The finance minister recently revealed another series of announcements that included relief for sectors affected by Covid along with plans to assist the revival of India’s economic growth.
One such announcement pertained to India’s power sector, which has witnessed significant challenges due to various reasons. One of them includes the inability to allow price mechanisms to guide power tariffs and excessive subsidies to consumers. The cost of this is that discoms become too dependent on state revenues to meet the production costs. Thus, there are limited investments in terms of augmenting the existing infrastructure, which is critical for improving distributional efficiency. The focus of the recently announced interventions is to change the state of the sector, thereby ensuring that we can generate and distribute electricity in an efficient manner. This is essential for manufacturing activity to pick up in India.
This discussion is important to better understand the role of prices in the functioning of an overall economy. Prices tend to carry informational value and play an important role in the distribution of goods or services. The problems in India’s power sector were largely an outcome of a disregard for the role of prices, which led to systematic inefficiencies that crept in and eventually created several problems that spilled over to the overall economy.
A similar tragedy could follow due to our disregard for the pricing of water. To be fair, water is essential for survival, which makes it slightly different from electricity (although some may even argue that electricity is a necessity to sustain life in the 21st century). However, the question is not about the pricing of the minimum amount of water needed by an individual. Instead, it pertains to the pricing of water consumed in excess of this.
But even before we get to the pricing issues pertaining to water supply by state governments, the more challenging issue is regarding the use of groundwater. Indeed, in several parts of the country, groundwater is the de-facto mode of obtaining water. This includes cities such as Delhi and/or rural urban regions of Punjab, Haryana and several other parts of the country. The only cost associated with this is that of digging deeper wells or of use of electricity to operate electric pumps. The icing on the cake is the extensive power subsidies that are often granted to the agricultural sector for using these pumps.
A consequence of this is a water-intensive and inefficient production process along with the distortion of cropping patterns across states. Further, the state of Punjab has witnessed a depletion of groundwater that should be available at the depth of 50 to 60 ft but has now dropped to anywhere between 150 ft to 200 ft across the state. This should raise red flags as agriculture is the prime source of income for most households in the state and thus, ensuring sustainable agricultural practices should be of essence. Yet, this is a politically sensitive issue, which is why it has been ignored by the political establishment even as it will eventually have devastating consequences for the state.
In theory, the government should provide for connections with meters that would provide free water up to a certain limit. The limits and connections should be different for residential, commercial and agricultural purposes, but the general idea is to subsidise or even provide water as a resource free of cost up to a particular limit. However, beyond that point, it must be priced at an appropriate market determined rate.
This will automatically restrict the use of water-intensive production practices in areas where it is not commercially viable while also resulting in a broader recognition of the fact that water itself is a scarce commodity. Further, this will result in the promotion of practices such as rainwater harvesting and other related projects to conserve our urban and rural water bodies.
It is important that we recognise that water, including urban water, is heavily subsidised. This does have environmental implications, but it also restricts the ability of water supply and sewage boards to invest in repairs or maintenance of existing water supply infrastructure. This further extends to constraints on their ability to invest for wastewater treatment and extend their service.
There is a silver lining though, with the Pradhan Mantri Jal Jeevan Mission aimed at providing piped water connection across the country. The mission was launched in August 2019 when only 16.86% of Indian households had access to piped water. On June 28, 39.67% had access to piped water. The rapid expansion in terms of access to piped water has the potential to create a robust framework for revisiting how we manage our water bodies and other resources. With the Central government focusing on creation of an extensive water distribution system, state governments must revisit the extent of their water subsidies and the use of groundwater in various parts of the state.
Eventually, we will have to make a choice—whether to price water appropriately to better distribute the resource or to simply allow further exploitation of the resource, which only accentuates the scarcity that will ultimately hurt the poor and vulnerable the most. By providing free water to a certain limit and high prices beyond it, state governments can ensure not just judicious use of water but also its equitable distribution.
(Views are personal)
Somya Luthra
New Delhi-based legal scholar (somyaluthra@gmail.com)
Karan Bhasin
New Delhi-based economist and policy researcher (karanbhasin95@gmail.com)