Equitable user rates for sustainability [Discussion paper]

Financial resources needed for sustainable development of the rural water supply in India are estimated from expenditure data. The estimates show that the system is sustainable only if user financing is introduced. Since the rate affects the poorer and weaker sections adversely, Faulhaberian cross-subsidy is suggested and estimated from users above poverty line for all the states in India. Several other reasons are suggested in justifying such a policy change. The most important amongst them are: (a) efficiency; (b) equity; and (c) sustainability. The increase in efficiency, it is argued, comes from both sides of supply and demand. The equity argument is centered around the increased availability of services with better quality at a subsidised rate for users belonging to the group exempted from cost recovery. Sustainability is attributed to the better maintenance of the system and timely replacement of old systems using the resource generated from user charges. International evidence on the validity of these hypotheses is very weak at least for health, education, water supply and sanitation. The case of rural water supply is even weaker mainly due to the dearth of research effort, theoretical as well as empirical, on these aspects. This paper looks at sustainable development and the relevance of user financing, a relatively unexplored area of research, in rural water supply and sanitation in India.