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Urban Water Markets in India

Photo by Luis Tosta: Unsplash

Policy Context

With 17% of the global population but access to only 4% of its freshwater resources, India is facing an intensifying water scarcity crisis. Rapid urbanization and climate change threaten to exacerbate this distress, further entrenching local disparities in equitable access to clean water. These disparities largely stem from inefficiencies in formal water distribution systems (McKenzie and Ray, 2009; Acharyya, Ghosh, and Bhattacharya, 2018; Vij, John, and Barua, 2019; Balasubramanya and Buisson, 2022). Broadly, these can be categorized into those of access (connectivity to the public piped water supply), service (continuity of supply and adequate pressure), and quality (absence of bacteriological and chemical contaminants). The fifth round of the National Family Health Survey (NFHS, 2019-2021) reveals variations in the reported primary source of drinking water by income, with reliance on piped supply for drinking water being the lowest for the poorest. As a result, urban residents are increasingly relying on unsanctioned private tubewells and water tankers, which are part of what we call the “informal water economy”.

Economists and policymakers have long debated optimal ways to allocate water resources, with the former advocating for privatization. Proponents of this approach argue for increased efficiency, while critics caution against the risk of price hikes and reduced access for the poor. The growth of informal water markets in developing countries could be seen as a natural response to the need for a “price” of water. Alternatively, however, these markets may serve as insurance mechanisms, offering “water insurance” against disruptions to formal water delivery systems. However, lack of comprehensive data on the extent of these urban water markets limits research on its extent, market power, and impacts.

Study Design

CEGA funding will support a pilot study in and around the National Capital Territory (NCT) of Delhi, focused on exploring spatial and income variation in access to, service and quality of water, particularly following daily shocks to formal water supply. This involves collecting data on households’ formal and informal water sources, storage, patterns of usage, frequency of switching between alternatives, associated money & time costs, contamination to primary sources, etc. The goal of the pilot is two-pronged.

First, researchers aim to conceptualize a measure of “water insurance”, potentially defined by outcomes such as number of alternative sources and available storage facilities. Second, to assess its “coverage”, or the degree to which this engagement protects households from shocks to water supply, which is potentially defined by the frequency of switching between alternatives and consequent risks to health. We expect both measures to vary by the tightly-correlated household income and location. For example, poorer households (slums, resettlement colonies, and Jhugi Jhopdi Clusters (JJCs) may face higher tradeoffs in reducing “access risk” and increasing “health risks”, raising questions about how effectively they are insured. Depending on the results from the pilot, a larger data collection activity may be planned.

Results and Policy Lessons

Forthcoming.

Countries
India