The price of water

  • 14/02/1993

The price of water WATER is priced far too cheaply in India to prompt industrialists into conserving or recycling it, says a detailed study prepared by the National Institute of Public Finance and Policy (NIPFP) for the Ganga Project Directorate. But the government has let the NIPFP recommendations lie in its cupboards.

The study assessed the water pollution caused by a dozen types of industrial units situated in the Ganga basin in Uttar Pradesh and West Bengal. The study, which was undertaken by a group of researchers led by M N Murty and D B Gupta, found that the production cost of water in this region, because of its good ground and surface water resources, was very low -- about 20 paise a kilolitre. Not surprisingly, none of the units surveyed in the Ganga basin practised water conservation measures.

On the other hand, in the dry regions of the country where water is priced higher, there were several good examples of water conservation. For instance, Madras-based Tamil Nadu Petro Products Ltd spends about Rs 47 a kilolitre to conserve water for cooling purposes (See also: A zero-effluent project).

Water pricing in India depends more on socio-economic and political factors rather than on the cost of production and distribution or the willingness of people to pay. Consumers are usually classified as domestic, commercial and industrial, and charged accordingly. Pricing of water for industrial use is based on ad hoc criteria, says the NIPFP study. "In most of the municipalities and boards, water tariffs have not been revised for years. The few cases where it has been revised, has been without any guidelines. In fact, due to inadequate information on production and distribution costs in the case of most local bodies, it is not possible to analyse the tariff structure."

Murty and his fellow-researchers say there should be no free-riding on public goods such as water, air and land. Water prices cannot be determined by market forces alone as water is more or less freely accessible to everyone. And when the user -- industrial or domestic -- disposes effluents into a river or lake, it affects all of society and this social cost is difficult to estimate.

Tax-based approach
Therefore, Murty and his associates have suggested an approach based on taxes and pollution standards. Given that environment is a public good and the polluter a free-rider, the polluter should be asked to pay for pollution control. The government should levy taxes that take into account pollution control costs.

Setting standards, the researchers argue, is a political process that should involve both the victims and perpetrators of pollution. Any pollution standard fixed without ascertaining the views of pollution victims cannot be regarded as a national standard. The minimum national standards developed by the Central Pollution Control Board (CPCB) try to keep the cost of pollution control to within one per cent of the annual turnover of a firm, which means the interests of polluters have been taken care of, but not that of the victims.

The researchers point out effluent standards can be fixed in two stages. In the first, national standards can be set based on technological and economic considerations alone and applied to all industries, without considering local conditions. In the second stage, however, more stringent standards should be imposed depending upon local water quality requirements. The CPCB standards correspond only to the first stage. Only standards developed in the second stage will relate directly to the damages borne by the victims, say the researchers.

Two components
Generally, industries either get their water supply from the local municipal administration or make their own arrangements, or use a combination of both. The researchers suggest the price of water should include two components: its production cost and a pollution tax. If the factory uses its own tubewell, the municipality charge should consist of its pollution abatement cost, fixed on the basis of each kilolitre of water used. At the moment, factories drawing water from their own tubewells do not pay any charge.

The study also shows that the cost of treatment of polluted water varies across industries, depending on the quantity and nature of pollutants released. Therefore, to recover the full cost of providing effluent treatment services, pollution control boards will have to levy different pollution taxes on different industries.

However, for practical purposes, it may be useful to separate water costs from pollution taxes. While costs can be dealt with by water supply authorities, taxes ought to be based on the pollution loads of different industries and pollution standards.

The researchers also point out that the objective of the pollution tax could vary depending on the region in which it is being levied. For instance, in the water-rich Gangetic basin, the pollution tax should aim only at ensuring factory effluents are of the desired quality. But in drier areas, pollution taxes should provide industries with an incentive to recycle effluents and conserve water.

Since there are economies of scale in the treatment of polluted water, it is better to treat higher volumes of effluents. Studies have shown the social cost of controlling water pollution per tonne of paper produced is Rs 145 for a mill with a daily capacity of 10 tonnes, and only Rs 30 for a mill with a daily capacity of 115 tonnes. So, it is not economical for small units to have their own effluent treatment plants. Instead, the combined effluents of a number of small units should be treated by the water pollution control board or a local administration unit. The cost of such plants can be realised through a pollution tax on these units.

Related Content