Paper Presented in Fourth South Asia Water Research Conference, May 4-6 2009, Nepal

ASSESSMENT OF REFORM POLICY INSTRUMENTS FOR THEIR CONTRIBUTION TO EMPOWERMENT AND EQUITY IN THE WATER SECTOR
Mr. Sachin Warghade, Senior Research Associate, Resources and Livelihoods Group, PRAYAS, B-21, B.K. Avenue, New D. P. Road, Azad Nagar, Kothrud, Pune-411038, India. email: sachinwarghade@gmail.com Dr. Subodh Wagle, Professor and Dean, School of Habitat Studies, Tata Institute of Social Sciences, V.N. Purav Marg, Deonar, Mumbai-400088 , India, email: subodhwagle@gmail.com ABSTRACT The achievements and failures of efforts for development of water sector are well-known. On one hand, these efforts have contributed significantly to nutritional and food security as well as improvement in quality of life in many southern nations. At the same time, there have been many and equally significant gaps, lacunae, and unintended negative impacts on nature and society. The marginalized sections of society were further disempowered and have been subjected to disproportionately high burden of costs, while the benefits that reached them have been insignificant. On this background, efforts for restructuring and reform of the water sector acquire special importance, as many tend to see them as panacea for all ills in the sector. Their importance also stems from the centrality they are accorded in sector governance as well as from the fundamental, comprehensive, and often irreversible changes they are bringing in legal, policy, and institutional frameworks governing the sector. This paper attempts to assess the potential contribution that reform measures can make towards enhancement in empowerment of people and equity in the sector. The assessment attempts to investigate whether the changes these reform instruments bring in would empower common citizens, and especially marginalized sections in society to gain more and meaningful control on governance of the sector. The assessment also investigates whether the reform instruments increase equity in the distribution of benefits to the marginalized sections as well as neglected geographic regions. The assessment is based on the study of these instruments and analysis-based regulatory interventions undertaken for the last two years by the authors. The assessment leads to the finding that these reform policy toolsthough talk profusely about equity and empowermentfail on many counts. In fact, some of the provisions in these instruments could prove counter productive for the causes of equity and empowerment. Key Words: Reforms, Equity, Empowerment, Regulation, Governance 1. INTRODUCTION 1.1 Social Deficit in the Water Sector The achievements and failures of efforts for development of water sector are well-known. On one hand, these efforts have contributed significantly to nutritional and food security as well as improvement in quality of life in many southern nations. At the same time, there have been many and equally significant gaps, lacunae, and unintended negative impacts on nature and society. During these years of development, the marginalized and disadvantaged sections of society were further disempowered as they lost control over the process of making decisions that would affect their lives, livelihoods, and even future of their young ones. As a result, they have been subjected to disproportionately high burden of costs of development of the sector, while the benefits both direct and indirectthat actually reached them have been insignificant. Thus, while efforts for development of the water resources and increasing water supply did create economic, social, and other benefits, they did simultaneously create social deficitin the form of disempowerment and absence or erosion of equity.

It needs to be mentioned here, though this is not the subject matter of this paper, that these developmental efforts also produced environmental or ecological deficit. On this background, efforts for restructuring and reform of the water sector acquire special importance, as many tend to see them as panacea for all ills in the sector. 1.2 Sectoral Reforms and Their Importance In the last two decades, a number of South Asian countries witnessed fundamental changes in their economies brought about by the processes of liberalization, privatizations and globalization (LPG). Most of the crucial economic and social sectors like education, agriculture, energy, housing, water, health are being reformed in tune with the broader directions set by the LPG processes. In many instances, these changes are being made as part of the Sector Reform Programs or broader Structural Adjustment Programs initiated and supported by international financial institution (IFIs) including International Monetary Fund (IMF) and the World Bank (WB). The sectoral reforms in the water sector in India began in 1990s as part of the IFI-funded pilot projects. These reforms have now penetrated into policy and legal frameworks of water governance in India at national as well as state-levels. These policy and legal reforms in water sector are of crucial nature for many reasons. First, the reforms acquire importance because of centrality accorded to reforms in sector governance. Second, it is also because reforms are making fundamental changes at the levels of values and principles that underlie the laws and policies. Third, it is because reforms are comprehensive, covering all important aspects and elements of the sectors. Fourth, most importantly, many of the reforms bring in changes in not only policies and laws but also in the institutional structures and even ground conditions that are very difficult to reverse, if not irreversible. 1.3 Rationale of Reforms It is argued by reformers that water sector requires huge investments, which most government would fail to provide. The most common solution proposed to address this problem consists of market-based reform, which includes operating the system on a full cost-recovery principle, commercialization or private sector participation of varying degrees (Prasad, 2007). While arguing in favour of cost-based water pricing, the World Bank document states that although the massive distortions in the pricing of water services are justified in the name of the poor, it is, paradoxically, the poor are the major victims of these distortions. (WB, 2005a: 54). The document further argues that [t]he situation in India remains one in which public monopolies face no competition. The one over-ridding lesson from the global revolution in the provision of public services is that competition matters. (WB, 2005a: 44). As mentioned before, these reforms are often seen as panacea. They are justified mainly on two grounds: (a) improving efficiency and economy, and (b) enhancing equity and empowerment. First, it is claimed that different elements of reforms will bring in improvement in performance, which implies decreasing, if not eliminating different types of losses and inefficiencies. This improvement in performance will result, on one hand, in improvement in the economic and financial health of the organization in the sector as well as of the sector as a whole. Government of India in the World Banks Water Forum stated that [t]he sector is characterized by serious under-performance, and this crisis will continue unless there is a fundamental reform of service arrangements. (GOI, 2002a). On the other, hand, increased efficiency will also result in decrease in consumer prices and increase in quality of service given to consumers and users. Second, it is argued that the many elements of reforms will empower consumers against the mighty utilitiesboth public and private owned. The reforms will have special instruments and mechanisms to deal within timely manner and with quality resultsredressing of grievances of water users. Further, it is also argued that reform elements, which would improve overall transparency and accountability in the functioning of the sector, will empower the water users also. It is also argued that by making available the level-playing field to all water users, the reforms will help users facing economic, political, or social disadvantaged. Further, it is also argued that improved functioning of the sector will bring in private investments in the sector, and release government funds, which can be meaningfully utilized for supporting the interests of disadvantaged sections within or outside the water sector (WB, 2005a). Hence, such reforms in the policy and legal instruments calls for thorough assessment of its potential contribution to equity and empowerment, which in turn would address that issue of social deficit. Such an assessment can provide valuable inputs for changing the course of the reform, if necessary, and avoiding major pitfalls in future. As India is in the advanced stages of these reforms, the timely assessment of reforms in India

can be useful for other South Asian countries. The current paper tries to present the major outcome of assessment of key reform instruments in India from this perspective. 2. CONCEPTUAL FRAMEWORK AND METHODOLOGICAL CHOICES 2.1 Research Questions The assessment of the water sector reform instruments in India tries to answer the following questions in particular: a. Whether the changes these reform instruments bring in would result in empowerment of common citizens and water users? b. Whether the reform instruments increase equity in the distribution of costs and benefits among different stakeholders, especially in favour of the marginalized sections as well as neglected geographic regions? 2.2 Conceptual Framework The terms of equity and empowerment need to be interpreted in the manner relevant to the water sector. The main issue in the equity dimension is the distribution of costs and distribution of benefits among different stakeholders. In the water sector, apart from financial costs, the main costs involved are social and environmental costs which are results of development of infrastructure required for generating (/tapping) water sources and distributing water. On the other hand, the main benefit in the sector is water or water services. In investigating equity implications of reforms both these sidesi.e. costs and benefitsneed to be investigated. While the financial costs, at least until now, are borne by the state and national governments, decisions on the social and environmental costs are, in most cases, are made through policy and legal instruments that lie outside the water sector. For example, in Maharashtra, the land acquisition for water projects is carried out by the Revenue department using the special land acquisition laws. Similarly, decisions on environmental matters are handled by the agencies under the purview of Ministry of Environment and Forest, whereas issues related to water quality are handled by pollution control agencies, under separate laws. Thus, investigation of different reform instruments within the water sector for their direct equity implications effectively boil down to investigation of their direct implications for distribution of benefitswater and water services (Prasad, 2007). In other words, implications of reform instruments for effective access to water to different sections of society, different categories of water uses, and different regions is the key element to be investigated. Adequate priority in allocation of drinking water to rural water users, disadvantaged sections, and remote regions will help reduce existing inequities. Similarly, priority in allocation of remaining water to agriculture-related water needs will help in reducing the urban-rural divide and hence ensure equitable development. Effective access to water is seen to be dependent on the availability of water to the particular user which, in turn, could be affected due to physical reasons or due to economic, political, or social factors. Apart from physical water scarcity, these reasons include the economic price charged for water and the other costs involved in accessing water for that particular user has to pay. Coming to empowerment, it is interpreted here in terms of increased influence on governance of the sector, especially on the functions of decision-making and regulation. Further, the influence on governance is seen as the function of participation, accountability, and transparency. Ability to extract accountability of decision-makers, implementers of the decisions made, and regulators is a key to influence of water users and citizens on the governance of the sector. Similarly, true and meaningful participation in all functions and all stages of governance is necessary for ensuring that the needs, aspirations, and demands of stakeholders are reflected in the outputs and outcomes of governance processes. At the same time, transparencydefined in terms of timely and unrestricted access to informationis seen as the precondition to effective extraction of accountability and true and meaningful participation. It is also argued that location of the decision-making is important for increasing influence on governance. The geographic distance as well as procedural remoteness is considered as adversely affecting the ability of water users and citizens to influence governance. So, decision-making at the local level is seen as preferred from the point of view of water users.

In another view, the principle of subsidiarity also requires that the different governance and management functions need to be delegated to the lowest level possible. In other words, it would be appropriate to delegate the functions, to the extent possible to the local level, i.e., the level of district or sub-basin and village or the irrigation distributory. 2.3 Choice of Reform Instruments It needs to be clarified that the term reform is used here in somewhat limited mannerto designate reform measures aimed at structural reform or sectoral restructuring, especially those aimed primarily at changing the governance-related role given to the state. Apart from these, other reform instruments have been introduced in the water sector, like those aimed at increasing participation of farmers in management of irrigation. However, these participation-related reform instruments are more focused on project or sub-project level. Thought they affect the role of state, they are specifically focused on changing the roles in management of irrigation systems away from the state and in favour of water users. As against this, the structural reform instruments are primarily aimed at changing the distribution of governance roles in the sector, away from the state and in favour of non-state actors. In choosing the structural reform instruments for this assessment, the criteria used are the comprehensiveness or the depth of the reform instruments. In other words, the primary instruments for sectoral reform that have implications for core of the sector governance are chosen. On these criteria, the following three sets of reform instruments are selected for assessment: (a) National Water Policy 2002, (b) State Water Policies, (c) Legislations for Establishment of Independent regulatory Authorities. Though, water is a state subject as per the Indian Constitution, there are certain issues that are supposed to be governed or guided by national interests. National Water Policy (NWP) represents the overall policy direction for water sector that shall be followed at the national as well as the state levels. While the first NWP was declared in 1987, the new revised NWP inaugurated in 2002 is seen as the turning point in the governance of the water sector in India. This policy ushered in the new principles in the water sector, which were accepted after the beginning of LPG processes in 1990s. Water being a state subject in India, it is necessary to assess the water policies of individual states. For the purpose of the current assessment we have selected State Water Policies (SWPs) of six states in India, viz., Madhya Pradesh (GoMP, 2003), Uttar Pradesh (GoUP, 1999), Rajasthan (GoR, 1999), Maharashtra (GoM, 2003), Karnataka (GoK, 2002), and Andhra Pradesh (GoAP, 2008). Water sector reform projects are being intensively implemented in these states and hence policies of these states were selected for assessment. The third category of the reform instruments chosen for the assessment includes different legislations for establishment of Independent Regulatory Authority (IRAs). IRAs for water sector have been established by enacting special laws in three states, viz., Maharashtra, Arunachal Pradesh, and Uttar Pradesh. Other states are also planning for establishment of IRAs in water sector. This is a newly emerging phenomenon, which will have tremendous impact on governance of the water sector. Hence, these legislations were included in the assessment. As mentioned before, the laws pertaining to participatory irrigation management (PIM) are not the primary targets of this assessment. Though they have been touched upon in the current assessment, they are not dealt with in a comprehensive manner. 2.4 Organizing the Assessment Exercise A preliminary review enabled the authors to narrow down scope of assessment of these reform instruments to the four key substantive issues of main concern with respect to empowerment and equity. Following are these four substantive issues: a. Centralization (especially nationalization) of water sector governance: What are the latest trends and their possible impacts on empowerment? b. Emergence of Independent Regulatory Authorities (IRAs) in Water Sector: What could be their impact on empowerment? c. Emergence of Water Entitlement System: The laws establishing IRAs delegate setting entitlements as one of the primary functions of the IRAs. What could be impact of the new emerging entitlement regimes on equity, especially in water distribution? What is its relation with Water Markets and possible impact of these relationships on equity?

d.

Emergence of new Water Tariff System: What could be the possible impact of new tariff system on affordability and hence access to water services?

3. ANALYSIS AND KEY FINDINGS 3.1 Centralization of Governance of Water Sector As mentioned before, the distribution or sharing of decision-making powers between the local, state and national actors critically affects the level of empowerment that can be achieved. Reflecting this understanding, many social movements as well as innovative field experiments in the water sector have made demands for delegation to local-level functionaries and communities of crucial decisions like distribution of water, decisions about new water projects, and funds allocation. Such efforts seem to have led to widespread acceptance of the need to decentralize the governance and management of the sectoral functions. Emergence of legislations for Participatory Irrigation Management could be seen as the outcome of the demand for decentralization, though there have been many criticisms of these instruments exactly on the same count (Koppen et al., 2002). On this background, assessment of the reform instruments to check for their contribution to centralization or decentralization of governance would be interesting. 3.1.1 National Water Policy: Foundation for Nationalization of Water Resources As per Entry 33 of List II of the Indian Constitution, development and management of water is a primarily State Subject. Hence, water sector has remained predominantly under the control of the states and has been governed by state-level ministries and authorities. This allows the citizens of the state to participate, lobby, and attempt to influence, to the extent possible, on the state government machinery. As against this conventional understanding, the recent reform instruments seem to be indicating the need to bring to the fore the national-level concerns over and above the state or local level concerns. The following are some of the examples: National Water Policy (NWP) 2002, in its Section 1.1 and 1.4, defines water as precious national asset or resource (emphasis added) (GoI, 2002b). NWP further states that planning, development, and management of water resources need to be governed by the national perspectives (emphasis added) (refer Section 1.1) (GoI, 2002b). About inter-basin transfer of water, NWP states that water should be made available to water-short areas by transfer from other areas based on the national perspective (refer Section 3.5) (GoI, 2002b). About the inter-state water disputes, NWP mentions that water sharing / distribution among states should be guided by the national perspective (refer Section 21.1) (GoI, 2002b). Each of these policy provisions reiterates that water sector should be guided and governed by the national perspective. In doing so, NWP clearly lays down the foundation for increasing national-level intervention in the governance of the water sector. 3.1.2 Attempt to Develop Constitutional Basis for Nationalization of Water Resources The Ministry of Water Resources of Government of India (GoI) published, in December 2006, the report titled: Report of the Working Group on Water Resources for the XI th Five Year Plan (2007-12) (GoI, 2006). The report recommends development of constitutional basis for bringing central control on key decisions in water sector. It is also suggested in the report that water and water resources projects must be considered as the national assets and there must be a platform such as (national) Water Regulatory Authority to timely and effectively settle all such interstate issues in a national perspective. The national level regulatory authority is seen as a mechanism for making decisions on states matters at the national level. Such recommendations to centralize key decisions in water sector at the national level are evident from the policy directions. This kind of nationalization is seen necessary if national projects like inter-linking of rivers are to be successfully completed. 3.1.3 State-level Centralization of Water Governance

Similar trends on centralization of governance are also visible at the state level. The new laws for establishment of water regulatory authorities provide for concentration of key decisions in the hands of the state level actors such as state-government departments and state regulators, without much space for intervention by citizens or water-users. For example, both MWRRA and UPWMRC Act provide for developing Integrated State Water Plans (GoM, 2005a) (GoUP, 2008). The plans shall be prepared by the respective state governments. The particular laws do not provide any space for public participation in the preparation of such plans. Hence, eventually, the planning process may remain outside the domain of the public and it may merely turn into a centralized top-down bureaucratic exercise. Another important example is the case of legal provisions for determination and distribution of water entitlements. As per the regulatory laws, the state-level regulator will determine entitlements based on the rules framed by the state government. Here again it can be seen that the laws do not make any provision for consultation with and participation of stakeholders in taking such a crucial decision on water distribution (GoM, 2005a) (GoUP, 2008). This clearly shows that, on one side attempts are made to decentralize the governance of water sector, while on other side, there is centralization of key decisions in water sector at the level of state government. 3.1.4 Impact of Centralization and Nationalization on Empowerment Thus, there are strong tendencies to centralize governance of water sector at the national level as well as at the state level. Once such enormous powers related to crucial sectoral decisions get concentrated in hands of topbureaucracy, top-regulators, or dominant vested interests, then empowerment will merely remain in the form of delegation of implementation functions at the local level. Thus, major impact of this centralization and nationalization of water sector governance will be on empowerment of the citizens and other stakeholders. It must be noted that there might be genuine concerns that have prompted calls for giving due importance to the national perspective. These would include concerns over the increasing instances and increasing severity of inter-state dispute or concern over repeated failure of state-level machinery and other occasions, which would justify intervention, mediation, coordination, or control by national government or other national level agencies. But, it needs also to be noted that such attempts of giving increasing role and control of the sector governance in the hands of the national-level agencies would certainly lead to adverse impact on empowerment of the state-level and local-level actors. 4. Emergence of Establishment of IRAs: Impact on Empowerment Emergence of independent regulatory authorities (IRAs) in water sector is a comparably recent phenomenon shaping up in at least three states in India. However, this phenomenon is fast spreading to other states in India and there are indications that the same may turn into a nation-wide phenomenon in near future. This makes this new reform-related trend an eminently eligible candidate for assessment of its impact on empowerment and / or equity. 4.1 Genesis of IRAs: Not Grounded in Public Debate and Demand National Water Policy (NWP), published in 2002, discusses regulation as a policy measure mainly in relation to groundwater and flood management (GoI 2002). NWP does not make any mention of the need for a regulatory authority in the water sector. State Water Policies (SWPs) of various states also do not give any policy direction for setting up IRAs in the water sector. The only exception in this case is the policy of the state of Uttar Pradesh (UP) (GoUP, 1999). This suggests that the initiative towards setting-up of IRAs in the water sector at the state-level is not grounded in the policy debates at the state or national-level, which are supposed to reflect in the respective water policies. Similarly, the need for IRAs does not seem to emerge from an informed public debate or demands from stakeholders. The initiative to set-up IRAs seem to largely due to an externally driven stimulus, which became active mainly after articulation of the NWP and SWPs. The major external stimulus in this regard is provided by Water Sector Improvement/ Restructuring Projects undertaken in various states, which are funded by the World Bank (WB). These projects were initiated in the state of MP in 2004, Maharashtra in 2005, and Rajasthan and Uttar Pradesh in 2001. It can be seen that

state policies in MP, Rajasthan and Maharashtra were declared before undertaking these WB-funded projects. Further, the project appraisal documents of these WB-funded projects includes establishment of regulatory authority as one of the conditions of the loan agreement (WB, 2005b). This suggests that the move towards formation of the state-level IRAs in water sector has been an externally driven phenomenon. The main rationale provided by the WB for bringing in IRAs is to bring rationality in the decisions on the key economic and financial matters such as tariff and entitlements, which is shown to be necessary for increasing private participation in the sector. Thus, this reform instrument has no connection with the state or national level policy debates, but is created by an external stimulus with the intention that has nothing to do with empowerment. It is equally interesting to undertake the state-specific assessment of the process of establishment of IRAs: The state of Maharashtra became the first state in India to pass a law for establishment of IRA in the water sector. In 2005, the state passed the Maharashtra Water Resources Regulatory Authority (MWRRA) Act. It is interesting to note that the bill in this respect was passed in the state legislative assembly on the last day of the session and through the voice-vote, without much discussion on the revised draft. The WB loan for the sector improvement project was sanctioned by the WB Board immediately after the Act was passed (Sainath, 2005). Arunachal Pradesh was the second state to pass such a law. The state has literally copied the entire act passed by Maharashtra. Assessment shows that many provisions in the Act are totally irrelevant to the specific context of water situation in Arunachal Pradesh. For example, the legislation provides for removal of irrigation backlog in backward regions. The issue of irrigation backlog is relevant to State of Maharashtra and not Arunachal Pradesh. Here again there has been no attempt to ensure empowerment through public participation and consensus on crucial decision such as setting-up an IRA (Jarjum, 2008) The state of Uttar Pradesh passed a legislation for establishment of an IRA in the water sector following the conditions stipulated in the contract for the WB-supported Water Sector Reform Project. Neither the civil society organizations in the state nor any other key stakeholders in the state have been consulted in the process of formulating the law for this purpose. (PRAYAS, 2009a) The State of Andhra Pradesh (AP) is in talks with the WB for a similar Water Sector Improvement Project. At a time when the project is in the pipe-line and about to be sanctioned, the Government of AP declared a draft policy which includes concrete provisions for setting of an IRA in the water sector. There is no prior public debate and discussion on this crucial issue (Ramchandradu, 2008). Thus, not only the sources or roots of these laws have nothing to do with empowerment, but also the processes of passage of these laws are, without exception, marked by complete disrespect of the basic tenets of public participation or transparency. In summary, it could be said that the assessment of the genesis of the laws for establishing IRAs indicate that there is hardly any consideration of empowerment or equity in genesis or passage of these laws. 4.2 Water Sector IRAs: Disempowering Tendencies The major concerns regarding setting-up of IRAs in water sector is about their accountability to citizens and common water-users. Their statusas quasi-judicial bodiesdefined by the respective laws make them immune to the political pressures or political activities. In effect, unlike the elected representatives who are held accountable by the public through the mechanism of elections, there is no formal mechanism to hold the IRAs accountable to public. The IRA is expected to be governed by the law that created it as well as by the rules and regulations for conduct of its business (which are expected to be articulated by it). To ensure that the IRA adheres to the law and regulations, the process adopted by the IRA to arrive at decisions has to be totally transparent, truly participatory, and accountable to its stakeholders including common water-users. In other words, clear and mandatory legal provisions for transparency, accountability and public participation (TAP) governing the proceedings of the IRAs are the pre-requisite for ensuring influence of stakeholders on the functioning of this key governance institutions. Hence, to assess their implications for empowerment of water-users, the laws for establishment of IRAs need to be assessed with specific focus on their provisions for TAP. The assessment in this regard was carried out by comparing provisions of the Act for establishment of state regulatory authorities in water and electricity sector (GoM, 2005a) (GoI, 2003). After comparing the Electricity Act 2003 and MWRRA Act 2005, it was found that the Electricity Act contains much better

provisions for transparency, public participation and accountability of state regulatory commissions. In contrast to this, the MWRRA Act is very weak in all these aspects. The following are some of the findings of this comparative assessment (PRAYAS, 2007b). Section 3 (4) of Electricity Act (E-Act) provides for public participation in preparing the National Electricity Plan. In contrast to this, MWRRA Act does not provide for participation in preparing the Integrated State Water Plan. Section 181 (3) of E-Act makes it mandatory on the regulatory commission to make regulations subject to the condition of previous publication. The condition of prior publication keeps open the opportunity for public awareness and participation in formulation of regulations before they are finalized. There is no such condition of previous publication in MWRRA Act for provisions related to powers of the regulator to make regulations. Section 86 (3) of E-Act makes it mandatory on the regulatory commission to ensure transparency while exercising its powers and discharging its functions. This provides blanket acceptance and unrestrained scope for transparency. Unfortunately, the MWRRA Act does not provide any concrete measure for transparency. MWRRA act requires participation of water users only while setting tariff. It does not require this while making decisions on very important matter such as determining water entitlements or project assessment. The above examples clearly shows that MWRRA Act, which is often been proposed as a model regulatory act for replication by other states, is, in fact, not supportive to the cause of empowerment of citizens and other stakeholders in the water sector. There is another major hindrance for common water-users to influence the functioning of IRAs. The IRAs are expected to primarily ensure economy and efficiency. As a result, the focus of their deliberations is on technical, economic, and financial aspects of the issues on which decisions are to be made. In order to influence these deliberations, the participants in the deliberations require high-level of technical, economic, and financial expertise. Further, all proceedings of IRAs are supposed to be carried out in quasi-judicial format and, thus, also require adequate legal knowledge and skills for effectively participating and influencing the proceedings. Most civil society organizations, common water-users, or their organizations do not possess knowledge, expertise, or skills in these areas; neither do they have financial resources to hire expensive professional services in these areas. This is not the case with dominant actors like the state and corporate houses, who often have both expertise and resources. In such situation, the proceedings and deliberations before IRAs are controlled and captured by these dominant actors, often at the cost of interests of other stakeholders. In other words, the nature of the proceedings and deliberations before IRAs tend to effectively disempower the common water-users. The experience of proceedings by MWRRA vindicates this analysis. The authority, which was conducting the process for determining the water tariff for farmers, chose to restrict itself to website as the only means of communications to reach out to farmers. It did not take into consideration the fact that these farmers are spread out in remote rural areas, most of them do not even get electricity beyond 6 to 7 hours a day and certainly have no connectivity to the internet. Similarly, it also required all participants in the public consultation to submit written petitions, when most farmers lack skills and resources to articulate their grievances on paper. In fact, it initially asked all participants to make legal affidavits. The authority was forced to set aside this requirement due to strong protest by farmers. Effectively, the procedures adopted by the IRA in Maharashtra proved disempowering for most farmers, whose lives were going to get affected by the decision of the authority. (PRAYAS, 2009b). 5. Water Entitlements: Regime of Inequitable Water Distribution Assessment of the new legislations enacted in state of Maharashtra, Arunachal Pradesh and Uttar Pradesh for establishment of independent regulatory authority (IRA) in water sector shows that creation, management, and regulation of water entitlement system (WES) is at the heart of the regulatory framework of the IRA in water sectors. As part of the WES, various water users and groups of users shall be allotted certain shares of water as their water entitlement. The UPWMRC and the MWRRA are empowered, through the respective legislations, to determine and regulate water entitlements to different user groups (GoM, 2005a) (GoUP, 2008). MWRRA Act states that, entitlements . . . are deemed to be usufructuary rights (refer Section

11 (i) (i)). Water entitlements are certainly not the ownership rights but they are rights to use (in short userights), which are also called as usufructuary rights. Thus, entitlements are legally recognized, registered, near-perpetual, and regulated rights over use of water. Such a system of water entitlements will drastically change the way water resources are shared among various users. The system will usher a completely new mechanism for determining, recognizing and allocating rights over use of water among contending stakeholders. Hence, assessment of this mechanism as it reflects in the policy instruments was carried out for this paper. 5.1 Narrow Interpretation of Equity: Creating Water Lords Both UPWMRC and MWRRA Act specifically mention in the preambles that the regulator shall ensure judicious, equitable, and sustainable management and allocation of water resources. Thus, the legislations accept equity as the key principle that shall guide the allocation of water resources. Based on this acceptance, it is expected that there shall be equitable distribution of entitlements, thus, making the poor and other disadvantaged sections including the landless, entitled for their due share of water resources. Thorough assessment of UPWMRC Act shows that except for the preamble of the Act, the term equity does not get any mention in any of the legal provisions in the Act. In fact, there has been no attempt to legally define the criteria for equitable allocation of water resources. Absence of a practically implementable definition of equity will not help the regulator to implement the principle of equitable distribution in practice. Thus, in practice, the provision for equitable distribution will not yield any results. The term equity gets mentioned in MWRRA Act for four times in the main provisions of the Act, apart from the preamble (GoM, 2005a). The main provisions related to these in MWRRA Act are: for equitable distribution of water in command areas of the project, every land-holder in the command area shall be given a quota the quota shall be fixed on basis of the land in command area (refer Section 12 (6) (a) & (b) of MWRRA Act). The above provisions clearly indicate that water will be made available to only those people having land in command area and it will be in the proportion of land holding. Hence, this definition of equity includes only all landowners in command area of an irrigation project. The definition totally ignores the rights of landless communities, including, land tillers, agriculture laborers and women cultivators. By making this law, the state has actually given legal sanctity to such a narrow definition of equity. The reform instrument fails to evolve an inclusive interpretation of the principle of equity. The combination of two factors(a) establishment of the entitlement regime (legally recognized and perpetual use-rights over water) and (b) interpretation of equity in terms of the land ownedwill allow the big landlords to gain immense control over water resources that would not only have governments support but also have legal sanctity. The Water Entitlement System with a narrowly defined principle of equity may thus lead to emergence of Water Lords, similar to the existing Land Lords. This will ultimately reinforce the financial and political clout that the dominant group holds today and would lead to further erosion of space for disempowered sections to assert their rights. The problem gets further accentuated when we explore the linkages between Water Entitlement System and the creation of Water Markets. 5.2 Priority of Water Allocation: No Clear Mandate for Equitable Water Distribution The IRAs will have to follow the policy guidelines given in state water policies while determining water bulk entitlements for agriculture or industry (GoM, 2005a). The national water policy as well as most of the state water policies, in their list of priority use of water, gives higher priority to agriculture water requirements than to the industrial water requirements. The only exception to this is State of Maharashtra, which has allocated higher priority to industrial water use as compared to agriculture water use (GoM, 2003). This prioritization of industrial users over agricultural users in a state facing semi-arid conditions and water scarcity is seen by many as a clear case of inequity in water allocation as far as the water demands of farmers are concerned. The higher priority to agriculture water use in comparison to the industrial use provided in NWP as well as most other SWPs is, however, not unequivocal. These reform instruments include a provision allowing for modifying the priority based on specific needs of certain regions and purposes. Thus, the policies are in a way

non-committal in giving higher priority to agriculture use in water allocation. Almost half of the SWPs that were assessed included such a provision allowing modification of priority. Such discretion could be used in future to change the original priority list, resulting in inequitable distribution of water resources among contending users, disfavoring the small and disadvantaged stake-holders. NWP, which acts as a guideline to all states, included the following categories in defining priority for water allocation: drinking, irrigation, hydro-power, ecology, agro-industry, non-agriculture industry and navigation. Similarly, SWPs of some states (there are some exceptions) also have very short lists, neglecting water needs of diverse livelihoods practices of rural people in this vast and diverse country. These livelihoods practices needing water, for example, include: aquaculture, afforestation, and livestock, which are important rural, agro-based livelihoods practices. Exclusion of these categories of water uses would lead to disadvantage to some sections of rural population. 5.3 Entitlement as Pre-Cursor to Water Markets: Impacts on Equity According to Section 11(i) of the MWRRA Act, the regulator has been accorded the powers to fix criteria for trading of water entitlements on the regulator. Further, the law states that, entitlements . . . are deemed to be usufructuary rights which can be transferred, bartered, bought or sold . . . within a market system (refer Section 11(i) (i)) (GoM, 2005a). Thus, emergence of formal water markets is not just hypothetically linked with entitlements. It has already penetrated into the regulatory framework and received legal sanctions in one of the state in India. The assumption underlying behind creation of water markets is that the market forces will ensure allocation of water to the most high-value application or most economic use of water. The same has been already implemented in countries like Australia and Chile (GoAu, 2005) (Saleth et al., 1999). One of the most comprehensive studies done on the distributive impacts of water markets in Chile concludes that farmers share of water rights decreased significantly after formal water markets backed by the system of property use-rights (entitlements) were introduced (Romano et al., undated). This led to deterioration of their standards of living. The study further concludes that the share in water rights of the agricultural sector, as a whole, decreased; while that of the non-agricultural sectors increased. Such impacts would be detrimental to the agro-economy and the overall rural economy in India. This will further deprive the vulnerable sections of their rights to water resources. 6. Water Tariff Systems and Inequity Assessment of the legislations for establishment of IRAs also indicates that establishing a tariff system and regulation of tariff is one of the key functions of the IRAs. UPWMRC Act as well as MWRRA Act entrust the responsibility of determination and regulation of water tariff to the respective regulatory authorities. Water tariff has been a politically controversial and emotive issue. This is primarily due to its direct impact on the affordability that, in turn, affects access to water for common citizens and, especially, for vulnerable sections of the society. Hence, assessment of provisions in the reform instruments pertaining to water tariff systems was found useful and relevant for this paper. 6.1 Paradigm Shift in Tariff System: From Affordability to Cost-Recovery It should be noted that, in many parts of India, water charges are based on the (explicit or implicit) criteria of affordability for the water users. As a result, at many places, water is being provided free or at highly subsidized rates to certain areas or to certain sections of society. And, for the same reasons, expenditure for water services was subsidized using the revenue generated from general taxes. Thus, historically, water services were pre-dominantly considered as social services and water was considered as a social good. The new tariff regime that will be implemented as part of water sector reforms attempts to reverse this principle and replace the same with the principle of water as economic good. There is an emerging consensus that water services should either be run like a business, or become a business (Kessler, 2005). A business-like operation would require full cost-recovery from water tariffs charged to individual consumers. In effect, this requires charging of water services based on the market principles. Assessment of State Water Policies shows that almost all states in India have accepted the principle of cost recovery for determining water tariff. But, there was no formal mechanism to establish the tariff regime based on this principle. This has been secured by making relevant provisions in the new regulatory laws such as

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UPWMRC Act and MWRRA Act, which effectively provide legal sanction to the paradigm shift in the perspective towards economic water services and tariff. Both the laws empower the water regulatory authorities to establish tariff system based on the principle of cost-recovery, and to determine and regulate water tariffs. Such a shift from affordability to cost-recovery will have a strong bearing on the cost burden of water services on the poor and marginalized sections of society. Application of cost-recovery principle will naturally increase the water tariffs. 6.2 Assessment of Levels of Cost-Recovery In the Water Week Panel on Political and Technical Issues in Cost Recovery organised by the World Bank (February 2005), six different levels of cost-recovery were proposed and recommendations were made for moving to higher and higher level of cost-recovery. The lowest cost recovery level pertains to the level where even operation and maintenance (O&M) costs are not recovered while the highest level pertains to not only recovery of O&M costs but also recovery of investments and profits (Revels C., 2005). The movement from one level of cost recovery to higher and higher level of recovery, as proposed in the World Bank panel, is actually being implemented through the new water regulatory laws in India. The water tariff levels existing in majority of the states in India fall in the first level of cost recovery, i.e., tariff levels at which even O&M costs are not recovered. This explains the need felt for moving to the next level as accepted in MWRRA Act. As per Section 11(d) of the Act, water tariff should be able to recover O&M costs. UPWMRC Act has made provision for going to a still higher level of cost recovery than that achieved by MWRRA Act (which was passed three years before the UPWMRC Act). UPWMRC Act provides for recovery of cost of not only O&M, but also the cost of depreciation and subsidies. In effect, UPWMRC Act has given legal sanction for a higher level of recovery of costs. The provision for cost of recovery of depreciation from water tariff made in UPWMRC Act makes way for allowing recovery of that part of the capital which gets reduced due to aging and use. In accounting term, depreciation is often equated with the cost of repayment of loan. Hence, part of the tariff can be used to repay the loan (principal amount) on capital assets. The depreciation amount collected as part of the tariff can also be used for renewal, rehabilitation or replacement of capital assets. Thus, the UP Act takes a landmark decision to recover a significant part of capital cost on continuous basis from water tariff. Provision of recovery of capital costs, in this manner, paves way for higher level of commercialization of water services, which would result in increasing cost of services. Recovery of capital costs also creates conducive environment for privatization in the water sector. This assessment shows that both the regulatory laws have still not made provision for recovery of return on investments or profits from water tariff. Once this level of recovery is reached, the water sector will be able to attract more and more private investors since investors can be assured, through regulatory orders, a certain percentage of profit. Unlike MWRRA Act, UPWMRC Act also makes a provision for recovery of subsidy from the water tariffs. MWRRA Act makes provision for cross-subsidy, which comes from the revenues from water tariff, as well as for government subsidy. But the UPWMRC Act mandates the authority to fix tariff such that the revenues from tariff should also recover subsidy. Thus, the UPWMRC attempts to close the option of government subsidy by putting the entire cost burden of subsidy on revenues from water tariff. Such an attempt will lead to tremendous pressure on the service providers to reduce the subsidy component of the costs to enhance already limited revenue collected from water tariffs. 6.3 Pricing Out the Poor and Rural Overall, it can be seen that the kind of tariff regime being envisaged in the policies and the legislations will lead to tremendous increase in the water tariff. The increase in water tariff will mostly be targeted at the agriculture and rural economy, since these are the categories that are subsidized either by industries or government. This inference could be justified by looking at the water tariff increase proposed in the Approach Paper prepared for MWRRA for determining tariff regulations (PRAYAS, 2009b). The proposal envisages 39 % increase in the tariff for agriculture water use, while only 5 % increase in water tariff for industrial water use. The proposal also seeks to put in place cost-recovery as the primary principle of tariff determination and total neglect to the principle of capacity to pay.

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Thus, the new tariff regime in water sector is attempting to bring in practice the major commercial principles of regulation like cost-recovery and reduction in cross-subsidy. Such a move to commercialize the water sector will have detrimental impacts on poor and the agro-based rural economy of the nation. This will put price of water services beyond the paying capacity of poor and marginalized sections of the society. 7. CONCLUSION The findings of the assessment of the selected reform instruments pertaining to the four issues can be summarized as follows: Reform instruments like National Water Policy (NWP) attempt to centralize and nationalize the water sector. This may lead to disempowerment of local and state-level actors, effectively denying them opportunity to participate and influence key sector-level decisions in the water sector. Emergence of Independent Regulatory Authorities (IRAs) in the water sector raises the question of accountability of these new decision-making bodies to the public. Lack of adequate mechanisms for transparency, public participation, and accountability in the proceedings of IRAs further leads to lack of influence of citizens and water users on the governance of water sector. This will open avenues for the dominant and vested-interest groups to control the sector by indulging in regulatory capture. The legal reform instruments usher in new mechanisms for determining, allocating and regulating Water Entitlements. Water Entitlement System has a potential to strengthen the water rights of local communities and marginalized sections of society. But, the current legal instruments use a very narrow meaning of equity that links water entitlements to the quantum of land owned. Hence, in reality, it strengthens and reinforces the already inequitable system of land ownership. Also there is no strong commitment of giving priority to agriculture water requirements as against industrial water requirements. Further, the linkages of water entitlements to development of formal water markets poses serious threat of diversion of water to the urban-industrial elites by compromising on the water needs of rural, agro-based poor communities. Water Tariff Systems based on commercial principles like cost-recovery and cutting subsidies are also the mandatory aspects of the new legal reform instruments. Such commercialization of water sector will further put water services beyond the reach of common water-users, especially, that of the poor and vulnerable sections of society. The summary of the findings from the assessment of various water sector reform instruments clearly shows the existing and potential contribution of these reform instruments to empowerment and equity. Overall, the key conclusions of the assessment are as follows: Reform instruments do not provide adequate measures for enhancement of equity and empowerment. In fact, as the paper indicates, many of them are working against equity and empowerment. This calls for urgent and proactive measures to ensure that the public interests, especially, the interests of the vulnerable sections of the society, are not compromised in the process of reforms in water sector. Further, participatory deliberations with wider participation of farmers organizations, organizations of agriculture laborers, environmental organizations, and political organizations should be held to review policies and legal instruments used for water sector reforms. Such a review should lead to necessary changes that will result in pro-equity and pro-empowerment frameworks and mechanisms. *** REFERENCES GoAP (Government of Andhra Pradesh). (2008). Andhra Pradesh State Water Policy, Irrigation & CAD Department, Hyderabad, India. GoArP (Government of Arunachal Pradesh). (2006). Arunachal Pradesh Water Resources Regulatory Authority Act 2006, Itanagar, India. GoAu (Government of Australia). (2005). Water Access Entitlement, Allocations and Trading, Australian Bureau of Statistics, Australia. GoI (Government of India). (1998). The Electricity Regulatory Commissions Act 1998, New Delhi, India.

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GoI (Government of India). (2002a). Indian Reform Initiatives In Water Sector, Ministry for Rural Development, Government of India, Presented at Water Forum organised by World Bank, Washington DC. GoI (Government of India). (2002b). National Water Policy, Ministry of Water Resources, New Delhi, India. GoI (Government of India). (2003). The Electricity Act 2003, New Delhi, India. GoI (Government of India). (2006). Report of the Working Group on Water Resources for the XI Five Year Plan (2007-2012), Ministry of Water Resources, New Delhi, India. GoK (Government of Karnataka). (2002). State Water Policy 2002, Water Resources Department, Bangalore, India. GoMP (Government of Madhya Pradesh). (2003). State Water Policy 2003, Water Resources Department, Bhopal, India. GoM (Government of Maharashtra). (2003). Maharashtra State Water Policy 2003, Mumbai, India. GoM (Government of Maharashtra). (2005a). Maharashtra Water Resources Regulatory Authority Act 2005, Mumbai, India. GoM (Government of Maharashtra). (2005b). Maharashtra Management of Irrigation Systems by Farmers Act 2005, Mumbai, India. GoM (Government of Maharashtra). (2007). Technical Manual for Fixing, Regulating and Enforcing the Entitlements in Irrigation Projects (Pilot Basis), MWRRA, Mumbai, India. GoR (Government of Rajasthan). (1999). Rajasthan State Water Policy, Jaipur, India. GoUP (Government of Uttar Pradesh). (1999). Uttar Pradesh State Water Policy, Lucknow, India. GoUP (Government of Uttar Pradesh). (2008). Uttar Pradesh Water Management and Regulatory Commission Act 2008, Lucknow, India. Jarjum E. (2008). Informal discussions and email communication with Jarjum Ete, Itanagar Kessler T. (2005). Social Policy Dimensions Of Water And Energy Utilities: Knowledge Gaps And Research Opportunities. World Bank. Washington DC. Koppen B., Parthasarathy R., and Safiliou C. (2002). Poverty Dimensions of Irrigation Management Transfer in Large-Scale Canal Irrigation in Andhra Pradesh and Gujarat, India, International Water Management Institute, Colombo, Srilanka. Prasad, N. (2007). Social Policies and Water Sector Reform, United Nations Research Institute for Social Development (UNRISD), Geneva. PRAYAS. (2007a). Proceedings of the National Consultation on Regulation and the Poor in Electricity and Water Sectors. Resources and Livelihoods Group, PRAYAS, Pune, India, pp. 88-89. PRAYAS. (2007b). Suggestions for the Process of Preparing the Regulations, Letter to Maharashtra Water Resources Regulatory Authority, Mumbai. PRAYAS. (2009a). Water Regulatory Authority: Process, Analysis and Community Impacts of Water Reform Programs, Resources and Livelihoods Group, PRAYAS, Pune. (In Local Hindi Language Jal Niyamak Ayog: Jalkshetra Sudhar karyakramo ki prakriya, vishleshan aur samudayon par prabhav) PRAYAS. (2009b). Bulk Water Tariff Determination: Process and Content, Resources and Livelihoods Group, PRAYAS, Pune. (In Local Marathi Language Thok Jala Dar Nischiti: Prakriya Wa Ashay) Ramchandradu (2008). Informal discussions and email communication with Ramchandradu, Hyderabad Revels C. (2005). Equitable Cost Recovery Do we all mean the same thing? Presentation at Water Week 2005, World Bank Romano D, Leporati M. (undated). The Distributive Impact Of The Water Market In Chile: A Case Study In Limar Province, 1981 1997. Sainath, P., 2005, "Water: how the deal was done," The Hindu, April 28, 2005. Saleth Maria R, Dinar Ariel. (1999). Water Challenge and Institutional Response: A Cross-Country Perspective, World Bank, Washington DC. World Bank (WB). (2005a). Indias Water Economy: Bracing for a Turbulent Future, Agriculture and Rural Development Unit, South Asia Region, World Bank World Bank (WB). (2005b). Project Appraisal Document on WB Loan of US$325 Million for Maharashtra Water Sector Improvement Project (WB Report No: 31997-IN)

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