This paper discusses the operational and tariff-related factors that impede cost recovery by urban water service providers in India. Also focuses on policy reform and practical initiatives to achieve improved cost recovery.

The report draws on a Water and Sanitation Program (WSP) study from 2008 which made a comparative analysis of 23 Urban Local Bodies (ULBs)-looking at seven cities in detail and another 16 based on secondary data-to understand the factors affecting cost recovery in India and provide an indication of current performance. It also draws out examples and lessons to inform reform approaches and guidelines for reform. The first part of the paper discusses operational and tariff-related factors that impede cost recovery by urban water service providers in India, especially low service coverage; high water losses and nonrevenue water; inefficient metering, billing and collection; and high staffing levels. It also shows that distorted tariff structures and subsidies undermine cost recovery further, and often benefit middle and upper income levels, rather than the poor. The second part of the note discusses policy reform and practical initiatives and options to achieve improved cost recovery and, by implication, achieve service improvements, capital maintenance, and expansion of coverage.

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