Performance and productivity measurement of urban water supply services in India

Water supply services in India are currently not regulated and remain essential monopolies under the strict control of government. These services are mostly perceived as inefficient, reflecting insufficient municipal revenue generations which result in loss-making municipalities that need to be subsidized by the government. The efficiencies and productivities remain largely unmeasured and undetermined, and therefore the perception of inefficient services is not backed by scientific studies. This paper therefore sets up a framework for measuring the performance and productivity of Indian water supply operations. The study utilizes panel data on 21 municipalities observed over the financial years 2005 and 2010, to analyze the relative efficiencies and productivity growths of utilities. Data envelopment analysis is used to obtain efficiency scores and productivity measures such as the Malmquist index. The results indicate the presence of large relative inefficiencies and decreasing productivity of water supply services over time, alluding to a failure to revise tariffs upwards despite increasing input costs over time, thereby driving the need for sector regulation and tariff revision in accordance with X-factors, which was found to have a mean value of 2.4% for possible price cap regulation in the sector. The paper highlights related policy implications.