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Literature Review For The Cost Of Recovery Of The Increasing Tariff Block System Of Water Billing In India

3348 words - 14 pages

This Literature Survey has been submitted by

Mr. Anirudh Dhawan

ID No: 212142

On Economics-I

During the Monsoon Semester 2013

Cost Recovery in the Increasing Block Tariff System in India

Introduction

The need for imposing a tariff on the consumption of water domestically by households arises for the basic reason of revenue sufficiency. Due to the economic diversity prevalent in the society and diversified and potential inequitable use of the good, this tariff has to be determined keeping in mind the basic principles of equity and fairness and should be made to be economically efficient. Hence, reasonable objectives for an adequate tariff scheme would be all of these ...view middle of the document...

The tariff scheme in Bangalore and Mumbai doesn’t entirely recover the costs involved but comes close to it, while in Hyderabad and Delhi, only 66-68% of the total operation and maintenance costs are being met through the imposition of tariffs. Water is free or highly subsidized in some states, and thus, more than 40% of India’s water does not generate any revenue
Mathur and Thakur analysed the same relation for five cities, Agra, Allahabad, Bangalore, Pune and Vadodara. All these cities have at least one element of metered volumetric charge being imposed on the consumers, with only Bangalore following the Increasing Block Tariff scheme within the metered volumetric charge scheme. This study analysed the revenue earned by the state government from the imposition of the said tariff and how far that goes to recover the expenditure incurred by the government in providing the water facilities to the consumers. The study, in fact, listed the recoveries from the sale of water in percentage terms vis-à-vis the cost incurred by the government in water provision. Data for the years 1995-1996 and 1999-2000 was analysed. The study found that Agra accounted 97.94% recovery of expenditure involved in water supply in 1999/00 up from 78.53% in 1995/96, while the corresponding figure for Allahabad in 1999/00 was 108.03% up from 83.59% in 1995/96, for Bangalore in 1999/00 was 106.29% up from 90.32%, for Pune in 1999/00 was 74.41% down from 92.52% and for Vadodara in 1999/00 was 48.26% up from 32.95% in 1995/96. This study also notes that most of the households in the cities that use an increasing block tariff system fall into the first or second block, thereby getting large subsidies for water.
A study conducted by Raghupati and Foster, however, concludes that the charges imposed on the domestic consumers are nowhere near enough to recover the costs involved in the production and supply of water. For cities with an increasing block tariff system, only a few of the highest blocks come close to actually recovering costs of even operation and maintenance. They also state that the charges imposed on residential consumers are usually one-tenth of the probable total production cost involved.

Table 1: Direct comparison of revenue earned and total expenditure for major Indian cities
City | Year | Revenue Received (in Rs. crores) | Revenue Expenditure (in Rs. crores) | Deficit % | Surplus % |
Bangalore | 1998-1999 | 1936.6 | 2035.9 | 5.1 | - |
Chennai | 1999-2000 | 2070.1 | 1818.1 | - | 12.2 |
Hyderabad | 1999-2000 | 2162.7 | 3175.8 | 46.8 | - |
Delhi | 1997-1998 | 1062.3 | 1365.5 | 28.5 | - |
Mumbai | 1999-2000 | 9712.1 | 5820.8 | - | 40 |
Source: Rajan Padwal, Issues of Pricing of Urban Water

Figure 1: Volumetric tariffs for water in Indian cities
A plot of Percentage of cities on the x-axis and Average volumetric charge (Rs./m) on the y-axis.
Source: Raghupati and Foster, A Scorecard for India

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