“Achieving Sustainability – India’s Needed Water Reforms and Restructures”

1. Amrita and Deakin Universities International Conference on Sustainable Development and Governance “Achieving Sustainability –India’s Needed Water Reforms and Restructures” Dr Michael Porter Research Professor of Public Policy Alfred Deakin Research Institute, Australia Coimbatore, Tamil Nadu, India 12th – 14th December, 2012

2. The Water Crisis can Spoil an Indian Century • The National Commission on Water and the World Bank have agreed: water balances in India are precarious, unsustainable. • By 2050 demands will exceed all available sources of supply; pockets of catastrophe. • Unless desalination becomes economic and affordable thanks to general economic development. Energy costs say this can be only a part of the story in selected areas. • Over 15 percent of all aquifers are in critical condition, a number which will grow to 60 percent in the next 25 years unless there is change. • About 15 percent of India’s food is being produced using non-renewable, ‘mined’, groundwater. • The social and economic consequences of continued ‘muddling through’ are huge. • It’s not just physical capital; It’s the structure of rules, laws and incentives • So …..The challenge in water in India is … • Turning Dead Water Capital into Live Capital

3. “India faces a turbulent water future. The current water development and management system is not sustainable: unless dramatic changes are made—and made soon—in the way in which government manages water, India will have neither the cash to maintain and build new infrastructure, nor the water required for the economy and for people.” INDIA’S WATER ECONOMY - BRACING FOR A TURBULENT FUTUREProf John Briscoe, Harvard, (then Head of Water, World Bank) and Dr R.P.S. Malik, University of Delhi (Editors), drawing on papers by: World Bank-GOI Assessment: 2005 The evolution of national policies and programs (Mr. A.D. Mohile, former Chair, Central Water Commission) • The evolution of water development and management, (Mr. A Sekhar, Adviser, Planning Commission) • The evolution and performance of World Bank work on water in India (Dr. R.P.S. Malik, University of Delhi) • Water and growth (Professor Ramesh Bhatia, Institute of Economic Growth, University of Delhi), • Water and poverty (Dr. R.P.S. Malik, University of Delhi) • Water and environmental sustainability (Mr. George Varughese, Development Alternatives) • Water and energy (Professor Ramesh Bhatia, Institute of Economic Growth, University of Delhi) • Pricing and financing (Professor Sebastian Morris, Indian Institute of Management Ahmedabad) • Water rights and entitlements (Dr. Maria Saleth, International Water Management Institute, Colombo) • Accountable institutions (Dr.Tushaar Shah, International Institute of Water Management, Anand) • Moving to scale (Dr.NirmalMohanty, Infrastructure Finance Development Corporation) • The political economy of change (Professor V.S. Vyas, Institute of Development Studies, Jaipur) • So: What Does a 2012 Stocktake Reveal?

4. The Constraints of Nature • India has a highly seasonal rainfall, • 50 percent of precipitation in just 15 days • 90 percent of river flows in just 4 months • The storage, treatment and asset maintenance needs…are huge • But while water is affected by nature, the absence of structures for managing scarcity kills reform • In organizational structures, incentives, trading so that water gets to the most highly valued uses Create a critical need for market tools, institutions, incentives and accountability • Defined entitlements and rights to sell, vesting current rights • Pollution, discharges and losses need to be charged for • Trading both water and entitlements, where Australia has leading expertise • Need to invest in new allocation structures, trading and technologies • Expertise, training and education support for a dynamic growth industry • To treat water with the respect a really scarce and vital essential service deserves

5. India: Key Water Investment and Coverage Data Global Water Intelligence 2012

6. China: Key Water Investment and Coverage Data Global Water Intelligence 2012

7. Australia: Key Water Investment and Coverage Data Global Water Intelligence 2012

8. India Water Expenditures

9. Water Assets – Much Dead Capital?An Unsustainable Situation that is getting worse with economic development • Many Indian water assets are what de Soto* calls “dead capital” • Incentives to maintain dams, pipes, connections are not generally vested in “owners”. So assets degrade. Customers denied. • Need for legal ownership of all assets in groups, communities or companies. Without secure water, other investments at risk. • Need scope to buy and sell those water and infrastructure entitlements and have incentives to maintain and enhance. • Make water investible. • If assets well vested and exchangeable, then they can secure other investment loans – becoming live capital! * Hernando de Soto: The Mystery of Capital: Why Capitalism Works in the West and Fails Everywhere Else, 2000

10. In the 1960s I travelled in Tamil Nadu and India as part of an Australian student group – at this point with a clinic • I took a not unusual photo at a lake where water sharing was going on out of Madurai, featuring: • Washing, clothes and personal • Discharge of waste water • Animals drinking • Collection of drinking water • Life expectancy was around 27 • One solution is simple rights for water purposes, fees and bans on particular uses. Easier said than enforced. But necessary and at the core of reports and recommendations. A personal story, from Madurai, 1960s

11. Stimulating competition in and for the market for irrigation, water, and sanitation services; • Empowering users by vesting clear, enforceable water entitlements; genuine water rights, and tradable • Ending the culture of secrecy - transparency the rule; • Introducing incentive-based, participatory regulation of services and water resources; • Putting the sector on a sound financial footing; • Investing heavily in the development of a new generation of multi-disciplinary water resource professionals; • Making local people the first beneficiaries of water projects The “Must Do’s” from the Reviews

12. India needs a re-invigorated set of public water institutions, • New private and locally controlled & profitable water businesses • Instruments for efficient allocation are required; • vested water entitlements, and discharge fees (wastewater…) • contractsbetween providers and users, • pricing incentives which govern the use of water; • stimulating competition in and for the market • for irrigation, water, discharges and sanitation services; • • Empowering users by giving them clear, enforceable water entitlements; • • Ending the culture of secrecy and making transparency the rule; • • Introducing incentive-based, participatory regulation of services and water resources; Institutional Reforms the Key

13. The tube well, and “green revolution” transformed agriculture • 20 million wells, 50% of irrigated agriculture; helped the poor • Evidence now points to economic instruments - water is scarce • The urban middle class make do with irregular, unpredictable, and often polluted public water services. • They have developed coping strategies which include investments in household storage, but no real price signals • Purchasing of bottled water for drinking, installation of household water purification – but wholesale market missing From Tube Wells to Renewable Power and Nuclear Desalination

14. Makes for an infinite supply of potable water at a price – with pumping and filtering costs • Water becomes like capital – can borrow as much as you like at your risk price • For coastal areas that are economically efficient, desalination is sound water insurance, enables firms to plan on water security. But need sound economy. • Climate independent water supply lowers capital and risks for business – future not really climate affected • The question is the price, and that embodies energy costs of pumping (heavy) sea water through reverse osmosis membranes – separating saline and solids from clean water Desalination – reverse osmosis

15. Conclusion – Sustainability requires changes • The water market is fundamental to all else – a risk centre • Water suffers varying scarcity, but the Indian sector barely applies the (economic) structures for managing scarcity • Australia suffers too: but has pioneered structures that vest water entitlements, allow auctions and trading, and treat water as if it is scarce; which it surely is! • So what we need to do is create the arrangements well described in the World Bank volume in 2005 • Written in part by some of India’s leading economists and water experts: and recognised as a world class study • And apply those recommendations or else the other economic breakthoughs and the smarter Indian economy will flounder on the failures of the water sector

16. About the speaker • Michael Porter holds a PhD from Stanford University and BEc Hons from University of Adelaide • He is Research Professor of Public Policy at Alfred Deakin Research Institute, Deakin University, Victoria, Australia. • He has previously taught at Stanford, Yale, ANU and Monash Universities • His projects in India have been funded by the World Bank, ADB, Macquarie Bank and AusAID and included a water and public works project in Hyderabad, AP; a Housing and Decentralisation project led from Delhi. Other water, energy, electricity trading and other infrastructure projects for the World Bank, ADB, ASEAN, and AusAID have been in Indonesia, China, Vietnam, Fiji, Philippines, Thailand, Burma and Samoa • Michael has also worked for the International Monetary Fund, Research Department; Washington DC; The Reserve Bank of Australia, The Department of Prime Minister and Cabinet, Canberra; ; Macquarie Bank,The Federal Reserve Board, Washington DC,