Water sector in India: Overview and focus areas

for the future

PanIIT Conclave 2010

kpmg.com/in

1

India, home to 16 percent of the world’s population, has only 2.5 percent of the worlds land area and 4 percent of the world’s water resources at its disposal. Precipitation in the form of rain and snowfall provide over 4,000 trillion liters of fresh water to India1. Most of this freshwater returns to the seas and ocean via the many large rivers flowing across the subcontinent. A portion of this water is absorbed by the soil and is stored in underground aquifers. A much smaller percentage is stored in inland water bodies both natural (lakes and ponds) and man-made (tanks and reservoirs). Of the 1,869 trillion liters of water reserves, only an estimated 1,122 trillion liters can be exploited due to topographic constraints and distribution effects2. The demand for water has been increasing at a high pace in the past few decades. The current consumption in the country is approximately 581 trillion liters with irrigation requirements accounting for a staggering 89 percent followed by domestic use at 7 percent and industrial use at 4 percent3.

Source: Standing Sub-committee of Ministry of Water Resources, Development Alternatives, KPMG Analysis

Burgeoning demand for waterDemand in the country is projected to very soon overtake the availability of water. In some regions of the country, it has already happened. Graph 1 shows the likely trend of growth in demand. The rapid increase in population, urbanization and industrialization has led to a significant increase in water requirement. In the next decade the demand in water is expected to grow by 20 percent, fueled primarily by the industrial requirements which are projected to double from 23.2 trillion liters at present to 47 trillion liters. Domestic demand is expected to grow by 40 percent from 41 to 55 trillion liters while irrigation will require only 14 percent more ten years hence, 592 trillion liters up from 517 trillion liters currently4.

Critical Issues in India

Graph 1: Demand vs. supply curve in India

© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

1 Technology Mission Plan Document – Union Ministry of Science & Technology2 Ministry of Water Resources, Development Alternatives

3 NCIWRD, Report of the Working Group on Water Resources for the XIth Five Year Plan, KPMG Analysis4 NCIWRD, Ministry of Water Resources, KPMG Analysis

billio

n cu

bic

met

er

Water Supply Water De ma nd

0

200

400

600

800

1000

1200

1400

1600

1988-92 1998-022 010E 2050E2025E

2

The per capita availability of water has significantly come down and is likely to come down further with the growing population and demand. As per the Ministry of Water Resources per capita water availability in 2025 and 2050 is estimated to come down by almost 36 percent and 60 percent respectively of the 2001 levels.

Source: KPMG Analysis of data from Census of India, Ministry of Water Resources, Development Alternatives

Graph 2: Per capita water availability in India

© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

0

500

1000

6000

4000

2000

0

1500

2000

1951 1955 19912 025 20502001

Actual Fo recast

Popu lation (Millio n)

Percapita water availabilit y (cub ic meters)

over-exploited, 226 are classified as critical, while 550 are under the semi-critical tag. Thus, around about 29 percent of India’s ground water blocks are considered to be in need of very careful and judicious use henceforth7.

Inefficiencies in usage and supplyIrrigation water usage across the country is inefficient. As per figures released by the Union Government in 1999, India had an irrigation efficiency of ~36 percent in 1993-1994 and projected that efficiency would have to increase to 60 percent by 2050 to bring a balance in the demand and supply of water. A model of water demand and supply for 118 countries accounting for 93 percent of the world’s population developed by the International Water Management Institute (IWMI), shows that a 50 percent increase in demand of water by 2025 can be met by increasing the effectiveness of irrigation8.

Domestic and industrial usage of water is also inefficient and one of the key reasons for this is the lack of economic pricing of water. Governments have largely desisted from pricing water at its real cost. The unrealistically low prices tend to encourage overuse and wastage.

Unaccounted-for water (UFW) is high due to several reasons including old water systems and poor maintenance, illegal connections, leakage, and lack of proper mapping of distribution system. Average unaccounted for water in India is pegged at almost 32 percent9. The Confederation of Indian Industry (CII) estimates that the typical Indian municipal water utility has the potential to improve water pumping system efficiency by 25 per cent thereby increasing efficiency of supply10.

Water accounting provides support to sustainable and economic water markets. To this end, the creation of a robust water accounting framework is integral to successful implementation of a water policy.

On an absolute basis, countries are defined ‘water stressed’ when annual water supplies drop below 1,700 m3/person; and ‘water scarce’ below 1,000 m3/person. A country is defined as suffering high relative water stress if demand is greater than 40 percent of the renewable water supply5. India has been constantly fairing low on the twin measures of water deficiency – absolute standard as well as the relative standard.

Over the coming years the demand situation is projected to become worse. Life for the average city dweller in India would become a lot tougher. Water supply for the average citizen could drop from an average of 105 liters to only 65 liters a day with a large section of the population having no access to potable water at all.

Regional disparities There is a regional disparity in availability of water across the country due to uneven rainfall.

Most Indian cities, including Chennai and Mumbai, depend on rainfall for their yearly water supply. Chennai has been suffering from water shortage for decades. The requirement for the city and the adjacent areas is around 1,470 million liters per day, which includes commercial and industrial demand. But the city gets a daily supply of only 600 million liters per day from sources such as lakes and reservoirs, which are dependent on the erratic monsoon. The city has recently inaugurated a desalination plant, adding 100 million liters of reclaimed water to the city’s drinking supply daily.

Groundwater depletion and contaminationIrrational use has led to higher groundwater consumption than recharge. Groundwater levels have reduced drastically in the last 60 years. Of all the 5723 blocks assessed across India by the Central Ground Water Authority, 839 have been found to be

© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

5 Samuel T. L. Larsen. “Lack of Freshwater Throughout the World”6 Chennai Water Desalination Limited: www.chennaidesal.info

7 Central Ground Water Authority8 International Water Management Institute (IWMI)9 2007 Data Book of Water Utilities in India10 Alliance to Save Energy, USA. “Municipal Water and Energy Efficiency Projects in India”

3

Large investment requirementInvestment in urban water supply and sanitation has increased during the first decade of the 21st century, driven by increased central government grants made available under Jawaharlal Nehru National Urban Renewal Mission and funding from development agencies such as ADB, World Bank and JICA11. The 11th Five-year plan (2007–2012) foresees investments of INR 127,025 crore (USD 28.6 billion) for urban water supply and sanitation, including urban drainage and solid waste management.

However, overall investment required in the sector is estimated to be INR 620,000 crore (USD 129 billion). India currently spends about 6 percent of its GDP on infrastructure, less than several countries in Asia, and nearly half of the 11 percent invested by China. While private sector interest in the sector has increased, critical barriers such as poorly written contracting documentation, large timelines to project award and sub-optimal risk sharing exist.

© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

11 ADB: www.adb.org/India/main.asp; World Bank: go.worldbank.org/E9RO7F96W0; JICA: www.jica.go.jp/india/english/activities/

4

© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

5

The reliability, financial sustainability and affordability of water supply and wastewater treatment services need urgent improvement. It is important that key steps are taken by various stakeholders to improve the situation

Key imperatives for the central government:

• TomodifytheNationalWaterPolicy to emphasize re-use of treated wastewater and reduction in groundwater usage. This is especially relevant for sectors like agriculture that consume over 80 percent of fresh water supplies.

• Expandfundingforwatersourcedevelopment, sewerage networks and sewerage treatment plants under schemes like JNNURM

• Increasetechnicalassistancegrantsfor capacity building of Urban Local Bodies to manage Public Private Partnership Projects

• Increasetechnicalassistancegrantsfor ULBs to set up sewage treatment facilities

• Increasetechnicalassistancegrants to ULBs for loss reduction, sewage treatment and recycling and groundwater recharge projects.

Key imperatives for state governments:

• Definerolesandresponsibilitiesofeach entity in the sector

• Createregulatoryinstitutionstooversee the management of water resources and pricing of bulk water

• InitiatereformsofUrbanLocalBodies to diversify revenue sources, improve creditworthiness, facilitate operational autonomy, improve technical capabilities

• Improveinformationsharingofstate-wide water resources among agencies responsible for planning regional development

(e.g.: Free distribution of water testing kits, separation of organic and inorganic wastes, use of a dual flush system)

• Engagewiththeconstructionindustry on designing projects for wastewater re-use.

Key imperatives for agricultural users:

• Maincontributionistoinvestinwater-use efficiency enhancing technologies such as drip irrigation

• Organizedfarmers’federationscould initiate industrial wastewater re-use projects in areas with industrial activity and declining water availability. Similar initiatives could be taken up by farmers’ groups in city outskirts.

Key imperatives for industrial users:

• Whileseveralindustrieshaveinitiated zero-discharge projects in their factories/plants, many others continue to discharge effluents without treatment. Self-monitoring and regulation must become the norm for industries that aspire to grow as environmental sustainability and corporate social responsibility are key pillars of differentiation among global firms

• IndustryAssociationslikeCIIand ASSOCHAM must facilitate dissemination of best practices in water and wastewater management.

• SupportULBsindevelopingrobustwater supply and wastewater treatment project structures to attract private investment.

Key imperatives for urban local bodies:

• Upgradeplanningcapacitywithinlocal bodies by increasing number of planners, environmental engineers

• Initiategradualincreaseinwatertariffs to ensure optimum utilization of water resources

• Developplansforexpandingsewagecollection networks and building sewage treatment plants

• Explorealternativetechnologiesfor sewage treatment like Soil Biotechnology based systems and Reed-based systems

• Lobbytoincreasewaterandsewerage tariffs to pay for capacity expansions. Reorganize subsidy system to ensure subsidies reach the poor via targeted, area-based subsidies instead of general subsidies

• Cutnonrevenuewaterbyfixingleaks, monitoring water supply quantity and quality.

Key Imperatives for technology companies:

• Engagewithgovernmentagenciesto create policy frameworks that support growth of water reuse, wastewater treatment and standards

• Investinresearchanddevelopmentfor technologies (through investments in pilot projects) and commercial models suited to the Indian cities, towns and rural areas

• Runawarenesscampaignstargetedat households to monitor water quality, conserve water and provide education on managing household waste to lower costs of treatment

Key Imperatives for various stakeholders in the water sector

© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

6

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. Printed in India.

Contacts

Vikram UtamsinghExecutive Director and Head of Marketse-Mail: vutamsingh@kpmg.com Tel: +91 22 3090 2320

Ramesh SrinivasExecutive Director Business Performance Servicese-Mail: rameshs@kpmg.com Tel: +91 80 3065 4300

kpmg.com/in

Water sector in India: Overview and focus areas

for the future

PanIIT Conclave 2010

kpmg.com/in