the recommendations discussed in earlier chap-ters of this report—water entitlements, water pric-ing, accountable institutions, effectiveregulation—were implemented, the majority ofwater-related environmental problems in Indiawould be ameliorated to a significant degree. Spe-cifically, this would mean an end to wasteful wateruse in both agriculture and urban areas, it wouldmean reductions in mining of aquifers and theconsequent quality problems. It would also meanshifting the focus of government attention awayfrom the traditional areas (of constructing and op-erating water supply infrastructure) and ‘creatingfiscal space’ for investing in environmental qual-ity and other public goods.

Figure 3.9: The ‘Kuznets Curve’ forenvironmental quality

Source: World Bank, 1992.

57 George Varughese, ‘Water and environmental sustainability’, Background Paper for this Report, 2005.

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environmental quality. As illustrated schematicallyin Figure 3.9, in the early phases of developmentthere is typically a sharp decline in environmentalquality. As economic growth is sustained, how-ever, societies place a higher value on environ-mental quality, and they have more resources tospend on the environment. For many measures ofenvironmental quality there is then a slow butsteady climb out of the environmental abyss. Theexample of the Yamuna (in chapter 2) suggests thatparts of India and for some measures of environ-mental quality, the long climb is starting.

An important area where mindsets have tochange is that of instream flows. Any water flow-ing out of a river basin is still seen by many waterengineers as ‘wastages’. But this is changing, withthe Government of Andhra Pradesh, for example,recognizing that some flow into the Godavari Deltais necessary for the preservation of the coastalzone and the fisheries on which substantial num-bers of people depend.58

Global comparisons show that there is some-thing like a ‘Kuznets Curve’ for many indices of

58 World Bank Water Resources Strategy, 2003.


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This report (and many other documents) make itclear that India has to make major changes in theway in which it develops and manages its waterresources, and that this process has to start soon.

Tushaar Shah1 has described several types ofreform initiatives in India, all of which have ‘failedto produce broad and deep changes’. They include:

‘[a] a reformist measure is proposed, discussed,and shelved. The draft Groundwater Regulationbill is the case in point. It is tossing around for 35years; yet has found few takers because few politi-cal leaders are willing to absorb the transactioncosts (including political costs) of seriously imple-menting it.’;

‘[b] a bold reformist measure is proposed, dis-cussed, and diluted by removing all difficult-to-implement elements, resulting in paper reform.India’s Water Policy announcements of 1987 aswell as 2002 are good examples. Nothing in theway India’s water sector functions has changed asa result of these.’;

‘[c] a bold reformist measure is proposed, dis-cussed, and launched but cold-stored in the face ofpopular opposition or insurmountable difficultiesin implementation. Efforts by many Chief Minis-ters to meter electricity supply to tubewell irriga-tion during recent years is a good example. So areMaharashtra’s 10-year-old law to protect drinkingwater wells from groundwater overdraft by irriga-

CHAPTER 4PRINCIPLED PRAGMATISM AND ‘RULES FOR REFORMERS’

tion wells, and Andhra Pradesh’s more recent land,water, and trees act.’;

‘[d] a bold reformist measure is introduced andenforced to produce desired outcomes. Examplesof this are rare; Chennai’s groundwater law, whichhas begun to bite, is an example. Another is WestBengal’s enforcement of permits for new electri-city connections for irrigation wells. In Chennai’scase, extreme water scarcity has likely createdpopular support for strong measures. In WestBengal’s case, restrictions began to be enforcedlong before well irrigators organized into a power-ful political force.’;

‘[e] finally, there are examples of reform ideasthat refuse to die despite recurring evidence oftheir failure to deliver. Participatory IrrigationManagement is one such; India has been tryingfarmer management for irrigation for nearly 150years. While there are islands of excellence, thereis no evidence of WUAs having produced sustainedperformance improvements on a significant scale.Similar communitarian models have dominatedfor decades institutional discourse in culture andcapture fishery, watershed management, and watersupply systems. Countless studies show that fisher-men cooperatives are almost always fronts forcontractors, that watershed associations seldommaintain structures after funding runs out.’

Review of similar water reform efforts through-out the world suggests that the guiding mantra

1 Tushaar Shah, ‘Accountable institutions’, Background Paper for this Report, 2005.

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Principled Pragmatism and ‘Rules for Reformers’

must be ‘principled pragmatism’.2 ‘Principled’,because principles matter a lot. And ‘pragmatic’,because principles can only be translated into prac-tice by following a step-by-step, persistent processwhich ‘fits’ with the local culture, people, andenvironment. This chapter reflects on some of thelessons of ‘principled pragmatism’ in water reformprocesses elsewhere,3 and from reform processes inother sectors in India. They are presented in theform of ‘rules’ (really suggestions) which a reform-ing government might keep in mind.

Rule #1: Water is Different

There is much that aspiring water reformers canlearn from reforms in other sectors—such as power,telecommunications, and transport. But it is alsotrue that water is, and is perceived to be, differentfrom these other ‘created’ sectors in many funda-mental ways. The resource economist KennethBoulding’s ode to water4 captures many of thesedistinctions very well.

Water is far from a simple commodityWater’s a sociological oddity

Water’s a pasture for science to forage inWater’s a mark of our dubious originWater’s a link with a distant futurity

Water’s a symbol of ritual purityWater is politics, water’s religion

Water is just about anyone’s pigeonWater if frightening, water’s endearing

Water’s a lot more than mere engineeringWater is tragical, water is comical

Water is far from the Pure Economical.

This specialness does not mean that reform isimpossible, or that water reformers cannot learn

from reforms in many other areas of public serviceprovision. What it does mean is that there has tobe a particular emphasis on public discussion andon addressing the many concerns which peoplelegitimately have about water.

Rule #2: Initiate Reform where thereis a Powerful Need andDemonstrated Demand for Change

Habits of water management and use, and theorganizations and practices involved, have evolvedover time and have, at some time, ‘fitted’ the par-ticular prevalent economic, social, and environ-mental circumstances. Change is not easy orwelcomed, unless there is a very strong need for it.Abstract and idealized statements (such as ‘riverbasin management’ or ‘integrated water resourcesmanagement’, the mantra of the internationalcommunity in recent years) have some resonancewith professionals, but do not constitute a reasonfor organizations and people to change the waywater is managed.

Because changes are difficult and often wrench-ing, they will be undertaken only when there is apowerful need and a demonstrated demand forchange. Global experience5 shows that the impe-tus for change is usually either a serious break-down in services, an environmental failure whichaffects large numbers of people, or a fiscal crisiswhich makes the status quo untenable.

Today, in India, there are a number of settingswhere there is a powerful need and demonstrateddemand for change, and which are, accordingly,the areas where reformers should put their initialefforts. These include:

2 World Bank, Water Resources Sector Strategy, Washington DC, 2003.3 John Briscoe, ‘Managing water as an economic good: Rules for reformers’, Water Supply 15 (4), 1997,

supplemented by the observations of many people and politicians who have led reform processes around theworld. Reference: Hague session.

4 Kenneth Boulding, ‘The Economist and the Engineer’, Economics and Public Policy in Water Resources Devel-opment, ed. S.C. Smith and E.N. Castle, Iowa State University Press, 1964, pp. 82–92.

5 John Briscoe, ‘Managing water as an economic good: Rules for reformers’, Water Supply 15 (4), 1997.


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• Cities, where individual households are fac-ing greater and greater difficulties in mak-ing their ‘coping strategies’ work, becausethe groundwater option is no longer ten-able. The case of Chennai (described in Box3.1) is such a case, where the political pres-sures are great and the state government isbeing forced to confront the systemic issues.In some cases these responses are of the ‘sil-ver bullet’ variety (for example, hoping thatinstitutional changes can be avoided by get-ting someone else—Union Government, asalways—to pay for the very costly desalina-tion and thus resolve the problem6). But it isincreasingly clear that Chennai has to seeka range of new sources of supply, as well asgreatly improve the functioning of the dis-tribution system within the city. It is, there-fore, not surprising that Chennai emerges inseveral places in this report—in establish-ing incipient ‘water markets’ for the volun-tary transfer of water from farmers to thecity; in ‘purchasing’ water from the neigh-boring state of Andhra Pradesh (albeit, insuch a poorly-specified contract that the cityseldom gets the water); in mobilizing newforms of finance (from the Sai Baba philan-thropic foundation); and in pushing for newforms of inter-state agreements on water (in-cluding ‘river linking’). The number of cit-ies and towns falling into similarcircumstances (including the metropolitanarea around Delhi, where the groundwatertable is falling almost a meter a year7) isgrowing rapidly, and the political pressureto find new institutional arrangementsto meet their needs is similarly strong.Dealing with urban bulk water issues is thusan opportunity for reform in waterallocation practices.

• Fiscal constraints will, sooner or later, con-stitute a heavy pressure to improve the fi-nancial performance of public irrigation andwater supply systems, both of which aremajor sources of red ink. This will forcecities to look for lower-cost sources of sup-ply—calculations by the Hyderabad MetroWater Supply and Sewerage Board, for in-stance, show that the city could buy waterfrom farmers in the Singur area at less thanhalf of what it would cost to bring waterfrom Nagarjunasagar on the river Krishna.

• Industries in areas where water availabilityis a serious constraint. It is a commonplacein India that the availability and quality ofinfrastructure is one of the major threats tothe continued health of the Indian economy.In the words of the Finance Minister: ‘India’smost glaring deficit is its infrastructure defi-cit.’8 Until recently, ‘infrastructure’ meantports, railways, roads, and electricity. Nowthere is a palpable sense that water is join-ing this list, with the two major industrialassociations—FICCI and the CII—both be-coming very active on water issues. Indus-try leaders have a major role to play inlocal politics, and can become powerfulvoices pushing for improved water manage-ment at the local level. An example of thisis the path-breaking takeover by the textileindustry of the Tirapur urban water supplyin Tamil Nadu.9

• Agricultural areas, where water security isof high importance. Agrarian India is un-dergoing a quiet but rapid revolution—con-tract farming is happening in many places,high-value crops are displacing food grains,and aquaculture is increasing. In each case,the importance of a predictable supply of

6 Shantanu Sharma, ‘Who will bear the cost of water’, The Economic Times, 20 November 2004.7 ‘Water Crisis hits Gurgaon’, The Times of India, 29 April 2005.8 Edward Luce, ‘Modest dream is crucial for future’, Financial Times, 22 March 2005.9 Nirmal Mohanty, ‘Moving to scale’, Background Paper for this Report, 2005.

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water becomes vital. There has been a rapiduptake of drip irrigation and other newtechnologies, but these ‘exit options’ willnot be sufficient, and there will be pressuresto allow water to move more flexibly andvoluntarily from low-value to high-valueuses. As Maria Saleth10 details in his back-ground paper, much of this now takes placein informal water markets but as agricul-tural production moves to scale there willbe pressures to formalize such relationships.Again, this is an important area where therewill be demand for changes in water man-agement practices.

The key message is that there are many win-dows of opportunity opening up for water reformswhich will constitute specific, practical solutionsto local problems. It is these which will show whatcan be done, and will, by producing tangible re-sults, constitute a pressure on, and example for,others to follow. The centrality of ‘demonstration’has been well stated in a similar context: ‘We don’tneed the Government of India to transform everyaspect of Indian infrastructure,’ says Ratan Tata,head of the Tata companies which comprise India’slargest private-sector group. ‘All you need is for aprivate company to take over one airport and thenshow by results what everyone else is missing.’11

Rule #3: Involve those Affected, andAddress their Concerns withEffective, UnderstandableInformation

People are, for good reasons, always apprehensiveabout changes which will be thrust upon them.And when it involves something as sensitive aswater, communication, discussion, and informa-

tion become central elements for any reform pro-cess. What would this mean in India?

First, there is a general tendency for govern-ment-led discussions of water policy to take placeamong water professionals, the vast majority ofwhom are engineers, and most of whom have littleexposure to changing global good practice. Thiscommunity of practice is still (see the discussion inChapter 2) very much a part of the ‘this will notwork in India’ school of thought, one which stillthinks in terms of command and control (Mohile,background paper12) and which tends to look back-ward, not forward (Sekhar, background paper13).This means that discussions of reform are oftenseverely truncated, and often quite at odds withthe reality on the ground. To take just one ex-ample: the engineers of Chennai Metrowater wereemphatic that farmers would never lease their waterto the city because it is ‘against their culture’; oncethe trading was started the farmers were, indeed,unhappy, because almost all farmers wanted totrade some of their water (and the city could notbuy from all).

Second, there is often an attitude by the gov-ernment that ‘there should not be discussion ofissues of water entitlements or water reforms be-cause these are too sensitive’. And when there isa forum for discussion it is exactly these issueswhich people want to discuss, because they aresensitive and central.

Things are, however, changing. The processfollowed by Suresh Prabhu, the Chairman of the(now-disbanded) Task Force on Linking Rivers wasa model of open communication in many respects.Prabhu held literally hundreds of public meetingsthroughout the country to apprise people of what

10 Maria Saleth, ‘Water rights and entitlements’, Background Paper for this Report, 2005.11 Edward Luce, ‘Modest dream is crucial for future’, Financial Times, 22 March 2005.12 A.D. Mohile, ‘The evolution of national policies and programs’, Background Paper for this Report, 2005.13 A. Sekhar, ‘The evolution of water development and management: the perspective of the Planning Commission’,



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was at stake, and to listen to their concerns and gettheir suggestions. This led to enormous amount ofpublic discussion, not just of linking rivers, but ofvirtually all the major challenges facing the watersector in India. It put some of the most criticalissues—like the need for a new, modern approachto state water rights in a federal system—on thefront burner. (The major caveat was that the ma-chinery of government was not equipped to do itspart, and the process suffered from the paucity ofmaterial available to both the task force and thepublic on the specifics of what was being pro-posed, and the results of the 20 years of work thatthe NWDA had undertaken on this subject.)

There is a palpable sense of a looming watercrisis in India, and an opportunity and need for theUnion Government to undertake a major, multi-stakeholder dialog-cum-campaign.

Such a campaign would need to engage farmerswith the hydrological reality of the aquifers thatthey currently rely on. Farmers know that suicidesare increasing because, even with massive elec-tricity subsidies, increasingly larger numbers offarmers simply cannot afford to drill deeper. Theyneed to know that there is simply no alternative toadjusting aggregate abstractions to the level ofsustainable yield. They need to know that othercountries have made such transitions, often re-markably, with positive economic outcomes. Theyneed to understand the combination of govern-ment regulation, user involvement, and packagesof ‘virtuous subsidies’ that could reasonably sub-stitute for the vicious subsidies that are drivingtheir aquifers (and them) to ruin. They need to beinformed that formal water entitlements wouldnot harm them, but provide them with assets whichthey currently do not possess.

Irrigators must realize that in the future sur-face supply systems—now so discredited—mustagain play a central role. This means that theremust be a new social compact for public surface

irrigation systems—a compact in which usershave clear entitlements, in which they pay forreliable services provided by accountable, trans-parent, and efficient suppliers. Irrigators mustalso understand that with limited resources andgrowing cities and industries, there must be trans-fers of water from the farm to the city. They mustunderstand that many countries have developedmechanisms for this to happen in a way thatsuch transfers are transparent, voluntary, and tothe mutual benefit of both parties. They mustunderstand that if such mechanisms are not putinto place, then these transfers will happen bystealth, without any compensation.

Such a campaign would need to engage the urbanmiddle class, who have ‘exited’ from public watersupply systems by self-provision. They need tounderstand that with massive urban growth andrapid aquifer depletion, these ‘coping strategies’will not work for much longer. They need to real-ize that they will, as do people in all large citiesof the world, rely on effective, accountable pro-viders of public water services. They also need tounderstand that there are large demands for taxrevenues for true public services (such as cleaningup the rivers which have turned into sewers in allthe cities of India), and that they must be willingto pay for water supply services (provided, ofcourse, the provider is efficient and accountable).

Such a campaign must engage industry, sothat it understands that the standard industrialresponse (of ‘captive generation of water’, mostlyby groundwater pumping, but also increasinglythrough expensive recycling and desalination)is inherently limited. Industrialists must exerttheir considerable pressure on government forputting in place systems—which work well inmany countries—whereby they can purchase thewater they need from willing sellers (often farm-ers) for whom the value of water is much lowerthan it is for the industry.

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Such a campaign must engage the leadershipof state governments. They must be made to re-alize that there is an alternative to the currentanarchic inter-state system. They must be pre-sented with the data on the huge costs which thissystem imposes on all parties (upstream and down-stream alike) and must come to understand thatthere is an alternative for sharing waters (andsometimes sharing benefits) that works well indeveloped arid federal countries and which hasworked well in India’s international water trea-ties with Pakistan and Bangladesh.

Finally, and pulling all these strands together,such a campaign must engage national politicalleadership, again with complacency as the great-est enemy. A common commentary on India’seconomy was, in the memorable words of a Fi-nance Minister, ‘every budget is a gamble on themonsoon’.14 A feature of India’s recent economicgrowth was captured in a newspaper headline stat-ing that ‘India’s economy is no longer a gamble onthe monsoons’, noting that India’s growth in thebad monsoon year of 2004–05 had been reducedonly by about 2 percent (to 6 percent overallgrowth). Political leaders must be aware that thismay be a brief and temporary escape from hydro-logical constraints, and that unless the economy isput on a sustainable water platform, the ‘waterbrake’ on the economy—working through the in-dustrial, agricultural, and urban economies asdiscussed earlier—will become endemic rather thansporadic. The urgency of this transformation isaccentuated by the likely effects of climate change.The best projections suggest, for example, that inthe western Himalayas, where precipitation andsnow deposition are relatively low, glaciers areparticularly vulnerable and are likely to result ina runoff ‘windfall’ during the next couple of de-cades, followed by flow reductions which may beof the order of 20 percent for the Ganga at Haridwar

by the year 2100. As for so many other reasons,this requires the establishment of a water manage-ment system which is flexible and robust.

Rule #4: Reform is Dialectic, notMechanical

Ideas like ‘river basin planning’ and ‘integratedwater resources management’ have sound concep-tual roots, and appeal to technicians, many ofwhom perceive implementation of these ideas asthe path towards better water management. Usefulas they are, in the words of the Operations Evalu-ations Department of the World Bank, ‘progresstakes place more through “unbalanced” develop-ment than comprehensive planning approaches’.15

As Karl Marx (had he addressed the subject!) mighthave said it: water reform is a dialectic, notmechanical, process.

Improvements in water management occurwhen there are tensions (between users, betweenusers and the environment, between the wateragencies and the finance ministries) which can nolonger be accommodated within the existing in-stitutional arrangements. But reforms do not leadto ‘mukti’ (liberation for ever)—they simply meanthat ‘lower-order tensions’ are replaced by higher-order tensions.

Again, Tamil Nadu provides a useful illustra-tion. State-wide approaches to water reform havebuilt some important building blocks, but havemade few contributions to actually resolving spe-cific problems. These general reforms thereforelack legitimacy and ‘demonstration power’. Butwhen the textile manufacturers of Tirapur actu-ally resolve the problem of their own water ser-vice, this has a powerful demonstration effect. Itdoes not mean that ‘water problems in Tirapur arenow over’, but it means that as the issue of getting

14 Alexander Frater, Chasing the Monsoon: A Modern Pilgrimage through India, Henry Holt, London, 1987.15 Operations Evaluations Department, Bridging Troubled Waters, World Bank, Washington DC, 2002.


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water delivered to industries and households islargely resolved, the focus will inevitably andappropriately shift to the ‘higher-order’ problemsof ensuring adequate supplies of bulk water and ofdealing with water pollution from the town andindustries.

Rule #5: It’s Implementation, Stupid

Lawrence Summers has observed16 that the greatdistinction between developing countries whichhave progressed over the last 30 years and thosethat have stagnated is not the ability to formulateperfect policies, but the ability to translate reason-able policies into actions on the ground. Para-phrasing Bill Clinton’s famous election mantra,‘it’s implementation, stupid’.

And so it is with water in India and elsewhere—policies and recommendations abound, some verygood (such as the recommendations of the 1991Vaidyanathan Commission). But as Tushaar Shah17

has emphasized, what matters is identifying im-provements that can actually be implemented.

Rule #6: Develop a Sequenced,Prioritized List of Reforms

Any journey requires a knowledge of the destina-tion and a road map for getting there. However,the journey itself is taken step by step. And so it iswith water reforms—there must be a long-termvision, but immediate attention must be on puttingfirst things first—to sequencing and prioritization.The practice of (aborted) water reform by govern-ment agencies in India (reinforced by some of itsexternal supporters) has often been to make every-thing (and therefore nothing) a priority. A major

recent water commission for an advanced state inIndia came up with a set of over 340 ‘recommen-dations’, ranging from major legal changes to whatcrop should be grown in what district. Similarly,a major 1998 World Bank report on the watersector in India18 made 170 recommendations, allpresumably to be done simultaneously.

A relevant example of a principled but prag-matic approach to sequencing relates to that of‘cost recovery’ for irrigation services. Cost recov-ery is, of course, an appropriate aspiration, but itis almost never the place to start. Farmers will notand should not, pay for the costs of poor serviceswhich are delivered by inefficient and corruptagencies. The first step must be to address theissues of accountability and efficiency (as describedearlier in this report). Once services are improvedand there is trust in the service provider, then tariffincreases to bring revenues in line with costs. Asshown in Figure 3.6 on the urban water supplyexample in Guinea, Africa, public funding willgenerally be necessary, on a declining basis, to‘finance the transition’.

Rule #7: Be Patient and Persistent

Water reform processes are never short, decisiveaffairs. A review of the experience of rich coun-tries by the OECD19 shows that progress in waterreforms takes place over decades, not years, andthat even the most advanced of countries is onlyabout half-way towards the ideal forms of watermanagement described in declarations of intent bythe countries themselves and by the internationalcommunity.20 In the case of a vast, federal demo-cratic country like India, as described by the DeputyChairman of the Planning Commission,21 ‘plural-

16 Lawrence Summers in ‘Practitioners of Development’ series at the World Bank, www.worldbank.org.17 Tushaar Shah, ‘Accountable institutions’, Background Paper for this Report, 2005.18 Keith Oblitas, India Water Resources Management Sector Review, Report 18356 IN, Washington DC, 1998.19 OECD, ‘Water management: Performance and challenges in OECD countries’, Paris, 1998.20 The International Conference on Water and the Environment, Dublin, www.wmo.org and the World Bank Water

Resources Management Policy Paper, Washington DC, 1993.21 Montek Ahluwalia, ‘Practitioners in Development’, World Bank, 2004.

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istic and highly participatory processes force oneto gradualism....’

Rule #8: Pick the Low-hanging FruitFirst—Nothing Succeeds likeSuccess

The world over, citizens are either concerned orskeptical about announcements of ‘reform’, withsome advocating abolition of the word from thepublic policy lexicon. ‘By casting their agendas asreforms, political advocates don’t aim to stimu-late debate and discussion. They aim to suppressit. They aim to stigmatize adversaries as nasty,wrong-headed, selfish, or misinformed. The troubleis that as a society, we need debates over principlesand practicality. All reforms are not desirable, atleast not to everyone.’22

The corollary is that public support will onlybuild if there are visible, tangible results from thechanges which are advocated. The key is ‘showme’.

It certainly can help to show opinion leadersthat these changes have been effected in other coun-tries. The formation of the famous French RiverBasin management system in the 1960s was stronglyinfluenced by the successful experience of theRuhrverband, established in neighboring Germanyin 1916. And the political leaders of the waterreform process in Brazil ascribe high importanceto a study tour of Mexico and Colorado at a criti-cal time. But there is nothing like demonstrationon home territory. And, since changes are alwaysdifficult, it is imperative to start changes whereconditions are propitious—where there is a realdemand for change, where there are champions,and where it is possible to show results. For ex-ample, there were real gains from the organiza-

tion of Water Users Associations in Andhra Pradeshin recent years, gains which were appreciated byvisiting Haryana farmers who found in the AP‘success’ some inspiration for similar efforts intheir home state.23

On the central but complex issue of water en-titlements, the embryonic experience in Chennai(Box 3.1) was a relatively ‘low hanging fruit’. Sotoo would the use of water entitlements to resolvethe water conflicts afflicting the Bharatpur BirdSanctuary. If and when these and other ‘easy cases’mature, they will provide a beacon for tackling thebigger and more difficult challenges of waterentitlements.

Rule #9: Keep your Eye on the Ball—Don’t let the Best become the Enemyof the Good

Almost any progress is progress worth making,whether or not it measures up to some abstractglobal notion of ‘excellent’. The idea that practicecan go from terrible to perfect in one fell swoop isone that is attractive to outsiders and is sometimesadopted by financial agencies (so-called Volvoinstead of Volkswagen standards24). But it fitspoorly with the one-step-at-a-time gradualismwhich characterizes water reforms everywhere.

Consider the case of subsidies for electricity forgroundwater. There is no doubt that this is a prob-lem which must be addressed, and that the longerit takes to address the deeper the groundwater, thegreater the subsidies and the more difficult it willbe to find a way back. But the fact is that farmersare now so heavily dependent on electricity subsi-dies that drastic elimination of these would simplyput many farmers out of business (see Figure 4.1),and, for this reason, is politically not feasible. The

22 Robert Samuelson, ‘Reform ain’t what it used it be’, The Washington Post, 5 June 2004.23 World Bank, ‘Making Services Work for Poor People’, World Development Report, Washington DC, 2004.24 Sebastian Mallaby, The World’s Banker, Penguin, 2004.


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task must be to address this issue on multiple fronts,which in this case would include an improvementin the quality of electricity, the appropriate pric-ing of the low-opportunity-cost electricity whichfarmers use, and the introduction of a set of ‘virtu-ous subsidies’ (as was done in Mexico, for ex-ample, in refurbishing inefficient equipment andfor adoption of water-efficient technologies) aselectricity subsidies are reduced.

A good example of ‘the best is the enemy of thegood’ rule at work is the justly-famous Indus Treaty,which has, since its inception, had its detractors inboth India and Pakistan as ‘not fair’.25 Confrontingthe Pakistani detractors of the Treaty, Ayub Khangave advice which is relevant for all would-bewater reformers: ‘... very often the best is the en-emy of the good and in this case we have acceptedthe good after careful and realistic appreciation of

our entire overall situation.... the basis of thisagreement is realism and pragmatism....’26

Rule #10: There are no Silver Bullets

The challenges which India faces in water man-agement are environmentally, socially, and tech-nically complex. There is a justifiable, humanfantasy that there is a single ‘silver bullet’ whichwill ‘solve the problem’. Today, in some parts ofthe India water establishment, there is still faiththat the old remedy—more dams, and variants ofthis—will solve all water problems and should begiven near-exclusive priority. In situations wherethis remedy is patently impractical, there are ahost of other ‘supply side’ solutions ranging fromhigh-tech (cloud seeding and desalination) to low-tech (rainwater harvesting and desilting of ancienttanks), most of which have an important niche butare falsely marketed as ‘the solution’.

Take the case of ‘restoration of traditional wa-ter bodies’. There is a great attraction to the no-tion that rediscovery of ‘Dying Wisdom’ (the titleof a book27 by Anil Agarwal and Sunita Narain ofthe Delhi Centre for Science and the Environment)will provide the cures to the water ills that afflictmodern India. There is a large and active move-ment which sees community ‘rainwater harvest-ing’ as the solution, everywhere and for almost allproblems. Deeper investigations show that it isnot quite so. David Mosse’s detailed anthropo-logical investigation28 into the social ecology ofthe tanks of southern India draw a much morecomplex picture, showing that the tanks were insteep decline long before the advent of canal irri-gation (the ostensible cause of the loss of tradi-tional wisdom) and that they were a solution well

25 N.D. Gulhati, Indus Waters Treaty: An Exercise in International Mediation, Allied Publishers, New Delhi, 1973.26 Undula Alam, ‘Water Rationality: Mediating the Indus Waters Treaty’, Ph.D. dissertation, Durham University,

1998, p. 340.27 Anil Agarwal and Sunita Narain, Dying Wisdom, Earthscan, 1997.28 David Mosse, The Rule of Water: Statecraft, Ecology, and Collective Action in South India, Oxford University

Press, 2003.

250%

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Figure 4.1: Impact of eliminatingelectricity subsidies on marginal

farmers in Haryana


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suited to a particular demographic and social situ-ation which has long gone. Similarly, objectiveevaluations (described earlier) of watershed man-agement efforts in India show some, but ratherlimited, success. Applying the powerful words ofJudith Tendler29 from another context (the analy-sis of social funds): ‘The reason for (their) popular-ity ... relates to their effectiveness as a powerful“development narrative”. In environments withgreat ambiguity as to cause and effect, such nar-ratives offer convincing and simple explanationsfor the causes of certain problems and provideappealingly straightforward blueprints for action.Because of their power as narrative, these accountsare rather invulnerable to empirical evidence thatchallenges their accuracy’.

The point is not that these community-basedefforts have no role to play—they do, and an im-portant one at that in some circumstances. Thepoint here is that they can never be a ‘silver bullet’in an increasingly urbanized and industrial soci-ety which needs a host of different kinds of actions.

What is clear is that the most effective responsesto the water challenges in India are going to varyvery widely and are going to require a host ofinterventions, of different scales. As suggested by‘Stages of water development’ in Figure 1, the majorinstrument is not going to be infrastructure alone,but management supported by both old and newtypes of infrastructure. ‘Management’ is going tomean systemic sets of legislation, capacity build-ing, organizational change, and the use of entitle-ment, pricing, and regulatory instruments. And itis not going to be the task of the government alone,but concerted and reinforcing actions by a host ofstakeholders. But that there were a silver bullet!

Rule #11: Don’t throw the Baby outwith the Bathwater

A corollary of the previous rule is that there is atendency when the silver bullet does not work(mixing metaphors badly) to throw the baby outwith the bathwater. Dams (or rainwater harvest-ing or tank restoration) are propagated with mis-sionary zeal, and when they do not delivercommunities to the promised land, they are stig-matized and it is argued that they should no longerbe part of the ‘toolkit’.

Take the example of dams. There is an ener-getic and resourceful anti-dam lobby in India.Spurred by legitimate issues of inadequate resettle-ment, these groups—with their message magnifiedby Arundhati Roy’s powerful prose30—have iden-tified dams as one of the ultimate evils in the world.There is, in their minds, no dam which should everhave been built in India—even Bhakra,31 which asdescribed earlier, has been shown to have broughtsuch massive benefits to the people of northwestIndia and beyond.

Take another example, that of Water UsersAssociations. The idea of WUAs transformingirrigation services has been and is, a powerful andpersistent one, despite mounting and long-standingevidence that reality is a bit more complicated.The Vaidyanathan Commission of 1991, forexample, reports that ‘there is a general consensusthat efforts to actually organize farmers’ groupsand make them participate have not really mademuch of an impact’. Similar evidence from aroundthe world notwithstanding, the idea has hadremarkable staying power in the global watercommunity, again, ‘because of their power asnarrative, these accounts are rather invulnerableto empirical evidence’.

29 Judith Tendler, ‘Why are Social Funds so Popular?’, Local Dynamics in an Era of Globalization, ed. ShahidYusuf, World Bank, Washington DC, 2000.

30 Arundhati Roy, The Common Good, Modern Library, 1999.31 ‘Punjab’s prosperity not linked to Bhakra’, The Hindu, 19 April 2005.


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For some, the case is clear: the idea of WUAs ispartly a cruel trick played so that the more diffi-cult issues—of real reform of the irrigation agen-cies—can be avoided. But the fact is that organizedfarmers do play a role in all successful irrigationschemes throughout the world, but only as part ofa set of reinforcing instruments, which alwaysinclude water entitlements and accountable ser-vice delivery agencies. The WUAs should not bethrown out with the bathwater, but propagated aspart of an overall reform package. The distinctionbetween necessary and sufficient conditions forprogress is a vital one.

Rule #12: Reforms must ProvideReturns for the Politicians who areWilling to make Changes

Politicians may not be the most revered figures inIndia (or elsewhere), but it is they who are ‘in thegame’, who are elected to make crucial tradeoffs,and who have the critical role as judges and cham-pions of reform. A discussion with politicians whohave led water-related reforms throughout theworld32 found general agreement in a ‘rule’ articu-lated by Digvijay Singh, then Chief Minister ofMadhya Pradesh: ‘If it is to work, water reformmust be good politics’. There is evidence that thiswas, indeed, the case for community-based water-shed management projects for Mr. Singh in MadhyaPradesh. And the intensive formation of WUAs inAndhra Pradesh was certainly politically useful toMr. Chandrababu Naidu (former Chief Ministerof Andhra Pradesh), because farmers perceivedthis to be a reform which moved in the rightdirection.

The bottom line is that an essential element ofany reform program is that it must be viewed as a

‘good thing’ by sufficient numbers of people whowill consider voting for the politician champion-ing the reform.

There are two important riders to this ‘rule’.First, it is often quite difficult to judge how actionsrelating to water are being received by citizens.For example, anyone reading the English languagenewspapers of India would perceive that the SardarSarovar Project on the river Narmada is almostuniversally opposed. However, a detailed analy-sis of press coverage by Sussex University33 showedthat the picture was considerably more nuanced:‘Environmental debate in India is governed by thelanguage in which it is presented and understood.The message coming out of India, most likely to beheard by the developed world, comes out of itsEnglish language media, representing just 2 per-cent of the population. This elite group has adapteda pro-environment stance and is more likely toprotest against new dams.... But inside India, thefar bigger local language media representing thevast majority and poorer sections of society areexpressing the heart-felt cry for development’.

Second and related, is the fact that on any re-form proposal there will be a cacophony of voices.Montek Ahluwalia34 has described this well: ‘Some-times I feel as if there’s a completely false assump-tion that if only you talk to everybody you will getan agreement. Only on a very boring issue or in avery boring country would you find that. To mymind the debate ... Does not eliminate the need forpolitical risk ... At the end the government has totake the risk....’ In short, while all voices must beheard, much greater weight must be given to thevoices of those who have responsibility and facethe voters, and less weight to those who are self-appointed or who represent small special interests.

32 World Water Forum, Hague, 2000.33 Graham Chapman, Keval Kumar, Caroline Fraser, and Ivor Gaber, Environmentalism and the Mass Media: The

North-South Divide, Routledge, 1997.34 Montek Ahluwalia, ‘Practitioners in Development’, World Bank, 2004.

What the Bank has Done in the Past

The World Bank has been involved in the watersector in India for 50 years and has lent about $14billion for water projects in India.1 The very firstBank-financed project, the Damodar Valley Project,approved in 1954, was inspired by the TVA model,and aimed at building water infrastructure andinstitutions which would provide a springboardfor economic growth and poverty reduction in apoor region.

From the Bank’s perspective, this was (and wouldbe today) an ideal project—it was a vehicle forbringing the best ideas from other countries andadapting them to India; it was a combination ofinfrastructure and institutional developments.

There were very clear benefits. The project didfinance infrastructure which has provided power,flood protection, and irrigation services to the re-gion. And the project was instrumental in the for-mation of the Damodar Valley Corporation (DVC)in the 1950s.

But there were failures, too. The DVC turnedout to be quite different from the TVA, with statesclawing back major activities and the DVC endingup as basically a power generation company withlittle responsibility for water management.2 Andthere was no demonstration effect, with no otherriver basin organization following the DVC model.

CHAPTER 5THE EVOLVING ROLE OF THE WORLD BANK

(In fact not a single river basin authority has beenestablished under the 1956 River Boards Act.)

In many ways, the Damodar Valley Project pre-saged half a century of Bank experience with waterdevelopment and management in India, an expe-rience in which the defining quality is the contrastbetween lofty aspirations and modest achievements.

Paraphrasing Akhter Hameed Khan, the greatPakistani reformer,3 it might be said that the Bank’sinvolvement in water in India has been one inwhich the Bank ‘has chased the rainbow of well-functioning institutions and dreaded the nightmareof further institutional decay.... and that only theboldest among us can say that we may not besimilarly engaged tomorrow’.

Over the last 5 years there have been two majorreviews, one by the Bank in the context of the newWater Strategy4 and one by the Operations Evalu-ation Department. In both cases, the reviews in-cluded major consultations with a wide variety ofstakeholders in India. Since these earlier reportshave been published, and the results presented indetail in the background paper by Malik, in thisreport it is necessary only to summarize the mainmessages and lessons.

First, there are different perspectives about theinfluence of the World Bank on the water sector inIndia. On the one hand there is the view that since

1 Operations Evaluations Department, Bridging Troubled Waters, World Bank, Washington DC, 2002.2 Albert Hirschman, Development Projects Observed, Brookings Institute, Washington DC, 1970.3 Akhter Hameed Khan, ‘A History of the Food Problem’, The Agricultural Development Council, 1973.4 World Bank, ‘External Views on the World Bank’s Water Strategy’, www.worldbank.org/water, Washington

DC, 2003.


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the Bank accounts for only between 6 percent(Sekhar, background paper) and 10 percent5 ofwhat is spent in the water sector in India, the Bankis a minor actor. On the other hand, since most ofthe water expenditure by the Union and stategovernments in India is for fixed costs (especiallypersonnel), the Bank funds a much larger portionof discretionary expenditure and of new invest-ments. And the Bank has been, and continues to be,by far the biggest external donor, accounting for72 percent of donor lending and grants for water.6

Where there is general agreement is that, as itshould be, the Union and state governments are theones who determine what will happen and how itwill happen. The Bank’s role is necessarily andproperly one of trying to put ideas on the table, tobe a partner to efforts at improving performance.This is an important role, but necessarily and prop-erly control is in the hands of the elected govern-ments at the national and state levels.

Second, mirroring a similar pattern for WorldBank lending worldwide,7 there was a sharp decline(Figure 5.1) in the proportion of lending going towater projects—from 25 percent in the early 1990sto about half that amount over the last 5 years.

There was also a marked shift in Bank lending(see Figure 5.1) out of complex areas which wereperceived to be ‘reputationally risky’ for the Bank(especially in the light of the controversies sur-rounding the Bank’s engagement with the SardarSarovar Project). There was no lending for hydro-power (with the last project financed by the Bankbeing approved in 1987, the 1500 MW run of theriver Nathpa Jhakri Project on the Sutlej River).There were sharp reductions in lending for irriga-tion, urban water supply, and stand-alone water

resources project, with the only increases being inthe uncontentious area of rural water supply. Therewas great dissatisfaction among government offi-cials in India who believed, as did developingcountries throughout the world,8 that the Bank waswalking away from the area where the needs weregreat (infrastructure) and where the Bank had astrong comparative advantage, namely in address-ing complex, difficult issues such as water resourcesdevelopment and management. A subsequent major‘global poll’ of opinion-makers throughout theworld reaffirmed (see Figure 5.2 for South Asia)that this is where countries perceived the greatestneed, and the strongest case for World Bank in-volvement.

Third, these reviews, earlier major analyticassessments by the World Bank in 19919 and 199810

and the assessment in the 12 background papers by

5 Operations Evaluations Department, Bridging Troubled Waters, World Bank, Washington DC, 2002.6 Ibid.7 World Bank, Water Resources Sector Strategy, Washington DC, 2003.8 World Bank, ‘External Views on the World Bank’s Water Strategy’, www.worldbank.org/water, Washington

DC, 2003.9 World Bank, India Irrigation Sector Review, Washington DC, 1991.

10 Keith Oblitas, India Water Resources Management Sector Review, Report 18356 IN, Washington DC, 1998.

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600

400

200

0 1993–98 1999–2004


US$

mil

lion

s

Figure 5.1: The decline and changingcomposition of World Bank lending

for water in India


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The Evolving Role of The World Bank

• ‘For fiscal reform to succeed, sooner or laterstate governments must address reducing thesize of public sector agencies and ensuringgood governance that allows the privatesector, including users groups, to take agreater stake in water planning and man-agement.’

b) of recommendations by the Bank that speci-fied large numbers of priorities and did notfocus on a practical reform path:

• ‘The Bank’s 1998 review lays out a veryambitious and detailed agenda that ... con-tains more than 80 national and intersectoralrecommendations aimed at the central andstate governments, and more than 170 forthe main subsectors.’

• ‘... institutions and practices that haveremained unchanged for decades are to betackled and changed quickly—an approachto institutional reforms that flies in the faceof institutional realities and the political will

such as they exist in India today.’

• ‘The Bank risks spreading its re-sources too thinly to be effective.A more selective and incrementalapproach to key policy and insti-tutional reforms might be moreproductive.’

c) of a slow movement away from anormative approach to one whichfocuses on incentives and the po-litical economy of change:

• ‘The 1998 review found that littlehad changed since 1991: “in re-cent years there has been realiza-tion and policy pronouncementsregarding the need to address theseproblems; however, the policieshave not been translated intoaction.”’

eminent Indian professionals, have concluded thatthe infrastructure constructed with Bank fundinghas made major contributions to India’s food secu-rity, energy production, and urban development,but that all efforts at improving institutional per-formance have been only modestly successful, atbest. A few quotes from the latest OED report givethe flavor:

a) of persistent institutional shortcomings:

• ‘... performance of completed Bank waterprojects has been unsatisfactory because ofover-optimistic appraisal.’

• ‘... the states’ unwillingness to tackle insti-tutional and financial reform ...’

• ‘... much still remains to be done on deve-loping sustainable mechanisms for water al-location and management ...’

• ‘... sooner or later state governments mustaddress subsidy issues and right-size publicsector agencies to increase efficiency.’

Figure 5.2: The ‘global poll’ results for South Asia,showing that infrastructure and education were the two

areas which were of high development priority, andpriority for the World Bank


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• ‘There has been headway on reform of waterinstitutions in the few reformist states wherethere is political will to change after de-cades of malaise—but in some, the reformsappear to be cosmetic.’

• ‘The missing element is how to identify andpromote incentives that will lead to sustain-able and effective reform. Only then can thecritical next step be achieved: agreeing onthe three to five short- to medium-term pri-orities on which to focus efforts.’

The Bank’s New Water Strategy

In parallel with these reviews of World Bank en-gagement in water in India, and influenced bythem, the World Bank developed a new WaterStrategy, which was approved by the Board of theBank in 2003, and set a new direction for Bankengagement in water throughout the world. Themain messages of the 2003 Water Strategy are:

• Water resources management and develop-ment is central to sustainable growth andpoverty reduction and therefore of centralimportance to the mission of the World Bank.

• Most developing countries need to be activeboth in management and development ofwater resources infrastructure.

• The main management challenge is not avision of integrated water resources man-agement, but a ‘pragmatic but principled’approach that respects principles of effi-ciency, equity, and sustainability, but rec-ognizes that water resources managementis intensely political, and that reform re-quires the articulation of prioritized, se-quenced, practical, and patient interventions.

• The World Bank needs to assist countries indeveloping and maintaining appropriatestocks of well-performing hydraulic infra-structure, and in mobilizing public and pri-

vate financing, while meeting environmen-tal and social standards.

• The World Bank will re-engage with high-reward/high-risk hydraulic infrastructure,using a more effective business model.

• The Bank’s water assistance must be tai-lored to country circumstances and be con-sistent with the overarching CountryAssistance Strategies.

The 2004 World Bank CountryAssistance Strategy for India

The World Bank has recently commissioned majorsurveys of opinion leaders to help identify areaswhich were of high development priority and wherethe Bank was perceived as having a comparativeadvantage. Confirming the results of the ‘globalpoll’ discussed earlier, these surveys (Figure 5.3shows the South Asian poll of 2005; the Indian pollof 2004 produced very similar results) again showedthe areas associated with water to be of high pri-ority and high Bank effectiveness.

In September 2004, the Government of Indiaand the World Bank finalized a Country Assis-tance Strategy, the ‘contract’ which spells out in-dicative Bank lending for the period 2004–08. TheCAS represents a dramatic change in the Bank’sengagement with water (Figure 5.4), with overallwater lending predicted to rise from about $700million over the previous 4 years to about $3200million in the next 4 years. As shown in Figure 5.4,too, there are major changes in composition, withthe Bank expecting to sharply increase irrigationand water resources lending, and re-engaging withlarge hydropower projects.

The 2004 CAS makes two other important stra-tegic shifts which affect water. In the last CASperiod the Bank focused heavily on ‘reformingstates’ which were mostly in the south and mostlyamong the better-off and better-governed. (In this

77


percent of the population.) Now the Governmentand the Bank have agreed that the Bank will re-engage more intensively with the poorer states(where needs are greater but governance is alsoworse). This adjustment is understandable, but italso implies even greater difficulties for the insti-tutional reform agenda which lies at the heart ofBank engagement. This is so because it is unreal-istic to expect water governance to be good whenoverall governance is poor; and thus, it is likelythat the already-difficult task of reforming watergovernance (which has not been very successfuleven in the ‘advanced states’) will become moredifficult. In the current CAS, then ‘rules of engage-ment’ for different sectors have replaced ‘focusedstates’ as the primary filter which will determinewhether or not the Bank engages. The ‘rules of

Bank good, but issue notperceived to be a priority

Bank good and issue isa priority

Bank not so good onpriority issues

Bank not good, and issue notperceived to be a priority

Regulatory Framework! ! Natural ResourcesManagement

Urban Quality of Life! Protect the Poor!

Transparency in Governance! PoliciesDecentralization

Public Sector!Accountability inPublic Funds

• Access to Health Services• Reduce Poverty

• Safeguarding against Corruption

• Rural Quality of Life

Mean importance

Mea

n e

ffec

tive

nes

s

Asked on a scale of 1–5; 1 being not important at all/not effective at all, 5 being very important/very effective.

Infrastructure

•Education•Water Resource Development

•Energy Sector•Economic Growth

Private Sector!

Gender Disparities!

2.6

3.5

3.4

3.3

3.2

3.1

3.0

2.9

2.8

2.7

2.53.6 3.7 3.8 3.9 4.0 4.1 4.2 4.3 4.4

Figure 5.3: Development priorities and comparative advantage of the World Bank

Source: World Bank South Asia Client Survey, 2005.

!

3500

3000

2500

2000

1500

1000

500

0


US$

mil

lion

s

1993–98 1999–2004 2005–08

Figure 5.4: World Bank re-engagementwith water in India


period about 50 percent of Bank water lendingwent to the southern states, who contain only 20


78

engagement’ for the various water-related sectorsare as follows:

• irrigation: de-linking irrigation services andwater resources management, reformingirrigation agencies, strengthening cost re-covery, regulation, beneficiary participa-tion, increased productivity of water, waterentitlements;

• urban water and sanitation: utility reform,improving services to the poor, and privatesector participation;

• rural water and sanitation: continue demandresponsive approach, moving from pilots toscale through Centrally Funded Schemes(SWAPs);

• hydropower: one element in an overall en-ergy program; Bank will engage with hydrothat has limited environmental and socialimpacts;

• water resources: developing information sys-tems, rehabilitating and modernizing ma-jor infrastructure, watershed management,water rights, capacity building.

The analysis in this report suggests that these‘filters’ are generally appropriate, with minoradjustments. The first adjustment would be to de-emphasise some of the recommendations on or-ganizational form (such as de-linking agenciesresponsible for irrigation and water resources man-agement) and putting greater emphasis on (a) in-struments, including entitlements, contractsbetween providers and users, transparent monitor-ing and benchmarking, and regulation, and (b) oncharting sequenced, prioritized paths for makingpragmatic improvements.

The Ongoing Evolution of BankEngagement in the Water Sector inIndia

As part of the process involved in developing thisreport, the Ministry of Water Resources held twomajor consultations with the Ministry of Financeand other Union Ministries, and with state gov-ernments, to discuss the evolving role of the Bank.The second of these consultations culminated ina set of agreed ‘recommendations’.11 There wasstrong endorsement of the re-engagement of theBank in the full range of water-related issues,including the big and the complex. There wasagreement that the government needed to comple-ment its traditional focus on infrastructure with agrowing emphasis on management. It was agreedthat the Bank needed to continue to emphasizeinstitutional reform, and much discussion (anddiffering views) of some of the key instrumentssuch as water entitlements and user charges. Itwas agreed that the Bank would consider a vari-ety of capital investments (in flood control, tankrehabilitation, completion of irrigation projects,recharge, etc.) in the context of state projects,with the critical test being the economic andsocial returns to such investments.

Finally, two comments by senior Governmentof India officials at recent consultations held bythe Government of India capture much of the es-sence of this report.

The Member of the Planning Commission re-sponsible for water and energy stated: ‘when wedo address management problems we still thinkonly in terms of instruments of command andcontrol, not in terms of incentives that affect thebehavior of users, and the instruments—usufructory rights, prices, compensation—thataffect this behavior.’12

11 Ministry of Water Resources, ‘Recommendations of the National Workshop on Challenges of water develop-ment and management in India and future strategies’, New Delhi, 13–14 January 2005.

12 Kirit Parikh at the Ministry of Water Resources National Meeting with the States, New Delhi, 2004.

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And the Secretary of Finance stated: ‘the gov-ernment will request Bank involvement only wherethe Bank adds value by bringing new knowledgeand contributing to reform processes’.

These senior Government of India officials cap-tured well the essence of this report—of the chal-lenges awaiting India as it faces an uncertainwater future, and the World Bank as it tries to bethe best partner that it can be.

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