India is a water-stressed country. The oncoming scorching summer will not ease the distress. In the recent Delhi Assembly elections, issues such as lack of clean water and sanitation were a key factor. For Indians, water quality and security are becoming paramount, turning the political tables. In recent summers, megapolises like New Delhi, Mumbai, Chennai, Pune and Bengaluru have suffered assorted water crises, from dry taps that sustain ‘tanker mafias’ and urban floods. So, who is paying for the safe upkeep of the crucial infrastructure that keeps India’s water flowing?
India’s Union Budget 2025-26 allocated Rs 99,500 crore for initiatives aimed at addressing rural and urban water challenges. There have been three major water related outlays in the whole Budget: extending the Jal Jeevan Mission, launched in 2019 to provide tap water connections to all rural households, until 2028; deploying a five-year Urban Challenge Fund for our growing cities; and the Prime Minister Dhan-Dhaanya Krishi Yojana to improve the irrigation infrastructure of 100 low-crop productivity districts.
While substantial, are such allocations enough? The 2024 report of the Global Commission on the Economics of Water states that worldwide, water systems remain critically underfunded. Billions of dollars are needed to address the potential impact of climate change on the water cycle.
So, what are the current financing problems facing India’s water sector? There are two — inadequate budgetary allocations, compounded by misdirected subsidies for consumers. Investments are needed to build climate-resilient water infrastructure, scale up water-efficient technologies, and mainstream the reuse of treated water.
Historically, India has budgeted for capital expenditure for new water supply infrastructure, overlooking the parallel need to maintain—and improve—the efficiency and quality of existing water infrastructure and services. The Jal Jeevan Mission attempts to plug this hole by targeting efficient operation and maintenance through infrastructure creation across different climatic and hydrological terrrains, supported by community participation.
The rampant and misdirected subsidising of water across states for most of India’s domestic and agricultural users, an ingrained political giveaway in lieu of a safe and secure water supply, is a huge leak. The missing income from the supply and distribution of this valuable and finite commodity hamstrings investment in better water infrastructure upkeep, perpetuating the doom cycle of contaminated water sources and unreliable services. For instance, the poor operational efficiency of 21 of Delhi’s 37 sewage treatment plants is a major cause of the appalling pollution of river Yamuna.
This wicked problem warrants solutions beyond better budgetary outlays. We need an all-hands effort to improve cost recovery to at least cover the operation and maintenance of India’s water infrastructure, and use that fundamental gain to enthuse private investors.
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Fix for India’s water woes
We propose three deep system-level changes, backed by patient and secure capital.
First, water needs to be priced, with targeted subsidies for the economically disadvantaged. The myth of water as a free infinite public good has complicated its pricing and availability. This has led to disproportionate and unregulated use, especially by domestic and agricultural consumers. It has shifted the financial burden of water supply to industry, especially MSMEs, erasing their motivation and ability to treat their polluting wastewater. Some states are now setting water use tariffs for all sectors: Maharashtra, for example, was the first state to initiate this by establishing a State Water Resource Regulatory Authority.
A tiered billing system, like for electricity, should be popularised for domestic users, using incremental tariff blocks with higher per-unit prices for higher unit use. Irrigators should get volumetric-based pricing to inspire efficient use. These incomes and savings should be channelled into subsidies for the poor—and rewards for efficient water users. This is not a novel concept: India has piloted incremental tariffs and volumetric pricing before. However, flawed mechanisms like large starting tariff blocks for incremental billing, and low per unit price for volumetric billing, have choked such schemes.
Second, the private sector needs to find opportunities in the water sector, a bastion of the government. They can invest in building and managing large water supply infrastructure, desalination plants, and used water treatment plants. However, businesses are intimidated by the high initial investments needed for water infrastructure, poor returns due to water underpricing, long and uncertain payback periods, and complexities arising from the overall lack of accountability. These risks must be methodically minimised.
Options include blended finance, which uses public and philanthropic funds to derisk projects and catalyse private investment. Then there is the hybrid annuity model (HAM), a public-private partnership where the private developer gets an assurance of revenue in the form of operation and maintenance payments along with the cost of construction. HAM has yielded replicable infrastructure gains in projects ranging from national highways to used water treatment in the Ganga basin. The Council on Energy, Environment and Water (CEEW) analysis shows that India’s green credit programme, a market-based mechanism that incentivises voluntary environmental actions, including issuing tradable certificates for water conservation, could mobilise private investment.
Third, India has to take centre stage in informing the agenda of global networks and alliances on water. It is not the sole sufferer of water woes, including financing, which plague most developing countries.
As the world’s fastest-growing major economy and home to 1.4 billion people, India is emerging as a leader in global water dialogues. For instance, in 2023 at COP28, India launched the ‘Global River Cities Alliance’ covering more than 275 river cities from 11 countries, international funding agencies and knowledge management partners to help share best practices, mobilise funding, and set up partnerships to protect and manage rivers.
The Ministry of Jal Shakti and CEEW co-authored India’s G20 compendium on international best practices in areas ranging from river rejuvenation to efficient water governance. Additionally, India’s call to adopt Lifestyles for Environment (LiFE) is nudging behavioural changes toward mindful water use. This is now linked to the green credit programme to incentivise and mobilise funding for voluntary actions on environmental conservation including water. Complimentarily, this month, the Ministry of Housing and Urban Affairs launched the ‘Cities Coalition for Circularity,’ an international platform for cities to collaborate on circular economies, including urban water systems.
It is time for us to take charge of our water systems, by acknowledging problems, learning from best practices, tapping new financial resources, and leading by example.
Nitin Bassi is a Senior Programme Lead and Shuva Raha is a Fellow and Lead, International Cooperation with the Council on Energy, Environment and Water (CEEW). Views are personal.
(Edited by Ratan Priya)