Role of ‘Informal Water Markets’ in Urban Water Supply: A Household Survey Based Case Study of Chennai City, India

L. VENKATACHALAM

MADRAS INSTITUTE OF DEVELOPMENT STUDIES

79 II MAIN ROAD, GANDHINAGAR

ADYAR, CHENNAI -600 020, INDIA

E-mail: venkatmids@gmail.com

Abstract

Provision of good quality water to urban poor improves social welfare. The government acts as a primary institution in providing water supply. But, the government failure has become inherent in urban water sector. The informal water markets in recent years serve a large number of urban households, including poor. The present study aims at analyzing role of informal markets in fulfilling water requirements of the poorer households in the context of Chennai, India. The results of a household-based survey reveal that water markets are highly visible in the low income settlements too and a significant number of poorer households depend on these markets for their water needs. They incur a sizeable amount of expenditure on water purchase and this suggests that improvements in the existing public supply will not only increase the welfare of the urban poor but also the government revenue. Apart from such improvements, we suggest that informal markets will have to be properly regulated and monitored so that they can play an effective supplementary role in enhancing urban water supply in the coming years.

1. Introduction

Institutions do matter for efficient, equitable and sustainable urban water supply. In urban areas, different institutions play both complementary and compensatory role in fulfilling the final demand for water; the government acts as a primary institution to deliver water supply services in urban areas. But, government failure has become a widely observed phenomenon in urban water sector. In recent years, private water markets serve a large number of urban households (see Solo, 1999), including a significant number of poorer households. The private markets are largely informal as they are not being properly monitored and controlled by a regulating agency; the quality of water delivered, the amount of water traded and the economic value of water sold are not systematically accounted anywhere in the system. The informal nature of these markets itself may lead to ‘market failure’. Yet, informal water markets expand rapidly in urban areas and therefore, their welfare implications deserve scientific enquiry. In this regard, some of the pertinent research questions that require such enquiry are: Why and how do the private markets successfully emerge to provide a quasi-public good like, urban water supply? Why are these markets dominated mostly by informal actors? What comparative advantages and disadvantages do these markets possess over other service providers? What kinds of services do they deliver and to whom? What is the institutional structure within which they operate? Are there any ‘formal’ rules, regulations and norms operating within these informal markets? What is the size of economy created by these markets? Why have formal public-private partnership (PPP) arrangements failed while informal operators have penetrated strongly in urban water supply? Why are resistances against informal markets

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invisible while formal PPP arrangements receive strong resistance from civil society groups? While all the above issues are pertinent, analyzing welfare implications of informal markets especially on urban poor becomes necessary since they are increasingly dependent on private markets for meeting their water needs. Therefore, a major objective of the present study is to study the role of informal private markets in fulfilling water needs of the low income households in Chennai City, India.

1.1. The Background

Around one billion people in the world are exposed to contaminated drinking water (WSSCC, 1999). We have data that show the magnitude of global and India specific challenges in regard to water supply and sanitation (WSSCC, 1999 and Parikh et al. 1999). For example, a recent WHO estimate reveals that around 884 million people have no access to clean drinking water; around 2.6 billion people do not have adequate sanitation at the global level (www.wssinfo.org/data-estimates/introduction/). In India, 62.3 percent households had access to safe drinking water in 1991, which increased to 88 percent in 2008 with 12 percent still left un-served with improved water supply (WHO, 2010). Continuing to cope with current demand and augmenting additional supply for future has become a real challenge to an urban water supply authority. This challenge is exacerbated by various supply-side and demand-side factors such as, ever increasing scarcity of water caused by depletion and degradation of water resources, adverse redistribution of rainfall due to climate variation, steep increase in water demand due to rapid urbanization and high income elasticity of water, increased scarcity of budgetary resources and other institutional and political factors (see McKenzie and Ray, 2009). At the regional and city level, there are ‘site-specific factors’ which make the above challenge more pronounced. For example, over-exploitation of groundwater in core urban areas has resulted in seawater intrusion and subsequent deterioration of water quality in and around Chennai city. This forced the government and consumers to look for more costly options that include massive investment on pumping water from far away sources and high level of dependence on informal markets.

Despite difficulties, supplying improved water to the urban poor has proved to improve the social welfare substantially (e.g. Parikh et al. 1999). Galiani et al (2005), for example, report that in Argentina improved water service delivery through PPP arrangements has reduced child mortality by 24 percent, especially in poorest areas. In addition to direct benefits, the spillover effects generate a sizeable amount of unquantifiable social benefits too. Nevertheless, in the urban water sector there is an inherent ‘government failure’ that causes a significant disparity between the quantity required and the amount actually supplied. In most of the cases, the quality of water from public supply is very poor. A household survey conducted in Gurgoan in the Capital region of Delhi, India, reveals that among 61 percent of the sample households, the drinking water collected from public sources was found to be contaminated with fecal matters (Jalan et al. 2006). Nevertheless, empirical evidences categorically demonstrate that improved water services by governments do bring substantial amount of direct health benefits as well as additional consumer surplus due to reallocation of household resources spent previously on poor services. For example, Whittington et al. (1991) found that in Onistha, Nigeria, the average amount of money spent on buying water from private vendors was 24 times greater than the amount spent on public supply and overall water augmenting measures consumed around 12 percent of household income, on an average. Since the households allocate a

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significant amount of their economic resources towards water services which, in most cases, are poor, improving government supply is expected to generate more private and social benefits - especially, for the lower income households. However, Whittington et al (2008) argue that improved government supply may not necessarily fetch any additional household benefits since they are already compelled to ensure sufficient amount of water at household level. Similarly, presence of well-functioning private markets and other factors such as high income elasticity of demand for improved services can make the public supply less preferred by the households. The linkage between change in the structure of water supply institutions and change in preferences and behavior of consumers needs to be studied in the urban context.

Estimating households’ benefits from improved water services should be measured in terms of their ‘willingness to pay’ (WTP) values (see Venkatachalam, 2006). Conventionally, either a revealed preference method (e.g. utilizing prevailing market price) or a stated preference method (e.g. eliciting preferences through contingent valuation method (CVM)) or both are utilised for estimating the household WTP values. Each method has its own advantages and disadvantages. In an urban context where water markets exist, households’ expenditure incurred on buying water under ‘normal circumstances’ should reflect their maximum WTP for water and water services. When market is imperfect, the stated preference method is employed. Generating information on the size of willingness to pay for different levels of service provided by diverse service providers and the factors influencing the WTP values could serve useful purpose for urban water sector reforms in future.

1.2 Water Supply Issues in Chennai City

Chennai Metropolitan Area (CMA) comprises Chennai City Municipal Corporation (hereafter, Chennai City) (174 sq.km)1, 16 Municipalities (240 sq.km), 20 Town Panchayats (156 sq.km) and 214 villages coming under 10 Panchayat Unions (617sq.km). The CMA is ten times larger (1,170 sq km) than the Chennai City and its population was 7.04 million in 2001 which was estimated to be around 10 million in 2011. Chennai city, with 4.6 million population (2011 census), has become the 3rd highest populated city in India, after Mumbai and Delhi; the population density at present stands at 29903 per sq.km. The total population of the city has been steadily increasing in absolute terms though the decadal growth rate has been declining gradually from 1971 onwards (see Table-3).

Table -1: Demographic Profile of the Chennai Metropolitan Area.

Sl. No. Geographical Region

Area Sq. Km.

Population (in Million) Annual Rate of Growth

1971 1981 1991 2001 1971-81

1981-91

1991-01

1. Chennai City 176 2.64 3.28 3.8 4.34 2.20 1.58 1.23

2. Municipalities 240 0.48 0.81 1.20 1.60 5.24 3.80 2.91

1 Under the proposed Corporation expansion plan, Chennai corporation limit is being expanded from 174 sq.km

to 426 sq.km and therefore, the population of the city is going to jump from 4.6 million to 5.6 million (Chennai

Corporation, 2011).

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3. Town Panchayats

156 0.11 0.20 0.30 0.40 4.43 4.94 3.62

4. Village Panchayats

617 0.30 0.40 0.52 0.70 2.40 4.38 3.58

5. CMA Total 1189 3.50 4.60 5.80 7.04 2.76 2.37 1.93

Source: CMDA available at:www.hindu.com/nic/draftmasterplanii_short.pdf.

The city population is projected to be at 5.2 million, 5.5 million and 5.8 million in 2016, 2021 and 2026, respectively (see Table-4). The ever increasing population has profound administrative and financial implications on the provision of basic amenities. Providing good quality water in adequate quantity to a large urban population becomes economically and institutionally a serious issue.

Table-2: Demographic Profile of Chennai City -2011.

Current Population of Chennai in 2011 4,681,087

Total Male Population 2,357,633

Total Female Population 2,323,454

Sex Ratio in Chennai 986 females per 1,000 males

Population Density per Sq. Km 26903

Source: Census of India, 2011.

Table -3: Growth of Population in Chennai from 1951 to 2011.

Year Population Decadal Growth (%)

1951 1,416,056 -

1961 1,729,141 22.10

1971 2,469,449 42.81

1981 3,266,034 32.25

1991 3,841,398 17.61

2001 4,343,645 13.07

2011 4,681,087 7.76

Source: Census of India, various reports

Table -4: Projected Population in Chennai Metropolitan Region

Sl. Geographical Population Projection (in Million)

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No. Region 2016 2021 2026

1. Chennai City 5.24 5.54 5.85

2. Municipalities 2.56 3.02 3.60

3. Town Panchayats 0.74 0.94 1.22

4. Village Panchayats 1.23 1.60 2.00

5. CMA Total 10.00 11.20 12.60

Source: CMDA available at: www.hindu.com/nic/draftmasterplanii_short.pdf.

Chennai City receives its water supply from multiple sources (see Table-5); most of the supply comes from Poondi Lake (with 3,231 million cubic feet (MCFT) capacity), Sholavaram Lake (881 MCFT), Red Hills Lake (3,300 MCFT) and Chembarambakkam Lake (3,645 MCFT). Additional quantity of water is received from Veeranam lake (traditionally used for irrigation purpose) which is located 250 kilometres south of Chennai. At present, the Tamil Nadu Water Supply and Drainage Board (TWAD Board) delivers 645 to 650 MLD (million litres per day) of water, of which 585 MLD is distributed to domestic consumers in 16 Metro water Distribution Zones in the city2. The remaining 60 to 65 MLD is supplied to industry, ‘bulk consumers’, 10 peripheral municipalities, five Town Panchayats, two Village Panchayats, and the cantonment.

Table -5: Details of Water Sources for Chennai City

Sl. No. Source In Million Litres (ML) in 2004

1 Veeranam Lake 14,842

2 Redhills Lake 4,155

3 Rain Water Harvesting 1,691

4 Chembarambakkam Lake 133

5 Erattai Eri 207

6 Well Fields 31,195

7 Southern Coastal Aquifer 776

8 R.O. Plants 182

9 TWAD Source 275

10 Porur Wells 210

2 Another estimate suggests that the government supply amounts to only 225 MLD (see Table-4).

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11 Neyveli Aquifer 5,966

12 Distance Source 21,357

TOTAL 80,988

Source: CMDA available at: www.hindu.com/nic/draftmasterplanii_short.pdf.

The total water demand at present is estimated to be at 848 MLD but, the current supply is only 645 MLD. The supply-demand gap of over 200 MLD of water is supposed to come primarily from groundwater sources. Around 6,530 deep bore-wells have been dug at different locations in the city to supplement the supply from surface sources. In addition, the TWAD Board also hires private tanker-trucks regularly to deliver water to areas with less coverage, more scarcity and with more slum population. For instance, about 6,000 tanker-trucks with a capacity of between 10,000 and 20,000 litres each had been inducted to deliver 120 MLD of water to different locations of the metropolitan area in the year 2004. At present, private trucks make around 700 trips to deliver an estimated 125 MLD of water, purely on a commercial basis. The trucks purchase water from the owners of agricultural bore-wells in the peri-urban areas of Chennai. Approximately, 65% of water consumed by households comes from government-controlled sources and 35% from non-governmental sources. Around 25% of total water demand in the city is being met by the private sector (Janakarajan et al. 2006). Overall, there exists an inherent water scarcity in the city and private water markets play a significant role in reducing it.

1.3 Private Water Markets in Chennai

The informal commercial water sector consists of different types of service providers. Some of them are bulk-suppliers (such as, tanker trucks) and some of them –the small suppliers - deliver water in small quantities to a large number of consumers. In recent years, the small suppliers (who deliver water in plastic cans, bottles, sachets, etc) have expanded their activities in Chennai, creating a huge market for water with ‘value added’ properties. Till early 2000, the bulk suppliers (particularly, tanker trucks) dominated the water market and they depended mainly on the groundwater sources for their intake; the state government passed Tamil Nadu Ground Water (Development and Management) Act, 2003 with an aim to reduce an alarming rate of groundwater exploitation in and around Chennai city. As a result, the operation of the bulk suppliers got adversely affected. But, ever increasing scarcity of water accompanied by poor supply from government agencies led to re-emergence of private vendors in the form of ‘small suppliers’.

Table-6: Water Supplied by the Private Sector in Chennai –Daily Basis.

Sl. No. Category Quantity Price range Volume of Sales (in Rs.)*

1 250 ml sachets 5 million sachets Rs.1/ sachet 50,00,000

2 Water bottles 75,000 litres (equivalent of 1 litre

bottle)

Rs. 10 –Rs.12/bottle 7,50,000 -9,00,000

3 12 litre cans 1,00,000 cans Rs. 18 –Rs. 30 /can 18,00, 000 -30,00,000

4 20 -25 litre cans 25,000 cans Rs. 20 and above 5,00,000 (minimum)

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5 Tanker Lorries 10,000 lorries (12,000 litrs/each)

Rs. 700–Rs. 900 per tanker

70,00,000 -90,00,000

Source: South India Packaged Drinking Water Association, 2005.

* 1 US $ = INR 45.00 (approximately) in 2010

Compared to other service providers, small suppliers deliver value added product (i.e. ‘treated’ drinking water), provide services most preferred by the consumers, organise an efficient network among suppliers, distributors and end-users and therefore, establish a strong consumer base. Through their strategic moves, they expanded the market with a large consumer base as well. The monetary transaction involved in this type of water market is also sizeable. A conservative estimate, based on the information available from South Indian Packaged Water Association, suggests that private water industry generate Rs. 15.0 million worth of water trade per day in Chennai city alone (see Table-6). While the individual consumers buy water sold in sachets and bottles, it is largely the households who buy ‘can water’ (12, 20 and 25 litre containers made in plastics) from the small suppliers. While almost all households in the upper and middle income locations are found to purchase the can water, we have no idea about how many households in poor locations do this in Chennai city. No scientific attempt has been made yet to study the contribution of ‘can water sector’ in meeting the drinking water requirements at the household level especially, in poor locations; the preferences of the low income households towards can water and the amount of expenditure they incur has not yet been studied systematically. The present study makes a pioneering attempt to fill in this research gap.

3. Methodology

There are ten zones in Chennai Corporation (see Figure-1) and 200 wards. The water supply characteristics are common across different zones and wards and informal water markets prevail in almost all locations in Chennai city. We selected Ward 155 (Thiruvanmiyur East) in Zone 10 as a ‘representative ward’ and conducted household survey - especially, in the low income settlements. Selecting samples only from Ward 155 is also due to resource constraint we experienced; the costs and benefits of conducting the survey also played a role in restricting our samples within this ward. Another reason for selecting Ward 155 is that household surveys to assess the water supply situation had been already conducted by other researchers in this ward (e.g. Vaidyanathan and Saravana, 2006) and therefore, we have an added advantage of comparing our results with that of earlier studies.

As far as water buying activities are concerned, the households in Ward 155 do not differ much with households in other parts of the city. So, randomly selecting the sample households in a low income settlement within ward 155 is expected to give us a true picture about the behavior of the households in similar settlements in other parts of the city as well. However, we observed that not all the households in low income settlements purchase water from private vendors. The existing differences in purchase decisions by the households provided us a ‘natural randomization’ option where those households purchasing water could be taken as ‘treatment group’ and those households that do not purchase could be treated as ‘control group’. This is helpful for analyzing the underlying reasons for the discrete nature of decisions taken by the households.

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Based on information collected from field visits, from property tax list, from discussions with local leaders and from a survey organization which conducted similar kind of household surveys in the study area, we selected 302 sample households using a ‘stratified random sampling’ method. In low income settlements, we classified all households into different income categories and selected the sample households in proportion to number of households in each income category. Though sample households have been selected on the basis of stratification, we were fully aware that it might still attract ‘sampling error’ due to problems in the property tax that we used as a base for drawing our sample. However, as we have already pointed out the socio-economic conditions and water supply behavior of the households in poor settlements are not highly heterogeneous and therefore, we hypothesize that the results of our sample survey would reflect the behavior of the entire population in Ward 155.

Prior to conducting the main survey, we carried out a pilot study in order to improve the overall quality of the main survey. During main survey, data were collected using well-structured interview schedules comprising these three major aspects: a) the socio, economic and demographic characteristics of the households; b) the households’ current water use behavior, supply-demand gap, source of water supply, expenditure on water related activities, etc; and c) the households’ willingness to pay for improved water supply. In order to get clarifications or fill-in any gap in the interview schedule at a later stage, we obtained the mobile numbers of all sample households; thus, we could contact the households while editing as well as analysing the data, later.

Figure-1: Different Zones of Chennai Corporation.

Source: Corporation of Chennai.

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The main survey was conducted during May-June, 2011; we approached an adult member (above 18 years old) of the household for the interview. We conducted ‘personal interview’ which facilitated both the researcher as well as the respondents to exchange information relevant to the survey. Through personal interview, we have minimized various kinds of potential biases (such as, strategic bias adopted by some of the respondents in order to either understate or overstate the facts about water supply issues, willingness to pay value, income of the households, etc) usually encountered during surveys in developing countries.

4-1: Socio-Economic -Demographic Characteristics of Sample Households

In this section, we analyse the socio-economic-demographic characteristics of the sample households in order to understand the relationship between household characteristics and their preferences towards water related aspects.

The number of years that a sample household living in the study area ranges from a minimum of one year to a maximum of 50 years; the average period of a household living in a particular location comes to around 15 years. As we know, the Chennai city attracts a large number of migrants who come to work in various formal (information technology firms, etc) and informal (construction industry, small vending, etc) sectors. According to Census 2001, the population of Chennai city consisted of 76.72 percent migrants of which 74.49 percent came from within Tamil Nadu state and 2.23 percent from other parts of the country. While the native residents stay for a longer time in a location, the migrants stay only for a short-period of time and therefore, there exists a wide variation in the duration of residing.

Table-7: Socio-Economic Characteristics of the Respondents

Characteristics of the Respondents

Category Number of Respondents

(n=302)

Percentage

(n=302)

Gender

Male 97 32.1

Female 205 67.9

Education

Illiterates 32 10.6

Elementary 62 20.5

High School 151 50.0

Higher Secondary 31 10.3

Above HSC 26 8.6

Head

Head of the Household 99 32.8

Non-Head 203 67.2

Family Type

Nuclear Family 271 89.7

Joint Family 31 10.3

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Source: Computed from primary data.

In the case of gender of the respondents, we had a relatively larger percentage of women respondents giving interview during our survey. Out of 302 respondents, 97 respondents (32.1%) are men and the remaining 205 respondents (67.9%) are women (Table-7). Since women have better knowledge about water supply and water utility practices at the household level, having more respondents from that category is expected to give us useful information about water related issues.

Table-8: Gender of the Respondents and their Status in the Household

Gender Head Non-Head Total

Men

89 (91.75)

(89.89)

8 (8.24)

(3.94)

97 (100.00)

(32.11)

Women 10 (4.87)

(10.10)

195 (95.12)

(96.05)

205 (100.00)

(67.88)

Total 99 (32.78)

(100.00)

203 (67.21)

(100.00)

302 (100.00)

(100.00)

Source: Computed from Primary Data; Notes: Figures in brackets are percentages

It is the head of households who usually make decisions on various household related activities. In our study, there are only 10 women respondents who are heading the households (i.e.10.30% of all the heads) (see Table-8). The fewer women heading the households suggest that women respondents’ ability to take economic decisions regarding water may be relatively weak as they do not possess as much economic power as men do. However, this assumption may not be valid since the economic decisions are taken collectively that include preferences of all members of the households3.

As of educational status, we have found that around 11 percent of our respondents lack formal education. There used to be a criticism that in developing countries, the general population consists of a significant number of illiterates and less educated who cannot answer survey questions legitimately and as a result, the surveys tend to attract serious biases making the results invalid (see Saunders and Warford, 1976). Our results prove that this is no longer a valid criticism, because: a) the percentage of illiterate respondents in our sample is very small and therefore, any bias arising from respondents would be either

3 A statistical test (Mann-Whitney test) of the willingness to pay values (which we discuss later) stated by both

male and female respondents proves that there is no significant difference between these values, suggesting that

financial decision-making does not significantly differ between male and female respondents.

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meagre or negligible; b) though the respondents are illiterates, there are other educated members in the households and their knowledge ‘spills-over’ within the household strengthening the decision-making capacity of other members too; and c) In terms of water supply, it is not the level of education but the respondent’s experience that matters a lot. Since the respondents have a good deal of experience with water supply issues, we are confident that the impact of potential biases and errors would be negligible.

Among the educated respondents, 151 respondents (50%) completed high school education (from 5th to 10th standard), 62 respondents (20.5%) completed elementary education (upto 5th standard), 31 respondents (10.3%) completed higher secondary education and the remaining 26 of them (8.6%) hold diplomas and degrees. The average span of education stands at 8.34 years while the median year being 10.00. As usual, the level of education in low income settlements is found to be lower because the members are forced to go to work at a very young age owing to very poor household income.

With regard to family type, our survey reveals that 89.7 percent of households belong to ‘nuclear family’ category where collective decisions within the household are possible. The decisions taken reflect the preferences of most of the household members. However, in a joint family the power of decision making is confined to elders and household heads and as a result, the decision taken may not fully fulfill the interests of all the household members.

Table-9: Details of the Housing Conditions

Category No. of Households

Households with own House 149 (49.3)

Households Living in Rented House 153(50.7)

Households living in Independent House

137 (45.4)

Households Living in Shared Accommodation

165 (54.6)

Source: Computed from Primary Data

It is found that 149 sample households (49.3%) live in their own houses and a slightly higher number of households (153 households constituting 50.7%) live in rented houses. Approximately, 45 percent of the households live in independent houses while the remaining 55 percent live in shared accommodation i.e., with other households located in the same premises.

Table-9A: Details of Monthly Income of the Sample Households (in Rs.)*

Minimum Maximum Mean Income Median Income Mode Standard Deviation

2000.00 50000 8441.39 7000.00 6000.00 4504.23

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Source: Computed from Primary Data

* 1 US $ = INR 45.00 (approximately) in 2010

Table-9A describes the details of household monthly income from all sources. The monthly income ranges between Rs. 2000.00 and Rs. 50000.00. The average monthly income stands at around Rs. 8400.00 while the median income is slightly lesser than that. A relatively larger percentage of households (i.e. approximately 16 percent) earn a monthly income of Rs. 6000.00, as indicated by the ‘mode’. Over 80 percent of the sample households earn less than Rs. 10000.00 per month. Another 18 percent earn between Rs. 10000.00 and Rs. 20000.00. Only two percent households earn more than Rs. 20000.00 as monthly income.

4-2: Sources of Water Supply for the Sample Households

The survey results reveal that the sample households collect water from five different sources namely, public taps, hand pumps, individual house connections, own bore-wells and private vendors. Every street has either a public tap or a hand pump4; in certain streets, the supply line would be connected to a big plastic container (with a capacity of 2000 litres) in which the water can be collected for a longer period. In the case of individual house connections, the supply lines end up in an underground sump constructed within the premises of the household, from which water is pumped through motor pump sets to an overhead tank. The sump acts as a storage device and minimises any negative impact arising from irregular supply. In Ward 155, the groundwater has become brackish due to seawater intrusion and therefore, the households with own bore-wells use groundwater mainly for those activities which do not require quality water.

Table-10: Source of Water Supply for the Sample households.

S.NO Households depending on Various Types of Water Sources

Number of Households

(n=302)

Percentage

(n=302)

1 Public Taps YES 237 78.5

NO 65 21.5

2 Hand Pumps

Yes 56 18.5

No 246 81.5

3 House Connections Yes 7 02.3

No 295 97.7

4 Hand pumps are installed by the Metro Water Board to supply metro water in those streets/locations where

there is no public tap. The only difference between the two is that in the case of a hand pump, a manual

pumping is required to pump out water when there is no adequate pressure while a public tap will automatically

discharge water whenever it is supplied.

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4 Bore Wells Yes 2 0.7

No 300 99.3

5 Private Vendors Yes 147 48.7

No 155 51.3

Source: Computed from Primary Data

It should be noted that 293 sample households (97%) collect water from ‘public sources’– viz, public taps and hand pumps. Out of 293 households, 237 households (78.5%) utilise public taps and 56 households (18.5%) depend on hand pumps for their water requirements. Another 7 households (2.3%) depend on individual house connections; the remaining 2 households utilise water from their bore-well5. Thus, a larger percentage of the households depend on public sources for their water needs. Nevertheless, around 49 percent of these households purchase water from private vendors to meet out their drinking water needs. Substantial number sample households obtain their supply from more than one source. For example, 123 (52.8%) out of 237 households collecting water from public taps, 3 (42.8%) out of 7 households with individual connections, 20 (46%) out of 56 households with hand pumps and one out of 2 households (50%) with own bore well do purchase water from private vendors as well.

Table-11: Quantity of Water Available from All Sources per Month

Minimum Quantity

Maximum Qunatity

Total Quantity

Mean Value

Std. Deviation

Kodams6 per

month 77.00 848.00 142446.00 471.67 189.09

Total Litres of Water

1170.00 12800.00 2148450.00 7114.07 2837.87

Source: Computed from Primary Data

Based on the information elicited from the respondents, we estimated the total quantity of water available per month to the sample households. In order to have uniformity, we converted the quantity of water available from all sources both in terms of ‘kodams’ as well in terms of litres. The sample households, on an average, collect 16 kodams (or, 237 litres) of water per day or 471.67 kodams (or, 7114.00 litres) per month. The minimum and the maximum quantity of water collected per day are 2.57 kodams (or 77.00 kodams per month) and 28.27 kodams (or 848.00 kodams per month), respectively.

Table -12: Amount of Water Available for Income Categories per Month (in litres)

5 Even though groundwater became brackish in Ward 155, these two households reported that they could still

utilize their bore-well water for certain purposes such as, bathing and washing.

6 A kodam is a plastic vessel with the standard capacity of 15 litres, which is being widely used by the

households in the study area to fetch and store water.

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Monthly Income

Number of Households Minimum Maximum Mean Median

Std. Deviation Sum

Upto Rs. 5000 46

(15.23) 2175.00 12705.00 7842.28 8480.00 2254.97 360745.00

5001-10000 198

(65.56) 1235.00 12800.00 6911.46 8400.00 2994.48 1368470.00

10001- 15000 43

(14.23) 1575.00 12680.00 7716.04 8480.00 2320.32 331790.00

Above 15000 15

(4.96) 1170.00 8585.00 5829.66 6380.00 3045.27 87445.00

Total

302

(100.00) 1170.00 12800.00 7114.07 8400.00 2837.87 2148450.00

Source: Computed from Primary Data. Note: Figures in brackets are percentages.

In order to analyse the relationship between household income and water availability, we classified the households into four income categories (see Table-12) and estimated water availability for each category. It is observed that but for the high income category (i.e. income above Rs. 15000 per month), availability across other categories is more or less the same. The average quantity of water obtained by the high income households is found to be lesser than that of the rest. One possible reason for the above phenomenon is that the high income households may not prefer to collect as much water from the public sources as the lower income households do. Rather, they may want to buy a relatively lesser quantity of high quality water from private vendors than collecting a relatively higher quantity of low quality water from public sources.

Table-13: Percapita Availability of Water Per day –Income Category-wise

Monthly Income Number of Households

Number of Household Members

Average Size of the Household

s

Average percapita

Availability Per Month

(litres)

Average percapita

Availability Per day (litres)

Upto Rs. 5000 46 132 2.87 2732.91 91.1

5001-10000 198 716 3.62 1911.27 63.7

10001- 15000 43 180 4.19 1843.27 61.4

Above 15000 15 60 4.00 1457.41 48.6

Total 302 1088 3.60 1974.67 65.8

Source: Computed from Primary Data

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The estimated average per capita availability of water for the sample households stands at 65.8 litres per day which is considered to be much lesser than the required per capita norm of 135 litres per day7 for the urban households. Among various income categories, the per capita availability for the lowest income category (i.e. household with income less than Rs.5000.00 per month) is relatively better, compared to other income categories. The high income category (i.e. income above Rs. 15000.00 per month) has got the lowest level (65.8 litres) of per capita water available per day. This empirical evidence goes against the conventional notion that the per capita availability of water among the rich will be much higher than that of the poor.

4 -3: Household Expenditure on Water

In this section, we will discuss how the sample households utilize their economic resources to ensure water supply at the household level.

Table-14: Household Expenditure on Water from Different Sources per Month (in Rs.)*

Categories Number of Households

Minimum Amount Paid

Maximum Amount Paid

Mean Value of Payment

Made

Sum of Money

Paid

Std. Deviation

Public taps 237 10.00 100.00 48.67 9685.00

15.08

Hand Pumps 56 15.00 140.00 47.19 2265.00

24.29

Individual Connection

7 75.00 200.00 113.57 795.00 45.34

Private Vendors

147 160.00 600.00 377.01 55420.00 87.56

ALL SOURCES 302 20.00 675.00 233.71 70405.00 195.00

Source: Computed from Primary Data

* 1 US $ = INR 45.00 (approximately) in 2010

Water supplied through public taps and hand pumps is ‘free’ and therefore, the users are not required to make any payment to the government. Yet, the households have reported that they do pay some amount of money to the ‘rent-seekers’ (usually, local level officials, local political leaders, etc) on a regular basis in order to ensure continuous and

7 See, http://www.sandrp.in/watersupply/urbnwtr_assess_wcd.pdf

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adequate supply of ‘free water’. This payment is purely ‘informal’ and does not go to the water supply authority. In certain locations, there are some regular ‘agents’ to collect this payment from the beneficiaries; in other locations, some households themselves collect this amount and hand over to the rent-seekers.

The Table-14 above provides details about the monthly expenditure incurred by the sample households on different sources of water supply. On an average, the sample households ‘informally’ pay around Rs. 48.00 per month in order to ensure sustained water supply from the public taps8. Similarly, the households collecting water from the hand pumps too pay an informal amount to the rent-seekers. For the obvious reason, the average monthly payment for public taps (Rs. 48.67) is more or less equal to that of the hand pumps (Rs. 47.19). Nonetheless, the ‘maximum value’ of the rent paid for public taps (Rs. 100.00 per month) and hand pumps (Rs. 140.00 per month) differs significantly, which should not be the case. The reason is that the two households collecting water from hand pumps reported a value of payment exceeding Rs. 125 per month; this is because, they encountered repair and maintenance charges in the previous month and added this expenditure to the reported total payment. Indeed, maintenance and repair charges contribute to a higher level of expenditure on hand pumps.

In the case of households with individual connections, the payment is ‘formal’ and they are required to pay a minimum of Rs. 50.00 per month as ‘water charge’. These households also end up paying additional amount to the local rent-seekers for ensuring reliable water supply. The estimated mean value of the payment for individual connections (i.e. 113.57 per month) is found to be higher than that of other public sources.

Out of all the sample households, those households buying ‘can water’ incur considerably higher amount of monthly expenditure. On an average, these households spend around Rs. 377.00 per month. Their monthly expenditure ranges from a minimum of Rs. 160.00 to a maximum of Rs. 600.00. Altogether, the average household expenditure on all sources of water supply comes to around Rs. 233.71 per month.

Table-15: Expenditure on Water from All Sources- Income Category-wise

Monthly Income (in Rs.)*

Number of Households

Minimum Value

Maximum Value Mean Sum

Std. Deviati

on

Upto Rs. 5000 46 20.00 550.00 204.02 9385.00 180.65

5001-10000 198 20.00 640.00 227.04 44955.00 192.85

10001- 15000 43 20.00 675.00 284.06 12215.00 205.24

Above 15000 15 30.00 600.00 256.66 3850.00 225.91

8 Few households reported that they don’t make this payment regularly and the amount that the amount they pay

also would differ across time; this being the case, we asked these households to state if they paid any amount

last month and if so, how much. So the figures reported here refer to the amount paid in the previous month.

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Total 302 20.00 675.00 233.12 70405.00 195.00

Source: Computed from Primary Data; * 1 US $ = INR 45.00 (approximately) in 2010

Table -15 provides details about the income category-wise monthly expenditure on water. It is found that the average monthly expenditure does not significantly differ across income categories. The average expenditure incurred by the top two income categories is higher than the overall average of Rs. 233.12 whereas the average expenditure incurred by the bottom two income categories is lower than Rs. 233.12. This establishes a direct positive correlation between household income and expenditure incurred on water.

From Table-16, we understand as to what proportion of households make what level of monthly payment (both formal and informal) on water. The data reveal that around 51 percent of the household incurs less than Rs. 100.00 per month and the remaining 49 percent pays between Rs. 100.00 and Rs.675.00 per month. Approximately, around 17 percent of the households spend between Rs. 100.00 and Rs. 400.00 while 30 percent shell out more than Rs. 400.00 per month. A higher proportion of households (38.7%) pay Rs. 50 per month, followed by 16.6 percent spending Rs. 450 and 7 percent expend Rs.370.00. The sample households report that the amount paid by them varies monthly depending on factors such as frequency of supply and level of water scarcity.

Table-16: Number of Households Paying Different Amounts of Money for Water (per month)

Amount Paid (in Rs.)* Number of Households Percent Cumulative Percent

20.00 8 2.6 2.6

25.00 5 1.7 4.3

30.00 20 6.6 10.9

35.00 2 0.7 11.6

40.00 5 1.7 13.2

50.00 77 25.5 38.7

80.00 18 6.0 44.7

90.00 1 0.3 45.0

100.00 19 6.3 51.3

140.00 1 0.3 51.7

210.00 3 1.0 52.6

250.00 2 0.7 53.3

265.00 1 0.3 53.6

270.00 1 0.3 54.0

290.00 8 2.6 56.6

300.00 3 1.0 57.6

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320.00 3 1.0 58.6

335.00 1 0.3 58.9

340.00 2 0.7 59.6

350.00 6 2.0 61.6

370.00 21 7.0 68.5

400.00 6 2.0 70.5

415.00 1 0.3 70.9

420.00 3 1.0 71.9

430.00 2 0.7 72.5

450.00 50 16.6 89.1

460.00 1 0.3 89.4

475.00 3 1.0 90.4

500.00 10 3.3 93.7

510.00 1 0.3 94.0

515.00 1 0.3 94.4

530.00 3 1.0 95.4

550.00 7 2.3 97.7

600.00 5 1.7 99.3

640.00 1 0.3 99.7

675.00 1 0.3 100.0

Total 302 100.0

Source: Computed from Primary Data

* 1 US $ = INR 45.00 (approximately) in 2010

It is found that on an average, our sample households spend around 2.76% of their monthly income on water alone. Those households purchasing water from private vendors invest approximately 5.55 percent of their income. Altogether, they disburse 6.23 percent income on all sources of water. This is considered to be a significant amount since our sample households live in low income settlements. In addition to this financial expenses, the households incur a substantial ‘opportunity cost’ in terms of time spent on collecting water from public sources. The opportunity cost could not be easily quantified in monetary terms. Therefore, the total cost on water may far exceed the estimated financial cost incurred. This implies that improved water supply services would reduce the economic burden on the households thereby enhancing their welfare considerably.

4-4: Purchase of Water from Private Vendors

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In the following section, we would discuss in more detail the household activities in relation to private water purchase. The details about percentage of households buying water from private vendors, quantum of water purchased and level of expenditure incurred on private water will be described here.

Table -17: Number of Water Cans Purchased by the Households

Number of Cans Bought per Week Number of Households Percent Cumulative Percent

2 5 1.7 3.4

3 29 9.6 23.1

4 86 28.5 81.6

5 21 7.0 95.9

6 6 2.0 100.0

Total 147 48.7

Source: Computed from Primary Data

As we have already seen, 147 sample households (48.67%) purchase water from the private vendors. Almost all of them are found to purchase 20 litre water cans. Each water can is purchased at Rs.20.00 Rs.25.00 depending on the seller. For example, a whole sale vendor directly selling the cans to the consumers on a ‘weekly’ basis would charge Rs. 20.00 per can while a seller from a neighbourhood who delivers on a daily basis would demand Rs. 25 per can. On an average, the sample households purchase 4 cans (with 20 litre capacity) of water per week from private sellers; some purchase a minimum of 2 cans while few others buy upto 6 cans per week. Around 80 percent households use upto 4 cans while the remaining 20 percent consume upto 6 cans per week (see Table-17). On an average, a household utilizes approximately 79 litres of private water per week or 317 litres per month. It is found that the entire can water is being employed largely for drinking purposes.

Table -18: Details of Households’ Water Purchase from Private Vendors

Minimum Maximum Sum Mean Std. Deviation

Cans per week 2 6 582 3.96 .801

Litres per Week 40.00 120.00 11640.00 79.18 16.02

Litres per Month 160.00 480.00 46640.00 317.27 64.47

Expenditure on Private Buying

per month 160.00 600.00 55420.00 377.01 87.56

Source: Computed from Primary Data

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Based on the prevailing market price of can water, we estimate that one litre of private water costs Rs. 1.18. This suggests that the urban poor are also willing to pay a significant amount towards quality drinking water, if it is readily available.

4-5: Investment on Rain Water Harvesting

Apart from regular expenditure on water sources, the sample households have also made a fixed investment on rainwater harvesting structures (Table-19).

Table-19: Investment on Rainwater Harvesting at Present by Sample Households

Income Range

Number of Households

Minimum Value

Maximum Value Mean Value Median Value Std. Deviation Sum

Upto Rs. 5000

26 1000 3000 2176.92 2500.00 599.53 56600

5001-10000

103 1100 4000 2556.80 2500.00 537.33 263350

10001- 15000

18 1200 5500 2888.89 2900.00 971.89 52000

Above 15000

6 2000 10000 4083.33 2750.00 3023.51 24500

Total 153 1000 10000 2591.18 2500.00 887.56 396450

Source: Computed from Primary Survey.

The Government of Tamil Nadu launched the Rain Water Harvesting programme in the state during 2001. With the issue of ‘Tamil Nadu Municipal and Panchayat Laws Ordinance’ on July 19, 2003, the rainwater harvesting was made mandatory for all buildings in the State (http://www.spiritofchennai.com/rainwaterharvesting/rwhit.htm). As a result, most of the households had to create concrete structures in their house to collect rain water. It is found that 153 sample households (50.66 percent) invested on rain water harvesting and the total investment comes to Rs. 3,96,450.00 (2003 prices). On an average, each household had invested Rs. 2591.18. However, the households report that the programme is not very effective at present due to problems such as increased transaction costs in maintaining the structures, weak enforcement by the government, etc.

From the above analysis, it is clear that almost all the households in our sample are spending a sizeable amount of their economic resources on water. Though water from public sources is considered ‘free’, the beneficiaries are indeed paying a considerable amount of money for it. This suggests that the households’ willingness to pay for ensuring current level of public supply is appropriately capitalized by the rent-seekers at the local level. Similarly, our analysis of the expenditure incurred in the private water markets reveals that the households are ready to pay more for good drinking water. All the above imply that prompt delivery of quality water is the key for an efficient, equitable and sustainable public supply of water.

4-6: Households’ Stated Willingness to Pay (WTP) for Improved Water Supply

Empirical studies reveal that in many of the urban areas in India, the households are neither satisfied with the quantity and quality of water from public sources nor with the quality of service delivery by the government agencies (see Venkatachalam, 2006). In our

21

survey area, nearly 18.5 percent of the sample households reported that the quantity of water from government supply as inadequate, 52.1 percent reported time of supply to be inconvenient, 18.1 percent found irregular supply to be problematic and around 20 percent listed various other problems like commuting to a public source in addition to poor quality of water. The households’ dissatisfaction leads to a ‘vicious circle’ which is characterised by ‘poor quality service-low preference-low willingness to pay-low capital formation-poor quality service’ (Singh et al. 2002). The vicious circle perpetuates the government failure in urban water sector and a key to break this circle is to provide better quality service to the consumers and charge equivalent to the marginal cost. In this regard, we would like to investigate: a) whether the households are interested to pay for improved water supply scheme with better service delivery; and b) the amount they are willing to spend on this improved scheme.

In order to probe into the above aspects, we administered a ‘contingent valuation’ (CV) survey as part of our study9. In the CV survey, we created a hypothetical market scenario (please see Appendix for details) to elicit the household preferences for improved water supply scheme. The results are discussed below.

Table-20: Households’ Willing to Pay (WTP) for Improved Water Supply (Income Category-Wise).

Income Category

Number of Households

Minimum WTP Value

Maximum WTP Value

Mean WTP Value

Median WTP Value

Std. Deviati

on Sum of WTP

value

Upto Rs. 5000 7 100.00 200.00 121.43 100.00 39.34 850.00

5001-10000 57 50.00 300.00 134.21 100.00 59.12 7650.00

10001- 15000 15 50.00 200.00 156.67 150.00 49.52 2350.00

Above 15000 7 50.00 200.00 135.71 150.00 47.55 950.00

Total 86 50.00 300.00 137.21 100.00 55.40 11800.00

Source: Computed from the Primary Data

On contrary to our expectation that a large number of households who are dissatisfied with the existing scheme would prefer to participate in the improved scheme, we found only 86 households (28.47%) consenting to participate and pay for such a scheme. The mean WTP value for these households is estimated to be at Rs. 137.70 per month while the maximum and minimum WTP values are Rs. 300.00 and Rs. 50.00 respectively (Table-20). The mean WTP value for the improved water supply scheme is found to be lesser than what they are already paying (i.e. Rs. 233.12 per month). The insignificant difference in the mean WTP values across income categories suggests ceteris paribus, i.e. the income difference does not influence the WTP value significantly.

9 Though the CV method has the potential to attract certain biases and errors, we have followed all the scientific

guidelines (e.g. NOAA Guidelines) for conducting the CV survey in the study area (see Venkatachalam (2004

and 2005) for more details on how to reduce biases and errors in CV studies).

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Why is a sizeable number not willing to participate and pay for improved water supply scheme? Those 216 households which preferred not to partake cited various reasons for their decision. A maximum of 170 households state that they are ‘not at all interested’ in the proposed scheme. Their perception was water from the present scheme is ‘cheaper’ but under the proposed scheme it would come with a ‘huge price tag’. Some households claim that they are already paying ‘enough’ to the rent-seekers and therefore, they prefer not to make any further payment. These households feel that the proposed scheme makes the payment ‘formal’ and mandatory and once the scheme is implemented they make double payment –i.e. ‘formal’ payment to the government and ‘informal payment’ to the rent seekers which would augment their financial burden considerably.

Table-21: Reasons for Not Willing to Pay Improved Water Supply Scheme.

Reasons Number of Sample

Households Percentage

Not Interested 170 78.7

Already Paying More 24 11.1

Metro Scheme is Not Reliable 6 2.8

Present Supply is Adequate 11 5.1

Income not Sufficient 2 .9

Owner of the House to Pay 3 1.4

Total 216 100.0

Source: Computed from Primary Data

The remaining households cite non-reliability of Metro supply even under the improved scheme, adequacy in supply from present sources, lack of income and legal entitlements to the house as reasons for their unwillingness to participate and pay for the proposed water supply scheme. All the above suggest that improving government supply with better service delivery and removing the rent seekers from the scene would make the households take part in the urban water supply schemes more effectively.

5. Summary and Conclusion

Providing good quality water in adequate quantity to urban households in developing countries will reduce poverty and increase social welfare considerably. But the reality is that a large number of poor households do not have access to good quality water. When the government fails, the households will have to depend on alternative service providers to meet out their water needs. The increased demand accompanied by huge scarcity of water in urban areas leads to emergence of institutions such as private water markets. In recent years, the private operators are playing an important role in fulfilling the household water requirements in major cities like Chennai.

In Chennai city, informal water markets have penetrated into low income settlements too. However, the impact of such markets on poor households has not yet been studied systematically. The present study is a moderate attempt to fill this research gap. We selected 302 sample households from low income settlements in Ward 155 in Zone 10 of Chennai city and used a CV survey to bring out relevant information from the sample

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households. The results reveal that low income households depend largely on poor quality public services for their water needs. Yet, around 49 percent of them purchase ‘good quality water’ from the private vendors. The per capita availability of water from all sources stands at 65.8 litres per day which is much lesser than the prescribed norms. On an average, the sample households spend Rs. 233.71 per month on water from all sources. Though water from public sources is ‘free’, the households using public sources end up paying a significant amount of money to the ‘rent-seekers’; in this way, they expend an average amount of Rs. 48.00 per month. On an average, the households purchase ‘can water’ at Rs. 377.00 per month which constitutes 6.25 percent of their monthly income. Many households report different types of problems with the existing public sources; however, only 28.50 percent households are ready to participate in an improved water supply scheme and expend an average of Rs. 137.00 per month. The mean WTP value for the improved scheme is found to be much less than what they are paying currently for the present supply (i.e. Rs. 233.12 per month).

All the above suggest that drinking water in Chennai city has become a scarce economic commodity and even the poor end up shelling out a substantial amount of their income on it. Poor makes informal payment for the public supply; around 50 percent of them pay an additional amount for private water. Informal payment to the rent seekers suggests that poor households are willing to pay for ensuring existing public service, even though the quality is bad. Their preference towards private water suggests that they are interested to pay more for better quality service. However, when the improved public supply scheme is proposed, the level of keenness to participate and pay for it is found to be low as the private sector is already responding adequately to the changing preferences of the consumers. This implies that when a good service is already available from the private sources, preference towards improvements in the existing public supply may get suppressed. Apart from improving their existing service delivery system to serve the people better, the Government needs to regulate the informal water markets properly and monitor their functions adequately so that the informal markets could play an effective ‘supplementary’ role in fulfilling water supply needs of the people, including that of the poor.

Acknowledgements: This study was funded by the Institute of Water Policy (IWP), Lee Kuan Yew School of

Public Policy (LKYSPP), National University of Singapore. I am thankful to Prof. Seetharam Kallidaikurichi Eswaran, the Director of IWP for making this research study possible. I am very grateful to Prof. Bhanoji Rao, Visiting Professor at the Institute of Water Policy, for his constant encouragement and facilitation throughout this study; he was kind enough to provide me useful academic guidance whenever I needed it. Other faculty and administrative staff of the IWP were very supportive and I am thankful to them. I thank Mr. N. Padmanaban, Mr. Balu and their team for assisting me in collecting data from the households; there are many who have contributed both directly and indirectly to this study and all of them deserve a great appreciation. Special thanks to all the sample households who cooperated with us during the survey. I am also grateful to the Director of MIDS for extending his fullest support to complete the study.

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Janakarajan, S., Zehra, M. H, Llorente M (2006). ‘Urban Water Conflicts in Indian Cities: Man-made Scarcity as a Critical Factor, MIDS Working Paper No.196, Madras Institute of Development Studies, Chenai.

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Appendix

The Contingent Valuation Scenario

‘Please remember that you have mentioned --------(specify) as a problem with the existing public water supply. Let us say that the Metro Water is going to implement an ‘improved water supply scheme’ in your locality in a sixth month’s time period from now. This scheme is expected to improve the existing water supply situation in your locality. All the households in this locality, including yours, will be benefited by this scheme. Under this scheme, good quality drinking water will be supplied through public taps/hand pumps (1 tap/hand pump per 10 households) and each household can collect a minimum of 24 kodams per day (or 750 kodams per month). Water will be supplied from 7 am to 9 am everyday regularly. Once in every six months, all the beneficiary households need to pay water tax to the government. Regarding this scheme, I am going to ask you some questions. There is no ‘right’ or ‘wrong’ answer. Your household is one among many households we are asking these questions. Every household has a genuine reason to provide an answer and therefore, we expect you to use your own reasoning to answer our questions.

Now, please recall our improved water supply scheme. You may continue to collect water from the present scheme in case you don’t want to opt for the proposed scheme. If such a scheme is implemented, will you prefer to have this improved scheme?

Answer: YES/NO

Is YES, will you be willing to pay a monthly water tax? Ans: YES/NO

If YES, what is your maximum limit to pay per month?

Ans: Rs.………per month.

Are you sure you are interested to pay this amount? YES/NO

Have you taken into account the fact that the amount you have stated can be used for other purposes? YES/NO

In case you want to revise your WTP value you have stated, please do so:

Revised WTP:Rs.-----------------