Satisfying urban thirst : water supply augmentation and pricing policy in Hyderabad City, India

Based both on primary and secondary information about the water sector of Hyderabad, India, this paper looks into the kind of policy changes and institutional conditions necessary to ensure the economic viability of a market-based solution to inter-sectoral allocation problems in an urban context. The authors did this by: a. evaluating the economics of various supply augmentation options - both internal and external as well as structured and unstructured; b. estimating the user-specific water demand and consumption response functions under alternative pricing (average and marginal) schemes; c. calculating the net willingness to pay (NWTP) considered to be an approximation of the value of raw water - of user groups from their respective price elasticities; d. demonstrating how inadequate the NWTP is to justify most supply augmentation options including inter-sectoral water transfers; and e. arguing that the economic conditions internal to the urban water sector can never support an externally imposed water transfer - whether market-based or otherwise - as long as the rate structure is low and uneconomical.