Chp 22 Water Sector Reforms Implications on Empowerment IIR

8/13/2019 Chp 22 Water Sector Reforms Implications on Empowerment IIR

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ITe achievements and failures of efforts in the develop-ment of the water sector are well-known. While on theone hand, these efforts have contributed significantlyto food security as well as improvement in the qual-ity of life in many Southern nations, there have beenmany and equally significant gaps and unintendednegative impacts on nature and society. Over theyears, the marginalized and disadvantaged sections of

society have been further disempowered as they havelost control over the process of making decisions relatedto the development of the water sector. As a result,they have been subjected to a disproportionately highburden of costs of development in the sector, whilethe benefits, both direct and indirect, that have actu-ally reached them have been insignificant. A biggerproblem associated with the development of the watersector has been disempowerment of the marginalizedand inequity. In this background, the efforts aimed atrestructuring and reforming the water sector acquirespecial importance.

Sectoral reforms in the water sector began in 1990sin India as a part of pilot projects funded by interna-tional financial institutions (IFIs). Tese reforms have

Water Sector Reforms

Implications on Empowerment and Equity*

Sachin Warghade and Subodh Wagle

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now penetrated into policy and legal frameworks ofwater governance at the national as well as state levels.Tese reforms are crucial for many reasons. First, thereforms acquire importance because of the centralityaccorded to them in sector governance. Second, re-forms are making fundamental changes to the valuesand principles underlying laws and policies. Tird,these reforms are comprehensive, covering all impor-

tant aspects and elements of the sector. Fourth, andmost importantly, many of the reforms have broughtin changes in not only policies and laws but also inthe institutional structures and even ground conditionsthat are very diffi cult to reverse. It is argued that the water sector requires huge invest-ments for infrastructure development and upgradation,which most governments would fail to provide. Temost common solution proposed to address this prob-lem consists of market-based reforms, which includeoperating the system on a full cost recovery principleand commercialization or private sector participation of

varying degrees (Prasad 2007). While arguing in favourof cost-based water pricing, a World Bank (2005a: 54)document states that although the massive distortions

* Tis chapter is developed based on the paper presentation in Fourth South Asia Water Research Conference organized bySaciWaters on Interfacing Poverty, Livelihood and Climate Change in Water Resources Development: Lessons in South Asia held inKathmandu, Nepal on 4 May 2009.


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326 India Infrastructure Report 2011

in the pricing of water services are justified in the nameof the poor, it is, paradoxically, the poor who are themajor victims of these distortions. Te document

further argues that [t]he situation in India remainsone in which public monopolies face no competition.Te one over-riding lesson from the global revolutionin the provision of public services is that competitionmatters (the World Bank 2005a: 44). Reforms, inthis context, are justified mainly on two grounds: (i)improving effi ciency and economy, and (ii) enhancingequity and empowerment. First, it is claimed that different elements of reformswill bring in improvements in performance, whichimplies reducing, if not eliminating different types oflosses and ineffi ciencies. Tis improvement in perfor-

mance will result, on the one hand, in improvementsin the economic and financial health of the organiza-tion in the sector as well as of the sector as a whole.Te Government of India in the World Banks WaterForum stated that [t]he sector is characterized byserious under-performance, and this crisis will continueunless there is a fundamental reform of service arrange-ments (GoI 2002a: 2). On the other hand, increasedeffi ciency will also result in a decrease in consumerprices and an increase in the quality of services given toconsumers and users. Second, it is argued that the many elements ofreforms will empower consumers against the mighty

utilitiesboth public and private owned. Te reformswill have special instruments and mechanisms to dealwith grievances of water users. Further, it is also arguedthat reform elements, which would improve overalltransparency and accountability in the functioning ofthe sector, will empower water users too. Reforms willbring in a level playing field to all water users, and helpusers who face economic, political, or social challenges.It is also argued that the improved functioning of thesector will bring in private investments and reduce theburden on government funds, which can be meaning-fully utilized for supporting the interests of disadvan-

taged sections within or outside the water sector (theWorld Bank 2005a). Hence, such reforms in the policy and legal instru-ments require an assessment of their potential contribu-tion to equity and empowerment. Such an assessmentcan provide valuable inputs for the future directionof reforms. Tis chapter presents the outcomes of an

assessment of key reform instruments in the watersector in India.

F ATe terms equity and empowerment need to beinterpreted in a manner that is relevant to the watersector. Te main issue in the equity dimension is thedistribution of costs and benefits among differentstakeholders. In the water sector, apart from financialcosts, the main costs involved are social and envi-ronmental costs, which are the result of developinginfrastructure required for generating water sourcesand distributing water. Te main benefit from thesector is water services, including effective access.Effective access to water is seen to be dependent on

the availability of water to a particular userwhich, inturn, is affected by physical, economic, political, andsocial factors. In assessing the equity implications of reforms, bothcosts and benefits, need to be investigated. While thefinancial costs are borne by the state and nationalgovernments, the decisions on the social and environ-mental costs are made through policy and legal instru-ments that lie outside the water sector. For example, inMaharashtra, land acquisition for water projects iscarried out by the revenue department using specialland acquisition laws. Similarly, decisions on environ-mental matters are handled by the agencies under the

purview of the Ministry of Environment and Forests(MoEF), whereas issues of water quality are handledby pollution control agencies under separate laws. Empowerment here implies increased influence onthe governance of the sector, especially on the functionsof decision-making and regulation. Influence on gov-ernance is a function of participation, accountability,and transparency. Te ability to get decision-makers,implementing agencies, and regulators to be account-able is a key measure of the influence of that water usersand citizens have on the governance of the sector. Simi-larly, true and meaningful participation in all functions

and all stages of governance is necessary to ensure thatthe needs, aspirations, and demands of the stakeholdersare reflected in the outputs and outcomes of gover-nance processes. ransparencydefined as timely andunrestricted access to informationis a preconditionto effective extraction of accountability and meaningfulparticipation.


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Water Sector Reforms 327

It is also argued that the location of decision-makingis important for exercising influence on governance.Te geographic distance as well as procedural remote-

ness are considered as adversely affecting the abilityof water users and citizens in influencing governance.Decision-making at the local level is preferred from thepoint of view of water users. Te term reform is used in a limited sensetodesignate measures aimed at structural reforms orsectoral restructuring, especially those measures thatare aimed at changing the governance-related role givento the state. Apart from these, other reforms too havebeen introduced in the water sector, like those aimed atincreasing the participation of farmers in the manage-ment of irrigation. However, these participation-related

reforms are more focused at the project or sub-projectlevel. Tough they affect the role of the state, theyare focused on shifting the role in management ofirrigation systems away from the state and in favourof water users (discussed in Chapter 9). As againstthis, structural reform instruments are primarilyaimed at changing the distribution of governance rolesin the sector, away from the state and in favour of non-state actors. In choosing structural reform instruments for thisassessment, the criteria used are the comprehensivenessor depth of the reform instruments, which have impli-cations for the core of sector governance. Te follow-

ing three sets of reform instruments are identified forassessment: (i) National Water Policy, 2002, (ii) Statewater policies, and (iii) Legislations for establishingindependent regulatory authorities. Water is a state subject. But there are certain issuesthat are supposed to be governed or guided by nationalinterests. Te National Water Policy (NWP) representsthe overall policy direction for the water sector thatshall be followed at the national as well as the statelevels. While the first NWP was formulated in 1987,the new revised NWP was launched in 2002. NWP2002 is seen as the turning point in the governance of

the water sector in India. For the purpose of the current assessment we haveselected state water policies (SWPs) of six states in India,Madhya Pradesh (GoMP 2003), Uttar Pradesh (GoUP1999), Rajasthan (GoR 1999), Maharashtra (GoM2003), Karnataka (GoK 2002), and Andhra Pradesh(GoAP 2008), where water sector reform projects are

being intensively implemented. Te third categoryof the reform instruments chosen for the assessmentincludes different legislations for establishing indepen-

dent regulatory authorities (IRAs). IRAs for the watersector have been established by enacting special lawsin the three states of Maharashtra, Arunachal Pradesh,and Uttar Pradesh. Te other states are also planning toestablish IRAs in the water sector. Laws pertaining toparticipatory irrigation management (PIM) are not theprimary focus of this chapter, though they have beentouched upon in the current assessment. Te scope of this assessment of these reform instru-ments is restricted to the following key substantiveissues:

Centralization (especially nationalization) of watersector governance: What are the latest trends andtheir possible impacts on empowerment?

Emergence of IRAs in the water sector: What couldbe their impact on empowerment?

Emergence of the water entitlement system: Telaws establishing IRAs delegate setting entitle-ments as one of the primary functions of the IRAs.What could be the impact of the new emergingentitlement regimes on equity, especially in waterdistribution? What is its relation with water mar-kets and the possible impact of these relationshipson equity?

Emergence of the new water tariff system: Whatcould be the possible impact of the new tariffsystem on affordability and hence access to waterservices?

K F

Centralization of Governance of theWater Sector

Te distribution of decision-making powers betweenthe local, state, and national actors affects the level ofempowerment that can be achieved. With this view,

many social movements as well as innovative fieldexperiments in the water sector have demandeddelegation of power to local level functionaries andcommunities regarding crucial decisions related to thedistribution of water, decisions about new water proj-ects, and funds allocation. Such efforts seem to have ledto a widespread acceptance of the need to decentralize


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the governance and management of sectoral functions.Emergence of legislations related to participatoryirrigation management could be seen as the outcome

of the demand for decentralization, though therehave been much criticism of these instruments onthe same count (Koppen et al. 2002). Te followingfindings pertain to the issue of centralization ofgovernance.

National Water Policy: Foundation forNationalization of Water Resources

As per Entry 33 of List II of the Indian Constitution,the development and management of water is a StateSubject. Hence, the water sector has remained pre-dominantly under the control of the states and has been

governed by state level ministries and authorities. Tisallows citizens of the state to participate, lobby, andinfluence the state government machinery in achievingwater access and equity. As against this conventionalunderstanding, recent reform instruments seem toindicate that these reforms bring to the fore nationallevel concerns over and above the state or local levelconcerns. Some examples are:

National Water Policy (NWP), 2002, in Sections1.1 and 1.4, defines water as precious national assetor resource (emphasis added) (GoI 2002b).

NWP further states that planning, development,

and management of water resources need to begoverned by the national perspectives (emphasisadded) (refer to Section 1.1 of the Act) (GoI2002b).

About inter-basin transfer of water, NWP statesthat water should be made available to water shortareas by transfer from other areas based on thenational perspective (refer to Section 3.5 of theAct) (GoI 2002b).

About the inter-state water disputes, NWP says thatwater sharing/distribution among states should beguided by the national perspective (refer to Section

21.1 of the Act) (GoI 2002b).

Each of these policy provisions reiterates that thewater sector should be guided and governed by thenational perspective. In doing so, NWP clearly laysdown the foundation for increasing national levelintervention in the governance of the water sector.

Attempt to Develop Constitutional Basis forNationalization of Water Resources

Te Ministry of Water Resources of Government ofIndia published in December 2006, a report titledReport of the Working Group on Water Resources for theEleventh

Five Year Plan (200712) (GoI 2006). TeReport recommendeds developing a Constitutionalbasis for bringing central control on key decisions inthe water sector. Te Reportalso suggested that waterand water resources projects must be considered asnational assets and there must be a platform, such asthe (national) water regulatory authority to timelyand effectively settle all inter-state issues in a nationalperspective. Te national level regulatory authority isseen as a mechanism for making decisions on a states

matters at the national level. Such recommendationsto centralize key decisions in the water sector at thenational level are evident from policy directions.Tis kind of nationalization is seen to be necessary ifnational projects like inter-linking of rivers are to besuccessfully completed.

State Level Centralization of Water GovernanceSimilar trends on centralization of governance are alsovisible at the state level. Te new laws for establishingwater regulatory authorities provide for concentrationof key decisions in the hands of state level actors suchas state government departments and state regulators,

without much space for intervention by citizens orwater users. For example, both the Maharashtra WaterResources Regulatory Authority (MWRRA) andUttar Pradesh Water Management and RegulatoryCommission (UPWMRC) Acts provide for developingintegrated state water plans (GoM 2005; GoUP, 2008).Tese plans are to be prepared by the respective stategovernments. Te particular laws do not provide anyspace for public participation in the preparation ofsuch plans. Hence, eventually the planning process mayremain outside the domain of the public and it maymerely turn into a centralized top-down bureaucratic

exercise. Another important example is the case of legalprovisions for determining and distributing waterentitlements. As per the regulatory laws, the state levelregulator will determine entitlements based on therules framed by the state government. Here again it canbe seen that the laws do not make any provision for


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consultations with, and participation of, stakeholdersin taking such a crucial decision on water distribution(GoM 2005; GoUP 2008).

Tis clearly shows that while on one side attemptsare made to decentralize the governance of the watersector, on the other side there is centralization of keydecisions in the water sector at the level of the stategovernment.

Te Impact of Centralization andNationalization on Empowerment

Te discussion so far suggests that there are strongtendencies to centralize the governance of the watersector at the national level as well as at the state level.Once such enormous powers related to crucial sectoral

decisions get concentrated in the hands of the topbureaucracy, top regulators, or dominant vested interests,then empowerment will merely remain in the form ofdelegating the implementation functions at the locallevel. A major negative impact of centralization andnationalization of water sector governance will be onempowerment of the citizens and other stakeholders. It must be noted that there might be genuine con-cerns that prompted calls for giving due importance tothe national perspective. Tese would include concernsover the increasing instances and increasing severity ofinter-state disputes or concern over repeated failure ofthe state level machinery and other instances, which

would justify intervention, mediation, coordination, orcontrol by the national government or other nationallevel agencies. But it also needs to be noted that suchattempts of giving an increasing role and control of thesector governance in the hands of national level agen-cies, without adequate thought to the dencentralizationframework, would certainly lead to an adverse impacton the empowerment of state and local level actors.

Establishing IRAs: Impact on Empowerment

Tree states have established IRAs in the water sector.Other states are considering setting up of IRAs. Te

findings related to this development are now discussed.Genesis of IRAs: Not Grounded inPublic Debate and Demand

National Water Policy discusses regulation as a policymeasure mainly in relation to groundwater and floodmanagement (GoI 2002b). Tis policy does not make

any mention of the need for a regulatory authority inthe water sector. SWPs of various states also do not giveany policy direction for setting up IRAs in the water

sector. Te only exception in this case is the policy ofthe state of Uttar Pradesh (UP) (GoUP 1999). Tis suggests that the initiative towards setting upof IRAs in the water sector at the state level is notgrounded in policy debates at the state or national level,which are supposed to reflect in the respective waterpolicies. Similarly, the need for IRAs does not seem toemerge from an informed public debate or demandsfrom stakeholders. Te initiative to set up IRAs seemsto be largely due to an externally driven stimulus, whichbecame active mainly after the articulation of the NWPand SWPs.

Te major external stimulus in this regard is providedby the water sector improvement/restructuring projectsundertaken in various states, which were funded by theWorld Bank. Tese projects were initiated in MadhyaPradesh (MP) in 2004, Maharashtra in 2005, andRajasthan and Uttar Pradesh in 2001. It can be seen thatstate policies in MP, Rajasthan, and Maharashtra weredeclared before undertaking these World Bank-fundedprojects. Further, the project appraisal documents ofthese World Bank-funded projects include establishingregulatory authorities as one of the conditions of theloan agreement (World Bank 2005b). Tis suggeststhat the move towards the formation of state level IRAs

in the water sector has been an externally driven phe-nomenon. Te main rationale provided by the WorldBank for bringing in IRAs is to bring rationality inthe decisions on key economic and financial matters,such as tariff and entitlements, which is shown as thenecessary precondition for increasing private participa-tion in the sector. Tis reform has no connection withthe state or national level policy debates, but is createdby an external stimulus with the intention that hasnothing to do with empowerment. It is equally inter-esting to undertake a state-specific assessment of theprocess of establishing IRAs. Te findings of such an

assessment are:

Maharashtra became the first state in India to passa law for establishing IRA in the water sector. In2005, the state passed the Maharashtra WaterResources Regulatory Authority (MWRRA) Act.It is interesting to note that the bill in this respect


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was passed in the state legislative assembly on thelast day of the session through voice vote, withoutmuch discussion on the revised draft. Te World

Bank loan for sector improvement was sanctionedby the Banks board immediately after the Act waspassed.

Arunachal Pradesh was the second state to pass sucha law. Te state literally copied the entire Act passedby Maharashtra. An assessment shows that manyprovisions in the Act are totally irrelevant to thespecific context of the water situation in ArunachalPradesh. For example, the legislation providesfor removal of irrigation backlog in backward re-gions. Te issue of irrigation backlog is relevant toMaharashtra and not Arunachal Pradesh. Here

again there was no attempt to ensure empowermentthrough public participation and consensus oncrucial decisions, such as the setting up an IRA.

Uttar Pradesh passed a legislation for establishingan IRA in the water sector following the conditionsstipulated in the contract for the World Banksupported water sector reform project. Neither civilsociety organizations nor any other key stakeholdersin the state were consulted in the process of formingthe law for this purpose (PRAYAS 2009a).

Tus, the sources or roots of these laws have nothing

to do with empowerment; and even the processes of

passing these laws are, without exception, are markedby complete disrespect to the basic tenets of publicparticipation or transparency. In summary, it couldbe said that the assessment of the genesis of the lawsfor establishing IRAs indicates that there is hardly anyconsideration of empowerment or equity in either thegenesis or passage of these laws.

Water Sector IRAs: Disempowering Tendencies

Major concerns regarding the setting up of IRAs inthe water sector are about their accountability tocitizens and common water users. Teir statusas

quasi-judicial bodiesdefined by the respective lawsmake them immune to political pressures or politicalactivities. In effect, unlike the elected representativeswho are held accountable by the public through themechanism of elections, there is no formal mechanismto hold the IRAs accountable to the public.

IRAs are expected to be governed by the law thatcreated them as well as by the rules and regulations forconduct of their business (which the IRAs are expected

to articulate). o ensure that the IRAs adhere to the lawsand regulations, the process adopted by them to arriveat decisions, has to be transparent, participatory, andaccountable to their stakeholders, including commonwater users. An assessment of IRAs was carried out by comparingprovisions of the Act for establishing state regulatoryauthorities in the water and electricity sectors (GoM2003, 2005). After comparing the Electricity Act, 2003and MWRRA Act, 2005, it was found that the Electric-ity Act contains much better provisions for transpar-ency, public participation, and accountability of state

regulatory commissions. In contrast the MWRRA Actis very weak in all these aspects. Some of the findings ofthe comparative analysis of the two acts are (PRAYAS2007): Section 3 (4) of the Electricity Act (E-Act) provides

for public participation in preparing the nationalelectricity plan. In contrast to this, the MWRRA Actdoes not provide for participation in preparing theintegrated state water plan.

Section 181 (3) of the E-Act makes it mandatoryon the regulatory commission to make regulationssubject to the condition of previous publication.

Te condition of prior publication keeps open theopportunity for public awareness and participationin forming the regulations before they are finalized.Tere is no such condition of previous publicationin the MWRRA Act for provisions related to thepowers of the regulator to make regulations.

Section 86 (3) of the E-Act makes it mandatoryon the regulatory commission to ensure transpar-ency while exercising its powers and dischargingits functions. Tis provides blanket acceptance andunrestrained scope for transparency. Unfortunately,the MWRRA Act does not provide any concrete

measure for transparency. Te MWRRA act requires participation of waterusers only while setting tariff. It does not requireparticipation of water uses while making decisionson important matters, such as determining waterentitlements or project assessment.


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Tese examples show that the MWRRA Act, whichis often been proposed as a model regulatory act forreplication by other states, is, in fact, not supportive

of the cause of empowerment of citizens and otherstakeholders in the water sector. Tere is another major hindrance in common waterusers influencing the functioning of IRAs. Te IRAsare expected to ensure economy and effi ciency in wateruse. As a result, the focus of their deliberations is ontechnical, economic, and financial aspects of issues onwhich decisions are to be taken. In order to influencethese deliberations, the participants in the delibera-tions require a high level of technical, economic, andfinancial expertise. Moreover, all proceedings of IRAsare supposed to be carried out in a quasi-judicial format

and thus participants are also required to have adequatelegal knowledge and skills for effectively participatingand influencing the proceedings. Most civil societyorganizations, common water users, or their organiza-tions do not possess knowledge, expertise, or skills inthese areas; neither do they have financial resourcesto hire expensive professional services. Tis is not thecase with dominant actors like the state and corporatehouses, who often have both expertise and resources.In such situations, the proceedings and deliberationsbefore IRAs may be controlled and captured by thesedominant actors, often at the cost of the interests ofother stakeholders. In other words, the nature of the

proceedings and deliberations before IRAs tend toeffectively disempower common water users. Te experience of proceedings by MWRRA vindi-cates this analysis. Te authority, which was conduct-ing the process for determining water tariff for farmers,initially chose to restrict itself to a website as the onlymeans of communication for reaching out to farmers.It did not take into consideration the fact that thesefarmers were spread in remote rural areas, most of themdid not even get electricity beyond 6 to 7 hours a day,and certainly did not have connectivity to the internet.Similarly, it also required all participants in the public

consultation to submit written petitions, when mostfarmers lack skills and resources to articulate theirgrievances on paper. In fact, it initially asked all partici-

pants to make legal affi davits. Te authority was forcedto set aside this requirement due to strong protest byfarmers (PRAYAS 2009b).

W E: R I W DAn assessment of the new legislations enacted inMaharashtra, Arunachal Pradesh, and Uttar Pradeshfor establishing IRAs in the water sector shows thatthe creation, management, and regulation of the waterentitlement system (WES) is at the heart of the regula-tory framework of IRAs in the water sector. As part of

WES, various water users and groups of users shall beallotted certain shares of water as their water entitle-ment. UPWMRC and the MWRRA are empowered,through their respective legislations, to determine andregulate water entitlements to different user groups(GoM 2005; GoUP 2008).1Te MWRRA Act statesthat entitlements are deemed to be usufructuary rights,(refer to Section 11 (i) (i) of the Act). Water entitle-ments are certainly not ownership rights but they arerights to use (in short use rights), which are also calledusufructuary rights. Tus, entitlements are legallyrecognized, registered, near-perpetual, and regulatedrights over use of water.

Such a system of water entitlements will drasti-cally change the way water resources are shared amongvarious users. Te system will usher a completely newmechanism for determining, recognizing, and allocat-ing rights over the use of water among contendingstakeholders.

Narrow Interpretation of Equity:Creating Water Lords

Both the UPWMRC and MWRRA acts specificallymention in their preambles that the regulator shall en-sure judicious, equitable, and sustainable management

1While the paper was under printing there was an amendment to the MWRRA Act which was passed in 2011. As per thisamendment the powers of determining inter-sectoral allocations have been transferred from MWRRA to the Cabinet. Te criteria forequitable entitlement that existed in the earlier law now stands abandoned as per the amendment. Te key feature of the amendmentis the provision that legalizes all the past decisions of water allocation that led to water diversion from irrigation to non-irrigation use.Tese decisions were made by a ministerial group by bypassing the powers of MWRRA.


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and allocation of water resources. Tus, the legislationsaccept equity as the key principle that shall guide theallocation of water resources. Based on this acceptance,

it is expected that there will be equitable distributionof entitlements, thus making the poor and other dis-advantaged sections including the landless, entitled totheir due share of water resources. A thorough assessment of the UPWMRC Act showsthat except for its preamble, the term equity is notmentioned in any of the legal provisions in the Act.In fact, there has been no attempt to legally define thecriteria for equitable allocation of water resources. Teabsence of a practically implementable definition ofequity will not help the regulator to implement theprinciple of equitable distribution in practice. Tus, in

practice, the provision for equitable distribution willnot yield any results. Te term equity is mentioned in the MWRRA Actfour times in its main provisions, apart from beingmentioned in the preamble (GoM 2005). Te mainprovisions related to these in the MWRRA Act are:

for equitable distribution of water in commandareas of the project, every land-holder in the com-mand area shall be given a quota.

the quota shall be fixed on basis of the land incommand area, (refer to Section 12 (6) (a) & (b) ofthe MWRRA Act).

Tese provisions clearly indicate that water will bemade available to only those people who have land inthe command area and it will be in proportion to thelandholding. Hence, this definition of equity includesonly landowners in the command area of an irrigationproject. Te definition totally ignores the rights oflandless communities, including land tillers, agriculturelabourers, and women cultivators. By making this law,the state has actually given legal sanctity to such a nar-row definition of equity. Te reform instrument failsto evolve an inclusive interpretation of the principle

of equity. Te combination of two factors: (i) establishing theentitlement regime (legally recognized and perpetualuse rights over water), and (ii) interpretation of equityin terms of the land owned will allow big landlords togain immense control over water resources that wouldnot only have the governments support but also have

legal sanctity. Te WES with a narrowly defined prin-ciple of equity may thus lead to the emergence of waterlords. Tis will ultimately reinforce the financial and

political clout that the dominant group holds todayand would lead to further erosion of space for disem-powered sections to assert their rights. Te problemgets further accentuated when we explore the linkagesbetween WES and the creation of water markets.

Priority of Water Allocation: No Clear Mandatefor Equitable Water Distribution

Te IRAs have to follow the policy guidelines given instate water policies while determining water entitle-ments for agriculture or industry (GoM 2005). Tenational water policy as well as most of the state water

policies in their list of priority use of water, give higherpriority to water requirements in agriculture water thanto industrial water requirements. Te only exception tothis is Maharashtra, which has allocated higher prior-ity to industrial water use as compared to agriculturewater use (GoM 2003). Tis prioritization of industrialusers over agricultural users in a state facing semi-aridconditions and water scarcity is seen by many as a clearcase of inequity in water allocation as far as the waterdemands of farmers are concerned. Te higher priority to agriculture water use in com-parison to industrial use provided in NWP as well asmost other SWPs is, however, not unequivocal. Tese

reform instruments include a provision allowing formodifying the priority based on specific needs of cer-tain regions and purposes. Tus, the policies are in away non-committal in giving higher priority to agricul-ture use in water allocation. Almost half of the SWPsthat were assessed included such a provision allowingmodification of priority. Such discretion could be usedin future to change the original priority list, resultingin inequitable distribution of water resources amongcontending users, disfavouring the small and disadvan-taged stakeholders. NWP, which acts as a guideline to all states, included

the following categories in defining priority for waterallocation: drinking, irrigation, hydropower, ecology,agro-industry, non-agriculture industry, and naviga-tion. Similarly, SWPs in some states (there are someexceptions) also have very short lists, neglecting waterneeds of diverse livelihood practices of rural people inthis vast and diverse country. Tese livelihood practices


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which need water include aquaculture, afforestation,and livestock, which are important rural, agro-basedlivelihood practices. Exclusion of these categories of

water uses would lead to disadvantages to some sectionsof the rural population.

Entitlement as Precursor to Water Markets:Impacts on Equity

According to Section 11(i) of the MWRRA Act, theregulator is accorded the powers to fix criteria for trad-ing of water entitlements. Further, the law states that,entitlements are deemed to be usufructuary rightswhich can be transferred, bartered, bought or sold within a market system (refer to Section 11(i) (i) of theAct) (GoM 2005). Tus, emergence of formal water

markets is not just hypothetically linked with entitle-ments; it has already penetrated the regulatory frame-work and received legal sanctions in one of the states inIndia. Te assumption underlying the creation of watermarkets is that market forces will ensure allocation ofwater to the most high-value application or most eco-nomic use of water. Tis has already been implementedin countries like Australia and Chile (GoAu 2005)(Saleth and Dinar 1999). One of the most comprehensive studies done on thedistributive impacts of water markets in Chile concludesthat farmers share of water rights decreased signifi-cantly after formal water markets backed by the system

of property use rights (entitlements) were introduced(Romano and Leporati 2002). Tis led to deteriorationin the standard of living. Te study further concludesthat the share of the agricultural sector in water rightsas a whole decreased while that of non-agriculturalsectors increased. Such impacts would be detrimentalto the agro-economy and the overall rural economy inIndia. Tis will further deprive the vulnerable sectionsof their rights to water resources.

Water Tariff Systems and Inequity

An assessment of the legislations for establishing IRAs

also indicates that establishing a tariff system and regu-lation of tariff is one of the key functions of IRAs. TeUPWMRC Act as well as the MWRRA Act entrustthe responsibility of determining and regulating watertariff to the respective regulatory authorities. Watertariff has been a politically controversial and emotiveissue. Tis is primarily due to its direct impact on the

affordability that, in turn, affects access to water forcommon citizens, especially, for vulnerable sections ofsociety.

Paradigm Shift in ariff System: FromAffordability to Cost Recovery

It should be noted that in many parts of India watercharges are based on the (explicit or implicit) criteria ofaffordability for water users. As a result, in many placeswater is being provided free or at highly subsidized ratesto certain areas or to certain sections of society. And forthe same reasons expenditure for water services was sub-sidized using the revenue generated from general taxes.Tus, historically water services were predominantlyconsidered social services and water was considered a

social good. Te new tariff regime that will be implemented aspart of water sector reforms attempts to reverse thisprinciple and replace it with the principle of water aseconomic good. Tere is an emerging consensus thatwater services should either be run like a business,or become a business (Kessler 2005). A business-likeoperation would require full cost recovery from thewater tariff charged to individual consumers. In effect,this requires charging of water services based on marketprinciples. An assessment of state water policies shows thatalmost all the states in India have accepted the principle

of cost recovery for determining water tariff. But, therewas no formal mechanism to establish the tariff regimebased on this principle. So this has been secured bymaking relevant provisions in the new regulatory laws,such as the UPWMRC Act and MWRRA Act, whicheffectively provide legal sanction to the paradigm shiftin the perspective towards economic water services andtariff. Both the laws empower water regulatory authori-ties to establish tariff systems based on the principleof cost recovery, and to determine and regulate watertariffs. Such a shift from affordability to cost recoverywill have a strong bearing on the cost burden of water

services on the poor and marginalized sections of soci-ety. An application of the cost recovery principle willnaturally increase water tariffs.

Assessment of Levels of Cost Recovery

In the Water Week Panel on Political and echnicalIssues in Cost Recovery organized by the World Bank


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(February 2005), six different levels of cost recoverywere proposed and recommendations were made formoving to higher and higher levels of cost recovery. Te

lowest cost recovery level pertains to the level whereeven operations and maintenance (O&M) costs are notrecovered while the highest level pertains to not onlyrecovery of O&M costs but also recovery of capitalinvestments and profits (Revels 2005). Te movement from one level of cost recovery toa higher level, as proposed by the World Bank panel,is actually being implemented through the new waterregulatory laws in India. Te water tariff levels thatexist in a majority of the Indian states fall in the firstlevel of cost recovery, that is, tariff levels at which evenO&M costs are not recovered. Tis explains the need

that was felt for moving to the next level as accepted inMWRRA Act. As per Section 11(d) of this Act, watertariff should be able to recover O&M costs. Te UPWMRC Act makes a provision for going to astill higher level of cost recovery than that achieved bythe MWRRA Act (which was passed three years beforethe UPWMRC Act). Te UPWMRC Act provides forrecovery of cost of not only O&M, but also the cost ofdepreciation, and subsidies. In effect, the UPWMRCAct gives legal sanction for a higher level of recovery ofcosts. Te provision for cost of recovery of depreciationfrom water tariff in the UPWMRC Act makes wayfor allowing recovery of that part of the capital which

gets reduced due to aging and use. In accountingterms, depreciation is often equated with the cost ofrepayment of a loan. Hence, part of the tariff can beused to repay the loan (principal amount) on capitalassets. Te depreciation amount collected as part of thetariff can also be used for renewal, rehabilitation, orreplacement of capital assets. Tus, the UP Act makesa landmark decision for recovering a significant part ofthe capital cost on a continuous basis from water tariff.Provision of recovery of capital costs in this mannerpaves the way for a higher level of commercializationof water services, which would result in increasing the

cost of services. Recovery of capital costs also creates aconducive environment for privatization in the watersector.

Tis assessment shows that both the regulatory lawshave still not made a provision for recovery of invest-ments or profits from water tariffs. Once this level ofcost recovery is reached, the water sector will be able toattract private investors. Unlike the MWRRA Act, the UPWMRC Act makesa provision for recovery of subsidy from water tariffs.Te MWRRA Act makes provisions for cross-subsidy,which comes from the revenue from water tariff, aswell as from government subsidy. But the UPWMRCAct mandates the authority to fix tariff such that therevenue from the tariff should also recover subsidy.

Tus, the UPWMRC Act attempts to close the optionof government subsidy by putting the entire costburden of subsidy on revenue from water tariff. Suchan attempt will lead to tremendous pressure on serviceproviders to reduce the subsidy component of the coststo enhance the already limited revenue collected fromwater tariffs.

Pricing Out the Poor and Rural

Te tariff regime being envisaged in the policies andlegislations will lead to an increase in water tariff.Te increase in water tariff will mostly be targetedat the agriculture and rural economy, since these are

the categories that are subsidized either by industries orby the government. Tis inference could be justified by looking at thewater tariff increase proposed in the first approachpaper prepared for MWRRA by a consultant fordetermining tariff regulations (PRAYAS 2009b). Teproposal envisages 39 per cent increase in the tariff foragriculture water use and an only 5 per cent increasein water tariff for industrial water use. Te proposalalso seeks to put in place cost recovery as the primaryprinciple for determining tariff and totally neglects theprinciple of affordability.2

2While this paper was under printing, the final criteria for tariff determination were fixed by MWRRA. Tese include varioussocial criteria related to affordability. Tese criteria were accepted by MWRRA only after strong demands made during the intensepublic consultations conducted by MWRRA due to pressure from civil society groups. Hence, this was achieved after a high socialcost incurred by civil society groups in analysis, awareness generation, and public participation in regulatory process. Te social criteriabased on affordability should be made part of the law to avoid reliance on such a high social investment. Such social investment isnot always possible due to lack of resources and capacities among the marginalized groups.


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Tus, the new tariff regime in the water sector isattempting to bring in practice major commercial prin-ciples of regulation like cost recovery and reduction in

cross-subsidy. Such a move to commercialize the watersector will have detrimental impacts on the poor andthe agro-based rural economy of the nation. Tis willput the price of water services beyond the paying capac-ity of the poor and marginalized sections of society.

CTe findings of an assessment of selected reforminstruments pertaining to the four issues can be sum-marized as:

Reform instruments like NWP have attempted to

centralize and nationalize the water sector. Tis maylead to disempowerment of local and state levelactors by denying them an opportunity to partici-pate and influence key sector level decisions in thewater sector.

Te emergence of IRAs in the water sector raises thequestion of accountability of these new decision-making bodies to the public. Lack of adequatemechanisms for transparency, public participation,and accountability in the proceedings of IRAsfurther leads to the lack of influence of citizens andwater users on the governance of the water sector.Tis will open avenues for dominant and vested

interest groups to control the sector by indulging ina regulatory capture.

Legal reform instruments usher in new mechanismsfor determining, allocating, and regulating waterentitlements. WES has the potential to strengthen thewater rights of local communities and marginalizedsections of society. But, the current legal instrumentsuse a very narrow meaning of equity that links waterentitlements to the quantum of land owned. Hence,in reality they strengthen and reinforce the alreadyinequitable system of land ownership. Also thereis no strong commitment of giving priority to the

water requirements of agriculture water as againstindustrial water requirements. Further, the linkagesof water entitlements to development of formal watermarkets poses a serious threat of diversion of waterto urban-industrial elites by compromising on thewater needs of rural, agro-based poor communities.

Water tariff systems based on commercial principleslike cost recovery and cutting subsidies are also man-datory aspects of the new legal reform instruments.

Such commercialization of the water sector will fur-ther put water services beyond the reach of commonwater users, especially of the poor and vulnerablesections of society.

Overall, the analysis indicates that the reform instru-ments do not provide adequate measures for enhance-ment of equity and empowerment. In fact, many ofthem are working against equity and empowerment.Tis calls for urgent and proactive measures to ensurethat public interest, especially the interests of thevulnerable sections of society, are not compromised

in the process of reforms in the water sector. Somethe important measures that should be undertakenare:

Participatory deliberations with wider participa-tion of farmers organizations, organizations ofagriculture labourers, environmental organizations,and other marginalized sections should be held toreview policies and legal instruments used for watersector reforms. Such a review should lead to neces-sary changes that will result in pro-equity and pro-empowerment frameworks and mechanisms.

Tere is an urgent need to evolve a normative

framework for water governance based on the prin-ciples of equity and empowerment. Tis normativeframework should be legally enforceable so thatall future reform instruments, including IRA laws,follow the principles and norms laid down in theframework.

Tere is a need for rethinking of the IRA modelsbeing implemented in the water sector, especiallybecause of its peculiar multi-dimensional nature.Water is a life and livelihood sustaining resource.Unlike commercial sectors which rely on eco-nomic principles alone, water regulation should be

approached with proper integration of the social,environmental, economic, and political dimensionsof water resource. Te focus should be on develop-ing a regulatory system comprising of decentralizednested institutions rather than total reliance on anapex level authority.


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Documents

Chp 22 Water Sector Reforms Implications on Empowerment IIR