2.4 billion people globally live in water-stressed countries and around 4 billion face water stress for at least one month a year. Disruptions in the global development aid universe due to the dismantling of the United States Agency for International Development (USAID), as well as challenging global capital markets, have put the focus on the need for domestic reforms to address water and sanitation challenges in India.
The Indian government is cognizant of growing challenges. In the annual Union Budget announcement for 2025-26, the Government of India introduced a new Urban Challenge Fund (UCF) to revitalize municipal services, including water, sanitation, and hygiene (WASH) by supporting bankable projects. However, these critical infrastructure investments will only become attractive to industry if the government first addresses two core foundational issues.
These foundational issues focus on ensuring that the targeted WASH providers are (1) technically and financially efficient; and (2) administrative, policy and regulatory regimes are clear, transparent, and implemented with integrity.
These critical interventions will underpin the much-needed investments in water technology, and financial sustainability. The foundational issues are also essential to developing sustainable WASH infrastructure. Without improved efficiency and better sector governance and regulations, any additional support through the UCF or other programs supporting water services is highly unlikely to attract significant private sector resources.
Technical and Financial Efficiency
The global WASH sector uses a set of key performance indicators that measure not only the efficiency but also the well-being or health of the sector. For example, if a service provider is losing 40 percent of its water assets through leaks or theft, the chances of any new investments to increase the water supply, regardless of the technology or financing, will fail.
In India, user fees cover less than 50 percent of the operating costs, and the revenue making up the balance is not clear, predictable, or transparent. The outcome is that investments in water infrastructure are approved, designed, built, and then neglected. They subsequently fall into disrepair and ultimately need to be rebuilt, often with long delays and exorbitant costs. This “design, build, neglect, and rebuild” scenario occurs across the globe and is equally prevalent in India. Without a stable and predictable revenue stream, the investments supported by national programs, such as UCF or other initiatives, will face the same fate.
Therefore, the most important foundational issue for India is a predictable revenue stream. Ultimately, senior policymakers need to determine the mix between the only two predictable revenue streams supporting water: user fees or taxes. There are simply no other large-scale, reliable funding sources that support WASH. In fact, unlike energy, much of the difficulty is rooted in the debate over whether water is a human right, with the implicit need for subsidies, or an economic commodity, which implies that user fees should cover all the major costs.
Many countries, including India, do provide public finance to cover basic water needs. A significant amount of service provider revenue is expected to come from taxes for this very reason. But as public policy drives public finance in health care, education, and food, and provides diesel subsidies in India as well, public funding is constrained.
No matter how public policy is ultimately settled, there is an urgent need to cover operating costs and capital expenditures through a long-term, transparent mix of taxes and user charges. Water is a long-term investment, and both the government and private sector need to know where the money will come from to support investment opportunities and the adequate maintenance of infrastructure. Likewise, in terms of technical efficiency leadership should first focus on improvements to critical key performance indicators measuring non-revenue water, user fee collections, staffing numbers, and operating ratios before committing to major new expansion and/or investments. One way to reinforce the discipline of both improved efficiency and better governance and regulation is to encourage the use of credit ratings by reputable rating agencies that operate across the globe.
Creating Transparent Governance and Regulatory Frameworks
It’s equally important to address the other foundational issues focusing on creating administrative, policy and regulatory regimes that are clear, transparent, and implemented with integrity. This is not an engineering or financing issue. Instead, these challenges underpin poor workforce performance, inadequate infrastructure maintenance, inaccurate data, poor budgeting and resource allocation, and corruption. Addressing these challenges is imperative for attracting private investments and justifying public funds.
For example, quality operational and financial data needs to be clear, transparent, public, consistent and released in a timely fashion. Technical staff need to be constantly trained, empowered and allowed to do their jobs without political interference. User fees and environmental standards need to be established and implemented without any outside interference. Corruption needs to be eliminated and a strong consumer-driven approach, with an emphasis on customers, should be embedded in WASH providers. None of this is easy, but a market-driven approach to water services requires these administrative and regulatory systems to be clarified before service providers will be bankable.
Any effort to modernize WASH infrastructure in India should prioritize action on these two foundational issues to support major infrastructure investments. Global experience demonstrates that without improved efficiency and better governance and administration, no amount of money will resolve India’s water challenges.