Privatisation and Commercialisation of Water Resources and Services in India: An Overview

While this process began in 1991 itself in sectors like power, in the water sector it is just beginning. 13 years after the blind and hasty liberalization and privatisation, the power sector is in a mess. The reforms have been a disaster, with severe power shortages and rocketing electricity tariffs, locking the country into expensive contracts for years to come. All this has now been acknowledged even at the official level. Instead of learning from the process, an almost exactly similar process of liberalization, privatisation and globalisation is being undertaken in the water sector.

Modes of Reforms

In India, "reforms" in water sector are taking place through two modes. The first mode is outright privatisation of water services through either BOT projects or management contracts. This mode is being used for industrial water supply and urban water supply projects. The second mode, which is more insidious and will have a far-reaching impact, is through the water sector reforms.

Outright Privatisation

This includes BOT projects, Concessions, Management Contracts and so on. There are several such projects ongoing or in pipeline in the country. Some such projects are the Shoenath river in Chhattisgadh, the Tiruppur project in Tamil Nadu, the proposed private management contracts in Delhi, private hydel projects like Maheshwar in M.P. etc. The Database Section gives a list of the privatised water supply and sanitation projects and of privatised hydropower projects in India.

Reforms and Restructuring

The water sector reforms or restructuring are following the same line as the power sector reforms in the country, and indeed, are similar to the water sector reforms all over the world. These policies, pushed by the World Bank and ADB, have the underlying thrust of converting the whole sector into a market.

While the water sector in the country desperately needs reforms, in the World Bank led prescription they invariably mean only one thing:

  Transformation of the water sector into a commercial operation
  Changing the basis from social responsibility to a commodity to be bought and sold

They invariably include:

  Unbundling (separation of source, "transmission" and distribution)
  Independent regulator to free the sector from “political interference”
  Steeply Increasing tariffs
  Full cost recovery
  Elimination of subsidies
  Cutting off supplies for non-payment
  Retrenchment
  Privatisation and Public-private partnerships
  Allocation of water to highest value use through market mechanism
  Almost invariably pushed by the World Bank, ADB, DFID
  Policy prescriptions, restructuring process, even legislation being drafted by highly expensive international consultants like Price Water House Coopers (e.g. salary of 20,000 Euro per month!)

While reforms are supposed to be a solution to the water problems, they are mostly concerned about only the financial side. Moreover, hardly ever are these reforms based on a detailed study of the root causes of the problems. Studies are conducted with recommendations already known. Thus, the same sets of reforms are prescribed not just for different parts of the country but indeed in different parts of the world.

Reforms in various stages are going on in many states in India. The Database Section also gives a list of the states where reforms are ongoing, the World Bank and ADB loans associated with these reforms, and some features of these reforms. States undergoing the most extensive and comprehensive reforms include Madhya Pradesh, Maharashtra, Karnataka, Delhi.

Since water is a state subject, major part of the reforms are going on at the state level. The Central Government has also taken many measures for privatisation and commercialisation in water sector, like:

  1991 – Power Sector Opened for Privatisation : PSP in Hydropower
  2002 – New Water Policy Calls for PSP in water
  2004 – Guidelines for Urban Water & Sanitation Sector Reforms and PPP
  2005 – Financial Support to Bridge “Viability Gap” of Private Projects

(PSP = Private Sector Participation PPP = Public Private Partnership)

Impacts

The impacts of these "reforms" are felt by all sections, but the poor families, and vulnerable sectors like agriculture will be worst hit. Even middle class will feel the pinch. Impacts include:

  Severe increase in price hikes leading to many not being able to afford even water for domestic use
  Non-payment or inability to pay will lead to disconnection
  Disconnection means people will shift to lesser quality supply if available. Else, serious political unrest
  Agriculture sector, already in severe crisis, will be pushed even more into distress as water prices for irrigation zoom
  Dismantling of common public facilities meant for the poor like handpumps, public standposts etc.
  System transformed to cater to only paying customers. Thos who can’t pay the (steep) charges, will be thrown out or on the periphery
  Ultimately capture of water resources by those who can pay
  Huge profiteering by private companies
  Sale of public infrastructure built over generations with the use of public money for pittance
  Likely private control on community sources of water like groundwater, rivers etc.
  Large scale retrenchment of public sector workers
  Little likelihood of major problems of the sector being solved, including financial problems, quantity and quality of supply, equitable and affordable supply, protection and enhancement of resources

Why “Reforms”

There has been a shift in the discourse and practise of privatisation of water in the last several years. The initial attempts at classic, direct privatisation resulted in huge political backlash all over the world. Many companies also found making profits not so easy. Both these resulted in the shift in the rhetoric to "pro-poor" privatisation and also the Public Private Partnership (public takes the risks, private takes the profits). This has not been sufficient and the political backlash and difficulties in making profits did not go away with this.

Hence the renewed push for "sector reforms". In this, the private players are not immediately on the scene. The whole responsibility of taking and implementing unpopular and harsh decisions falls on the Government and public bodies. These include the all the measures outlined above

The idea is to make the sector fully commercial, the blame and the political backlash to be taken by the Government, and then bring in the private sector. This is the route now taken to ensure private profits, to protect private sector from burden and risks of social responsibility.

Also, the water sector reforms must be seen as a direct part and parcel of the larger neo-liberal agenda of globalisation and privatisation.

WTO and GATS

There a strong push, especially from the EU to include water services in the General Agreement on Trade in Services (GATS) of the WTO. Negotiations for expansion of GATS are going on currently. It should be mentioned that the implications of opening up the sector under GATS (as against an “autonomous” opening as is happening now) are far more serious. The inclusion of water services in GATS will mean that the opening up of the sector will be virtually irreversible, and will severely constrain the Government’s ability to regulate the sector in terms of public interest policies.

Prepared by

Manthan Adhyayan Kendra,
Dashera Maidan Road,
Badwani (M.P.) 451 551
India

Ph: 91-7290-222 857 (O) 
Email: manthan_b@sancharnet.in
July 20,2005

Manthan: Monitoring, Research, Analysis of Water and Energy Issues