Decentralisation of water supplies in developing countries is being promoted by international aid agencies. It is argued that decentralisation by a government close to the people will generate better project performance. This article compares the performance of piped water supply schemes run by the state governments and local government in central India and finds that the latter are running less efficiently than the former. It finds that a serious drawback of decentralisation is the neglect of human resource development (HRD). Empirical analysis shows that this neglect lowers production efficiency. Thus, decentralisation has a negative effect on production efficiency, directly as well as through lower HRD. Government ‘closer to the people’ may not necessarily be better suited to provide water supply services.

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