05 Apr 2012

Bengaluru, the capital of the Indian state of Karnataka, has grown tremendously over the last decade, with its population now estimated at 8.42 million (from 5.1 million in 2001).


Bengaluru, the capital of the Indian state of Karnataka, has grown tremendously over the last decade, with its population now estimated at 8.42 million (from 5.1 million in 2001). Among other issues, the increasing growth of the city has resulted in greater pressure on the existing urban water supply system. Additional stress comes from the fact that the state is endowed with limited surface and ground-water resources. The Bangalore Water Supply and Sewerage Board (BWSSB), a statutory board created in 1964 by the Government of Karnataka State, is the foremost governmental agency accountable for water supply to the city of Bengaluru. It has been increasingly recognised that the financial sustainability and increased levels of efficiency in BWSSB’s operations are important to achieve systematic management of the State’s scarce water resources and ensuring universal coverage of water supply in the city.

BWSSB now supplies approximately 900 million litres of water to Bengaluru city a day (MLD). Even though the water boards in India are statutorily independent and directed by the policy framework to be financially self-sufficient, BWSSB has rarely returned a profit at an overall level. Close scrutiny would reveal how political interference in setting tariffs, rising levels of un-accounted for water; and increasing capital expenditure on expansion of water networks have hurt its finances.

First, a statutory board such as BWSSB was created with an objective of introducing commercial logic into Bengaluru’s water supply and sanitation sector. However in reality, politicians set user charges with short-term objectives, resulting in low user tariffs, lack of attention to total cost recovery and mounting losses. Second, out of the 900 MLD that the BWSSB supplies to the city, approximately 45 per cent of the water amounts to un-accounted for water (UFW), which is the difference between water produced minus water consumed and water in store. This is notable since the market value of BWSSB’s UFW is more than its total yearly debt servicing liability. Third, in view of a dramatic increase in Bengaluru’s population over the last decade, BWSSB has undertaken initiatives to bridge the demand and supply gap by increasing water supply capacity. Its supply-driven strategies gave less importance to ‘demand’ management, causing significant capital investments. In order to fund its expansion and service area coverage, it raised debt from external bodies. However, with low revenue recovery, BWSSB is unable to service the mounting debt.

Looking at the past decisions and alternatives that the BWSSB has chosen, the supply enhancement of water has been given high priority and the Board has failed to incorporate either ‘demand management’ or ‘water conservation’ programmes in its policies. If it chooses to maintain status quo, it would lead to macro-economic pressures via the budget and inefficient resource allocation. However, BWSSB has alternatives: it can increase the water tariff for the high-income segment in Bengaluru city or it can outsource the operation and maintenance (O&M) of water supply network with an emphasis on reducing UFW. These proposals can help the Board in improving its profitability and are explained further, in detail.

Evaluating options

One way to evaluate tariff increase is the typical cost-plus method. Another way is to look at the market’s ability to pay. In this regard, BWSSB can arrive at an optimal tariff for Bengaluru city based on ‘affordability-analysis’. To amplify this further, Bengaluru is home to a large number of extremely wealthy denizens, including 10,000 millionaires, lifting its per capita income to twice that of the Indian average. Bengaluru city’s real incomes grew by 73 per cent between 1998 and 2005. However, if one were to calculate the expenditure on water supply as percentage of the wealthy households’ income, it would work out to an average of 1.5 per cent of their household income (or even lesser). Given that it is a generally accepted as norm by international development banks that expenditure on water supply could go up to, but not exceed 3–4 per cent of the household income, a case can be made for a targeted tariff increase for households in the higher income segments.

The second alternative for the BWSSB is to involve private sector in a performance management agreement for the O&M of the entire water supply services. This has the potential to increase the water availability from existing facilities and substantial revenue and profit potential. Assuming a 5 per cent reduction in UFW each year over 5 years, BWSSB could reduce the UFW to approximately 20 per cent This is achievable considering it was operating at a 17 per cent UFW level in 2004.

Taking into account political realities, while a targeted tariff increase for the high-income segment can help achieve the profitability objective much faster, in the short-run, BWSSB could pursue the alternative of outsourcing O&M of supply network with an emphasis on reducing UFW. The latter is likely to be a less controversial choice. In conclusion, the BWSSB can achieve this only with the backing extended by the political representatives. This is, however, not impossible as a case of such an initiative already exists in smaller towns of Karnataka.

Sidhartha Vermani is a Master of Public Administration student at the Lee Kuan Yew School of Public Policy. His email is