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Introduction

According to the provisional data provided by census 2011, population in India amounts to 1.21 billion with around 30% of them living in cities. The latest projections suggest that 40% of the Indians will have moved into the cities by 2021. Urban population will rise from 360 million to 575 million by 2021. India can achieve four fold growth in its per capita income. Currently 70% of the GDP is generated in the cities which will only grow in the coming years. While urbanization has fueled growth into our economy, it has also created much pressure on the present physical infrastructure of the country. To keep the growth momentum going, India must develop a internally consistent practices across every element of the planned urbanization like funding, planning, governance, sectoral policies and shape and pattern of the urbanization. India is still waking up to its urban realities and the opportunities its cities can offer for economical and social transformation. Providing efficient utility services like water supply, waste management, and transportation to such a large and rapidly growing population will be a huge challenge and will require very strong financial and technical sources. From past experiences and by the analysis of the current situation it is clear that there will be huge demand- supply gap of the public utility services and its infrastructure. It would result into disappointment if we just expect Central and State Government to bridge the gap. The private sector will have to come up with its financial resources, technical expertise and managerial skills to complete the task. The administrative and political structure in India is not competent enough to attract the private investors to fund the public utility services projects. The Urban local bodies must improve their efficiency and balance sheet to attract private partners. There is also very strong need of development on reforms side, which is politically very sensitive area.

Water supply and sanitation were added to the national agenda during the first five-year planning period.(1951- 1956) and a new National Water Policy was adopted in 2002. Government of India launched the projects like JNNURM and UIDSSMT in 2005 to focus attention on the urban infrastructure. Five year past the launch both projects have achieved some success in the areas of project planning and implementation, but still there is a scope in the area of reforms which need to be addressed as soon as possible. Focus is only on developing the infrastructure facilities, and not much attention is given to the maintenance of the existing infrastructure. This has resulted into poor utilization of the facility and inefficient service delivery. In this report we have tried to analyse the water sector in India on various parameters like policies and regulatory framework, present scenario, upcoming trends like PPP and its scope and technological advancements in the sector. We have tried to find out the opportunities in the sector and the future prospects of the sector.

Overview of the sector


Urban India is in the midst of transformation. In this era of economic reform, liberalization and globalization, cities and towns are fast emerging as centers of growth. Indias water resources are stressed and depleting day by day, while the demand of all sectors like drinking water, Industrial water demand, agriculture water demand are growing rapidly because of the urbanization and population increase. Water supply is the responsibility of the state government under the Indian Constitution. The Ministry of Housing and Urban Poverty Alleviation and Ministry of Rural Development are the two ministries at the central level responsible for the water supply.At present in India generally the State Government plan, design and execute the water supply schemes and pass on the responsibility to Urban Local Bodies (ULB) to maintain and operate the facility. Some largest cities have created municipal water and sanitation utility boards that are legally and financially separated from the local

government, but still they lack in terms of financial capacity. Due to the highly centralized decision making and approvals at the state level most of the projects gets delayed. Tariffs are also set by the State Governments which often do not cover even the operating expenses. There is a strong need for de-centralization of the authority, and ULBs should be given the autonomy to plan and design the projects and schemes for the water supply. One problem in Indias water supply system which has got very less attention yet is that people of India consider water as a free goods and dont view water supply services as any other utility services like electricity and gas, while water supply system also has same requirements of funds for capacity building, expansion, operation and maintenance. This attitude of Indian people has made it difficult to charge realistic tariffs, which has led to non recovery of the costs by the ULBs which in turn happened to be the reason for inadequate and irregular water supply. Investment in the water sector by India is comparatively much lower at $5/ per capita than compared to the other developing countries at $14/per capita. The government is now encouraging the ULBs to approach the private sector not only for their funding requirements but also for their technical expertise to bring operational efficiency in the services. The situation in India is slowly beginning to change. National water policy has been adopted in 2002 and the launch of JNNURM and UIDSSMT were the main contributors in the growth of the sector from past five years. Analysis of the data from various sources suggests that around 91% to 93% population in urban India gets their drinking water from protected sources. And overall 96% of the urban population has access to improved source of water. From 1951 to 1997 the rapid expansion of irrigation and drainage infrastructure has been one of Indias major achievements However, this achievement has come at the cost of groundwater depletion.

Water supply sector consists of infrastructure for the procurement, transmission, treatment, storage, and distribution of water for homes, commercial establishments, industry, and irrigation, as well as for such public needs as firefighting and street flushing. Water procurement:- The major source for water procurement in India for local bodies is surface water, which consists of water from ponds, lakes, streams and rivers and from water reservoirs. As most of the rivers in India are now getting highly polluted, this source has becoming less useful day by day. The another source of water is ground water. The ground water sources of water are based on rainwater that goes deep down into the earth to be stored inside the earth. The water, which is so stored inside the earth in the form of ground water reservoirs, constitutes the major sources of sub-surface water supply. Underground water is generally pure because of natural filtration during the percolation process. Ground water makes up about twenty percent of the worlds fresh water supply.

Depleting ground water table and deteriorating ground water quality are threatening the sustainability of both urban and rural water supply in many parts of India. The supply of cities that depend on surface water is threatened by pollution, increasing water scarcity and conflicts among users. In India now increasing emphasis is given on water conservation, rainwater harvest and ground water recharge. Water Transmission:-. In India most of the water supply systems use underground pipes for the transmission of water. A very common problem in India is water is often wasted through leaking pipes, joints, valves and fittings of the transmission system either due to bad quality of materials used, poor workmanship, and corrosion, age of the installations.. This leads to reduced supply and loss of pressure. Water Treatment:- Almost all the water treatment plants in India, use liquid chlorine for pre and post chlorination process. Government of India accepts the quality standards by WHO but it is unable to meet them. Water Distribution:- The most important process of any water supply system is the effective and efficient water distribution system. India lacks behind in this area. Nearly all the cities and towns in India have piped water system but do not function efficiently and there is always problem of low pressures and frequent breakdowns. The reason behind this is the in India all the emphasis is being given to the creation of the infrastructure facilities but there is very little attention given on the efficient maintenance of the facilities developed at huge costs. This results into a very high level of Nonrevenue water. Quality of the water Quality of the water provided by the ULBs has always been an issue in the country. 2003 survey showed that 87% of water reservoirs serving residential buildings and 63% of the tap water has high level of faecal contaminations.

India accepts the quality standards for water given by WHO but is not able to met the standards. Cost Recovery According to a 2007 study of 20 cities the average rate of cost recovery for operating and maintenance costs of utilities in these cities was 60%. Chennai generated the highest relative surplus and the lowest cost recovery ratio was found in Indore which recovered less than 20% of its operating and maintenance costs. Challenges faced in attempting to increase tariffs. Tariffs in India for the water services are much lower than the other Asian countries. Existing evidence shows that low-income household will also afford to pay more for water provided the improvement in the quality of water and the regularity in the service, because as per the study they are already paying almost 4 to 5 times the amount due to irregularities in the water supply system. Even if users are willing to pay more for better services, political interests often prevent tariffs from being increased even to a small extent because the price hike in the water services have immediate impact on the voter sensibility. Subsidies in the sector The strong emphasis on affordability in the Indian water tariff design, and the poor performance in terms of recovery of the cost indicates that subsidies lie at the heart of the Indian water sector. As per the last available data India spends around Rs. 5470 Crore per year, which accounts for 4% of the all Government subsidies in India. Around 98% of this subsidy is provided by the State Government. This figure only covers subsidies given for the operating and maintaining cost of the plants. The amount including the investment subsidies would be much more higher.

According to World Bank survey, 70% of those benefiting from subsidies for public water supply in India are not poor, while 40% of the poor are excluded because they do not have access to public water services. Financing As per the Eleventh Five Year Plan (2007-12), the investment of Rs. 127,025 crore will be made for urban water supply and sanitation which also includes urban drainage and solid waste management. 55% of the proposed investments foreseen under the 11th Plan are to be financed by the central government, 28% by state governments, 8% by "institutional financing" such as HUDCO, 8% by external agencies and 1.5% by the private sector. Local governments are not expected to contribute to the investments. External cooperation India receives almost twice as much development assistance for water, sanitation and water resources management as any other country, according to data from the Organization for Economic Co-operation and Development. India accounts for 13 per cent of commitments in global water aid for 2006-07, receiving an annual average of about US$830 million, which is more than double the amount provided to China. India's biggest water and sanitation donor is Japan, which provided US$635 million, followed by the World Bank with US$130 million. The annual average for 2004-06, however, was about half as much at US$448 million, of which Japan provided US$293 million and the World Bank US$87 million. The Asian Development Bank and Germany are other important external partners in water supply and sanitation.

Evolution of Water supply sector in India and its present status. Key Devlopments Prior to 1990 Water supply and sanitation were added to the national agenda during the first five year planning period (1951-1956). The first national water supply programme was launched as part of the governments health plan The Ministry of Water Resources drafted a National Water Policy in 1987 to guide the planning and development of water resources throughout the country. The policy included several recommendations, which were subsequently adopted by the states. The recommendations focused on the need for introducing (i) Water resource management and according domestic water supply the highest priority. (ii) Design standards for groundwater structures to protect groundwater sources. (iii) Water quality monitoring and mapping, and (iv) Data management and valuation. Between 1990 to 2000 municipalities an independent status and freedom to take decisions which can improve their efficiency to the optimum capacity. The important provisions in the Act include greater functional responsibilities and financial powers to municipalities, regular and fair conduct of municipal elections, and constitution of Wards Committees, District Planning Committees, Metropolitan Planning Committees and State Finance Commissions.

74th Amendment Act was passed in 1992 with an objective to give the

The Act provided a basis for the State Legislatures to guide the State Governments in the assignment of various responsibilities to municipalities and to strengthen municipal governance. Through this initiative, an attempt is being made to improve the performance ability of municipalities, so that they are able to discharge their duties efficiently.

After 2000. which laid emphasis on i. ii. iii. iv. Monitoring and limiting groundwater exploitation. Monitoring and enforcement of water quality. Increase awareness on on water conservation. The most encouraging thing which the policy included was the approach to encourage more and more private sector participation and access to the commercial borrowing. resources facilities, may be considered. The states have been asked to formulate state water polices based on the policy within the next two years.

National Water Policy 2002 was an revised edition of National Wate Policy 1987,

9th Five year Plan:- The 9th five year plan highlighted some major policies related to i. ii. iii. Supply of water to the entire population Decentralization of ULBs. Enhancing the financial viability of the water bodies through full cost recovery.

10th Five year Plan.:- The 10th five year plan included some areas like

i. ii.

Prioritizing the water services to the currently uncovered population. Encouragement of private players in planning and implementation of the scheme.

11th Five year Plan :- The eleventh plan identified a total requirement of Rs. 53,666 Crore in order to provide 100 percent water supply coverage to the urban population. There are 16 ongoing Externally Aided Projects funded by World Bank, JICA, and ADB. JNNURM:- Jawaharlal Nehru National Urban Renewal Mission is a massive scheme launched by Government of India with an objective to improve the service delivery, encourage reforms, and fast track planned developments in 65 mission cities with an investment of 1,00,000 crores during the span of seven years (2005-12). The scheme has two sub missions. 1. Sub-Mission for Urban Infrastructure and Governance administered by the Ministry of Urban Development, with a focus on water supply and sanitation, solid waste management, road network, urban transport and redevelopment of old city areas. 2. Sub-Mission for Basic Services to the Urban Poor administered by the Ministry of Housing and Urban Poverty Alleviation with a focus on integrated development of slums. UIDSSMT:- The Urban Infrastructure Development Scheme for Small and Medium Towns is one component of JNNURM launched by the government to cover those small and medium towns which are not covered by JNNURM. The scheme covers 5098 cities and towns over a period of seven years (2005-2012). JNNURM and UIDSSMT are the two largest initiatives in the sector which provided strong support for the change in the sector.

Major Issues / Constraints in the sector


1. Increasing demand of water and depleting water sources. India receives an average annual rainfall of about 4000 billion cubic meters (BCM). The total utilizable water resource is assessed as 1123 BCM. The per capita availability of water at national level has been reduced from about 5177 cubic meters in 1951 to the estimated level of 1,820 cubic meters in 2001. Given the projected increase in population by the year 2025, the per capita availability is likely to drop to below 1,000 cubic meters, which could be labeled as a situation of water scarcity. Most of the rainfall occurs in the monsoon season from June to September. The contribution of different states is extremely uneven with 100 mm a year from Rajasthan to more than 9000 mm per year from Meghalaya. As 80% of the water from the rainfall is received in the monsoon, Indias rivers carry 90% of the water during the period from June to November and only 10% river water is available during the other six months. While, India is considered rich in terms of annual rainfall and total water resources, its uneven geographical distribution causes severe regional and temporal shortages. Depleting ground water table and deteriorating ground water quality are threatening the sustainability of both urban and rural water supply in many parts of India. The supply of cities that depend on surface water is threatened by pollution, increasing water scarcity and conflicts among users. Demand for water is growing due to urbanization. The gap between demand and water access is increasing continuously. As per the research by McKinsey, demand of water in the India will be two times of its supply in the year 2030. Water availability from other sources like desalination of sea water and ground water is considered negligible because of its high costs.

2. Inadequate storage capacity Developed, arid countries (United States, Australia) have built over 5000 cubic meters of water storage per capita. Middle-income countries like South Africa, Mexico, Morocco and China can store about 1000 cubic meters per capita. Indias dams can store only 200 cubic meters per person. India can store only about 30 days of rainfall, compared to 900 days in major river basins in arid areas of developed countries. 3. Incompetent regulatory framework The current administrative and political structure does not give the ULBs the autonomy they need to operate at the optimum efficiency. In most of the states of India the decision making authority is still the State Government for all the matters related to water supply sector. For any changes in the technology or tariff changes they need to ask permission from the state government, and because of the slow pace of work in the government department, most of the decisions are not taken on the time and get delayed, which makes it even more difficult to implement that change. In the democracy like India the reform needs political willingness and support, the decisions in the sector is also politically sensitive as changes in the tariff and staff layoffs are more visible to public than improved efficiency and can have direct impact on the voters sensibilities. 4. Poor service delivery A standard indicator of inefficiency in the water distribution is the percentage of water produced that does not reach water board customers. Unaccounted water results both from leakages and illegal connections. In addition to the financial costs to the water utility, high levels of unaccounted water are also a major reason for intermittency in the supply of water, since leaks and illegal connections lower water pressure in the distribution system. Not any of the Indian city having population of more than one million is able to distribute water for more than few hours per day. Even when the water is available in the lines

people struggle to get it because of the inadequate pressure, as a result households where the water supply is irregular have made investments for storage tanks and installed booster pumps in their connection to get the maximum water when it is provided. These practices further reduce the pressure in the main line and compel others to do the same. Another indicator of the inefficiency in the water distribution is non revenue water which is the water which is produced but which does not generate any revenue to the water supplying body. Following are reasons for the non-revenue water in India.

Unbilled authorized consumption Apparent losses by water theft and metering inaccuracies Real losses from transmission mains, storage facilities, distribution mains or service connections.

5. Poor pricing model Tariffs for water in India are much lower than compared to the other Asian countries. State Governments in India are responsible for choosing urban tariff structures, and the result is wide variety in pricing practices. Average tariffs in India are low relative to costs. A cross-region study by the Asian Development Bank found average rates in Calcutta and Delhi of 5-8 US cents/kilolitre (KL), 11 cents/KL in Mumbai and 31 US cents/KL in Chennai. In comparison, rates were 14 cents/KL in Dhaka and Karachi, 32 cents/KL in Lahore and 41 cents/KL in Kuala Lumpur. With the exception of Chennai, Indian cities therefore tend to have much lower prices than other Asian cities. The major issue in increasing the prices for the utility is the lack of political willingness, as it can go have adverse impact on the sentiments of the people about the ruling party. The current pricing model does not generate sufficient revenue even to cover up operating and maintenance costs. According to a 2007 study of 20 cities the average rate of cost recovery for operating and maintenance costs of utilities in these cities was 60%.

Metering is the precondition for billing water users on the basis of volume consumed. According to a survey of 300 cities about 62% of urban water customers in metropolitan areas and 50% in smaller cities are metered (average 55%). However, meters often do not work so that many "metered" customers are charged flat rates. Problems associated with metering arise in the case of intermittent supply, which is common in India. Sudden changes in pressure can damage meters, so that many meters in India are not functional. Many types of meters also register air flows, which can lead to over registration of consumption, so there is also a resistance for metering in India. 6. Growing financial crunch Currently, Indias water sector is in severe financial distress and the gap between the requirement and availability of funds is increasing. There is shortage of funds to deal with the needs for the development of water resources infrastructure, maintenance and management. Though the Government have come up with the schemes like JNNURM and UIDSSMT and allocated huge funds for the sector but still there is need to leverage JNNURM funds with private investment through PPP and borrowing from capital markets, which is not happening because of the absence of a proper revenue model at the ULB level and the outdated systems of Finance, Accounts and MIS used by most of the ULBs. As investors look for the repayment module prior to the investment in the sector. The current governance and financing structure do not create enough confidence to attract the private sector. 7. Social issues It also needs to be considered that the issues and problems of water supply systems go beyond considerations of financial self-sufficiency. They include critical issues like welfare of the community, the social concerns, responsibilities and obligations of the Government as part of its commitment to the development and fulfillment of the needs of the urban and rural poor.

One problem in Indias water supply system which has got very less attention yet is that people of India consider water as a free goods and dont view water supply services as any other utility services like electricity and gas, while water supply system also has same requirements of funds for capacity building, expansion, operation and maintenance. This attitude of Indian people has made it difficult to charge realistic tariffs, which has led to non recovery of the costs by the ULBs which in turn happened to be the reason for inadequate and irregular water supply. The tariff hike in India has mostly met with protests, Critics viewed the price rises as laying the ground for privatization of water, and the ULBs mostly fail to justify their price hike due to lack of proper information and transparency norms. The opposition party always uses this as a point against the ruling party, sot there is lack of political support for tariff hike in the sector. 8. Poor maintenance of infrastructure The crucial aspect in water supply sector which require immediate attention is that physical infrastructure facilities which have been developed, are not being used in the most efficient manner due to inadequate attention and improper operating and maintenance. Not much effort has been made either to manage these assets efficiently or to achieve self-sustainability. It is therefore necessary that a link be established between asset creation and management, as both are important components for ensuring sustained service delivery. 9. Water quality The WHOs primary health requirement is that the water be microbiologically safe. In India the primary contaminant of surface and ground waters is human and animal waste. The WHO guidelines suggest that E. coli (the indicator organism for bacterial contamination) should not be detectable in a 100-ml sample of water, but with fewer than 10 coliforms, the water is considered to be of moderately good quality. The Government of India accepts these guidelines but has been unable to ensure that they are

met. Water-borne diseases from faecal contamination are one of the biggest public health risks in the country -- it has been argued that India loses 90 million days a year due to waterborne diseases, costing Rs 6 billion in production losses and treatment. 10. Inadequate transparency The key feature of modern water management in a liberalized economy and democratic environment is that of openness and transparency. In most countries now all relevant information about performance, planning is available publicly, on the web and in real time. Unfortunately, India has been slow in adapting to this changed information environment. However, recently there has been some modest progress. This change would undoubtedly stimulate a chain reaction of accountability, participation and demand for more and better data which would transform the culture of water management in the country. A lack of transparency over the true costs of under-priced and inefficient municipal systems dampens public support for major reforms that may be needed. Knowledge gaps also plague the sector. There is not much reliable information about the customers and connections available. Database of the most of the ULBs are not updated regularly which creates lot of problems and confusions while taking any decisions. And published data is not readily available. 11. Expanding Water Conflicts In India the major rivers of the country are mostly inter-State rivers. There has been an increasing demand for water in all sectors, sometimes leading to inter-State disputes on sharing of water. The lack of clear allocation rules and uncertainty about how much water each state has a right to, impose high economic and environmental costs. There is also growing conflicts about the allocation of water between users like agriculture, industry, domestic supplies. Such growing water conflicts between different users, and States and

inequities in distribution of the available water resources are some of the crucial concerns currently faced by the countrys water-sector.

So, the willingness to charge rather than willingness to pay is the bottleneck in the sector. We dont pay enough for water which leads to the poor cost recovery , which leads to low investment in the sector and ultimately it leads to poor service delivery, and thus our willingness to pay decreases, This vicious circle must be broken and it can happen with the support from enlightened political leadership at the city and state levels.

Scope of Improvement in the sector Scope for pricing reform In India the price of water is artificially low due to the social issues and political interference in the water sector. Since the provision of water for drinking and domestic uses is a basic need, the pricing of water for this purpose is subsidized. It has been assessed through extensive studies that the rich people are paying less for the quantum of water they consume compared to the poor. Low tariffs affect the profitability of local water boards and therefore the quality of service. Currently most of the water supply bodies are not even able to recover the cost of operation and maintenance from its revenue from the charges collected from users. There is a strong need to change the attitude and approach about the water sector. Realistic prices should be charged so that ULBs can generate sufficient funds for proper maintenance and operation of the systems. Existing evidence suggests that many low income households in India can afford to pay more for water, particularly if the increase in prices is accompanied by better service. At

present, households may pay several times the municipal charges in coping costs arising from the irregularity and unreliability of supply. Increasing block tariff ( IBT) is widely used in developing countries, in which two or more prices are charged for water used, each price applies to a customers use within a defined block. Prices rise with each successive block. Generally in IBT the first block price is deliberately set below cost, however cost may be defined. In the design of IBTs, much attention is given to the size and price of the first block. Of course, some form of metering is necessary in order for suppliers to charge in proportion to water used. IBT should be used in all the areas in which meters are already installed. And wherever no meter supply is effective, a flat rate may be levied based on the average cost of production and supply of water. The water charges should be based on the incremental cost of production & supply of water in a water supply system and not on the basis of average cost of water because as the connections of the water increases, to satisfy the more demand the city has to use the more expensive sources of water such as getting it from the distant location etc. thus the cost of the water will also go up, so the recovery would be more effective if the prices are charged based on the incremental cost of production. Progressive water rates should be charged upon the consumers so that the water may be supplied to the urban poor at a subsidized rate. But instead of giving free supply to them minimum charge should be collected from them at a flat rate so that can realize the importance of treated water supply. The affluent sections of the society should be charged at a higher rate based on metered quantity including free supply, if the consumption is more than the prescribed limit.

Where metering is not possible, flat-water charges could be linked as percentage of property tax.

The water bodies should develop an approach to recover all expenditure incurred through water charges in order to make them self-supporting. Further, funds for future expansion should also be created so as to minimize dependence on outside capital. Wastage and extravagant use of water should be discouraged and tariff with multi-tier system incorporating incentives for low consumption should be designed. A study carried out by Johns Hopkins University, USA suggests replacing the IBT with a system of uniform pricing with rebates. Under this method, a volumetric charge is set equal to marginal cost and coupled with a negative fixed charge, or rebate. But considering Indian situation, it would be difficult to implement the system because giving back rebate will make the process more complex and the public in India would never support such system. In the nutshell, the tariffs for the water supply should be designed in the way that can allow the ULBs to recover full cost of operation and maintenance and also provide the scope for the funds of further expansion of the facility. The effort to create awareness about the cost associated with the procurement, treatment and distribution of water should be made, that will lessen the possibilities of protest and strong resistance from the user community for the tariff hikes. Scope for Financial Reform Generally the funding for the water supply sector is provided by soft loans and grants from the State or the Center. Credit is also available from institutions like HUDCO and LIC, but these are mostly backed by guarantees from the State or the Central Government. Several ULBs have also attempted to access the credit markets through bond issuance, for example Ahmedabad Municipal Corporation (AMC) became the first Indian municipality

to use this mode of raising capital in 1998. AMC first worked to gain the trust of the credit markets by lowering its budget deficits, increasing the transparency of its financial administration and the capacity of its water sector staff.. AMC managed to get A+ rating from the Credit Rating Information Services of India, and with this rating the AMC raised over $20 million through municipal bonds sold both to the public and to institutions. Many other municipal corporation like Ludhiana municipal corporation, Bangalore Mahanagar Palika and many other followed the example and were quite successful in raising funds through bond market. But still the municipal bond market in India has a long way to go before it transforms into a vibrant investing environment. Government should further develop the Municipal Bond market in order to meet the debt requirement of the sector which had improved in the past with few ULBs accessing the market. Private investors would not touch the sector until there is enough transparency in the framework and enough confidence about the recovery of the funds. To attract the private sector funding it is very necessary that ULBs should shift to a regime of more transparent and accountable structure. Adoption of transparent accounting policy, improvement of financial health, improvement in technical and managerial capacities for project management and getting healthy credit ratings from the trustworthy rating agencies would ensure larger flow of funds in the sector from the capital market. ULBs should develop their financial plans in a manner which can give a fair idea of the risk associated with the project, build relationships with capital markets, make investor aware of issuer profiles, and establish familiarity with market intermediaries and the regulatory environment. Projects should be designed to separate the risk that can be handled by the private sector from those that can be handled by government. By doing this way it would be easy to secure commercial funding for the projects as all private players need the full clarity about the risk associated with the project before investing.

Performance based payments contract can be adopted with private investors where the public funding is limited. JNNURM funding can be tapped for cities which have above 10 lakh population to meet the capital investment. Aid can also be sought from multi-lateral aid agencies for meeting the capital cost. ULBs should also try to access the different financial products to develop a vibrant municipal borrowing market like working capital loans, and multilayered debt structures etc. Specialized and focused agencies should be encouraged to channel the commercial capital into the sector. Situation should be that the ULBs should compete with each other for the private funding and technical and managerial expertise. Scope for regulatory reform Local bodies should be made to publish fact sheets containing data on operations periodically and subject themselves to public review. This would increase the transparency of the existing system, and would allow for benchmarking of local water utilities with other cities. Public awareness could be further increased by reporting the results of water quality tests, along with information on hours of service and pressure. This information could be coupled with accessible data on how much water subsidies take from the state budget, and price increases could be explicitly linked to targeted improvements in key sectors. States which do not have implemented the mandatory and optional reforms should not be given the aid from the central budget. Complete decentralization of power as per the 74th CCA should be implemented and ULBs should be given power to take decisions regarding the approval of projects, increasing tariffs and issuance of the bonds etc.

An Independent regulator should be appointed and the sector should be given freedom from political interventions. Promoting changes in the water sector requires finding a way to raise the political benefits of reform efforts, or of increasing the political costs of not reforming. Grants should have a fixed and variable component. Fixed component to be provided only if cities conform to basic reform requirements. Variable Grants to be provided only if cities achieve pre-determined milestones. The efficient water audit systems and should be developed and implemented.

Scope for operational reform The serious effort should be made to transform the water sector into a commercial operation and the emphasis should be on full cost recovery and generation of surplus funds for further expansion. Basic approach about water supply as social responsibility should be converted into a commodity to be bought and sold. Realistic tariffs should be charged from all the users of the water and water should not be provided free of cost to anyone. The process of water storage, transmission and distribution should be made separate to achieve better efficiency. Subsidies should be eliminated from the sector to compel the ULBs to achieve self sustainability and recovery of the entire cost of water procurement and supply. Households not paying water charges should be disconnected from the water supply and it should not be reconnected just by collecting the earlier dues, but a heavy penalty and

the new water connection charge should be collected from them to ensure the prompt payment of water charges. Special operations should be carried out to identify illegal connections and the owners of such connections should be penalized and then should be given chance to make their connection legal. Old pipelines should be renovated since major portion of the leakage is found in the distribution systems of old pipelines. Meters should be installed wherever feasible and the frequent checks should be conducted about the working condition of the meters and meter repair workshop should be established to repair defective meters. Other scopes for improvement. India needs to shift its focus from water resources development to water resources management by restructuring and strengthening existing institutions for better service delivery and resource sustainability. So far the focus has been on the development of water resources and very less attention has been given to the proper management and utilization of the existing water resources. Tanks Rejuvenation:- India has some 580,000 tanks of various sizes spread over across the country. Most of them were managed by local communities for several years. With growing water scarcity, tank rejuvenation is an important way in which water can be conserved and distributed at the time of need. With limited water resources, uncertainty of monsoon and looming water scarcity in many parts of India, water conservation and use by medium and micro water retaining structures have assumed greater significance.

Overview of JNNURM and UIDSSMT and its impact. Jawaharlal Nehru National Urban Renewal Mission (JNNURM): JNNURM is an INR 100,000 Crore Government of India initiative launched in December 2005. Administered by the Ministry of Urban Development and Ministry of Poverty Alleviation, the Mission is designed to support state and local investment in urban development. The central government spends amounts to INR 50,000 crore with matching contribution from cities/ states. The overall objective of the Mission is to create economically productive, efficient, equitable and responsive cities. The aim is to encourage reform and fast track planned development of identified cities. The focus of JNNURM is on efficiency and inclusiveness in development of urban infrastructure and service delivery mechanisms, community participation and accountability of ULBs towards citizens. The duration of the mission is for 7 years and covers 65 cities across the nation. To qualify for JNNURM funding, city administrations must submit a three tiered application with the following information: 1. City Development Plan (CDP) defining the vision for the city over the next 20-25 years; 2. Detailed project report, enumerating the financial requirements; 3. Timeline for implementation of the proposed initiatives. The States and urban local governments (ULBs) accessing the JNNURM must complete a total of 22 mandatory and optional reforms, during the seven-year period (2005-12). Many of these reforms will help to empower ULBs. Some of the mandatory reforms are Aggressive decentralization of urban services to ULBs under 74th CAA. Constitution of district planning and metropolitan planning committees Public disclosure Double entry accounting system , e governance , reasonable user charges.

Recovery of full O&M cost and internal earmarking of funds for the basic services for the urban poor.

JNNURN AT Glance (Till 25th Feb. 2011)

Number of cities covered under JNNURM - 65 Number of City Development Plans (CDPs) appraised - 64 Number of Memorandum of Agreements (MoAs) signed - 65 Number of projects approved - 530 Number of water supply projects approved. - 151 Total approved project cost For 530 projects 60,212.20 Crores. Number of States for which projects approved (Out of 31 States/UTs) 30 Number of Cities for which projects approved (Out of 65 cities) - 62 Total Additional Central Assistance (ACA) committed for 530 projects

27,940.86 Crores.
Central Share (ACA) released for Projects 12,265.54 Crores. Number of completed projects - 100 Number of completed water supply projects.-32 JNNURM is a landmark in Indias urbanization policy and has infused a sense of urgency amongst various stakeholders to ensure timely results. Urban Infrastructure development scheme for small and medium towns (UIDSSMT):- UIDSSMT cover those small and medium towns which are not covered by JNNURM. The scheme covers 5098 cities and towns. The duration of the Scheme will be for seven years beginning from 2005-06.

The objectives of the scheme are to:

1. Improve infrastructural facilities and help create durable public assets and quality oriented services in cities & towns 2. Enhance public-private-partnership in infrastructural development and 3. Promote planned integrated development of towns and cities. Financing pattern:- The sharing of funds would be in the ratio of 80:10 between Central Government & State Government and the balance 10% could be raised by the nodal/implementing agencies from the financial institutions. The State Government may designate any existing institution as nodal agency for implementation of the scheme. The nodal agency will be responsible for the following:1. Inviting project proposals from ULBs//Implementing agencies. 2. Techno-economic appraisal of the projects either through in-house expertise or by outside agencies through outsourcing. 3. Management of funds received from Central and State Governments. 4. Disbursement of the funds as per the financing pattern given in the guidelines. 5. Furnishing of utilization certificates within 12 months of the closure of the financial year and quarterly physical & financial progress reports to the Ministry of Urban Development. 6. Maintenance of audited accounts of funds released to ULBs and implementing agencies. 7. Monitoring of implementation of reforms and infrastructure projects.

UIDSSMT at Glance (Till 31st December 2010)

Total number of towns covered 640 Total number of approved projects - 1058 Total cost of approved projects - 19,936 Crores Central Governments contribution committed for projects - 12920.50 Crores Funds released from Central Government for projects- 6974.63. Crores Total number of water supply projects approved 565 Total cost of approved water supply projects 10,478.33 Crores Central Governments contribution committed for water supply projects -

7867.11 Crores
Funds released from Central Government for water supply projects - 4,528.20

Crores

UIDSSMT: COMPONENT WISE ACA RELEASED AS ON August, 2010

Impact of JNNURM and UIDSSMT on the water supply sector. JNNURM has provided a strong platform for investments in the sector and incentivized cities to develop sustainable investment framework through service delivery reform and cost recovery of services provided. Cities have captured the opportunity to finance their urban infrastructure but the reform side of the scheme is going at a very slow pace. JNNURM has jump started investments in the sector but the service levels in most of the JNNURM cities continue to be poor. Before JNNURM the financial capacity of the city was considered as a major constraint in urban water supply sector, but now the ability of ULBs to execute the project is also proving to be equally serious constraint as most of the projects face the time-over runs and increase in the project cost due to delay. JNNURM increased the use of PPP model for the project implementation. Out of the 500 billion of projects approved by JNNURM, Rs. 70 Billion worth are being developed on the PPP model. JNNURM has made a quantum change in size of investments and breadth of coverage across cities and sectors. Progress of JNNURM and UIDSSMT so far. Until March 2011, total 530 projects were approved under JNNURM, out of them 151 were of water supply projects. Out of 151 projects approved, 31 water supply projects completed under JNNURM by March 2011.

The UIDSSMT also gives highest priority to the water supply sector. Out of the 1058 projects approved as on December 2010, 565 were of water supply. And, out of the 139 projects completed as on March 2011, 69 of them were of water supply sector.

Regarding State level reforms, so far

11 States have implemented 74th CAA (Transfer of 12 Sch. functions) 20 States have implemented 74th CAA (Constitution of DPC) 6 States have implemented 74th CAA (Constitution of MPC) 13 States have transferred the City planning functions to ULBs 17 States have transferred the Water supply and sanitation to ULBs 19 States have implemented reforms in Rent control 11 States have rationalized the stamp duty to 5% 12 States have made enactment of community participation law. 19 States have made enactment of Public disclosure law. Reforms at the ULBs are bit more impressive,

22 ULBs have set up E-Governance platform. 37 ULBs have adopted the modern accrual based double entry accounting system. 21 ULBs have been successful to cover 85% of the total property in the tax records. 15 ULBs have been successful in collecting 90% of the total tax receivable. 7 ULBs have beens successful in recovering 100% O&M cost from the revenue from water charges. 6 ULBs have beens successful in recovering 100% O&M cost of service of Solid waste management. 47 ULBs have taken initiatives for encouraging public private partnership.

41 ULBs have computerized the process of registration of land and property. 50 ULBs have started to allocate funds for the Services to the Urban Poor in their balance sheets. Overall, the total reforms implemented was 61% at the ULB level and 59% at the State level. In addition, 76% of optional reforms had been achieved by till December 2011. The Central Government has launched credit rating scheme of ULBs to facilitate access to the market funds. Of the 64 ULBs credit rated so far 38 of them have been rated as an investment grade of BBB and above.

Policies, Institutions and Regulatory framework


Overview of the regulatory framework
Water supply is a State responsibility under the Constitution of India and following the 73rd and 74th Constitutional Amendments, the States may give the responsibility and powers to the Panchayati Raj institutions (PRIs) and Urban Local Bodies(ULBs). At present in India, States generally plan, design and execute water supply schemes and often continue to operate through their State Public Health Engineering Departments and Water Boards. However, the Centre has seen the need over many years for coordination and harmonisation of standards. It has also been responsible, through the Five Year Plans, for guiding much of the investment in the sector as well as establishing other organisations to lend to the States.

Role of Central Government.

Planning Commission
Planning commission is responsible for the planning and allocation of Central Government funds to the sector through its five year plans. The central government is giving more and more importance to the water supply sector in every next five year plans. Considerable guidelines and suggestions have been given to the sector in the 9th, 10th and 11th five year plans.

Ministry of Water Resources.

At the central level the Ministry of Water Resources is responsible for development, conservation and management of water as a national resource, like the general policy on water resources development and for technical assistance to the states on irrigation, multipurpose projects, ground water exploration and exploitation, command area development, drainage, flood control, water logging, sea erosion problems, dam safety and hydraulic structures for navigation and hydropower. It also oversees the regulation and development of inter-State rivers. These functions are carried out through various Central Organizations. Urban water supply and sewage disposal is handled by the Ministry of Urban Development while Rural Water Suppy comes in the purview of Department of Drinking Water under Ministry of Rural Development. The subject of Hydro-electric power and thermal power is the responsibility of the Ministry of Power. Pollution and environment control comes under the purview of the Ministry of Environment and Forests. The Ministry is responsible for laying down policy guidelines and programmes for the development and regulation of country's water resources. Following are the main functions of the Ministry.

Overall planning, policy formulation, coordination and guidance in the water resources sector along with technical guidance and clearance of the projects. Providing special Central financial assistance for specific projects and assistance in obtaining external finance from World Bank and other agencies. Overall planning for the development of water resources, establishment of utilizable resources and formulation of policies of exploitation, overseeing of and support to State level activities in ground water development.

Disputes resolution relating to inter-state rivers and in some instances, the overseeing of the implementation of inter-state projects.

Talks and negotiations with neighbor countries, in regard to river waters, water resources development projects and the operation of the Indus Water Treaty.

The Ministry of Urban Development


Ministry of Urban Development is responsible for formulating policies, supporting programs, monitoring programs and coordinate the activities of various Central Ministries, State Governments and other nodal authorities. Ministry of Urban Development plays an important role in setting standards of the service in the sector by inter state co-ordination and the co-ordination between Center and States. The supervision, control and overall responsibility of the schemes like JNNURM and UIDSSMT also of Ministry of Urban Development.

Ministry of Finance
Department of Economic Affairs, Ministry of Finance plays an important role in the sector through its Infrastructure and Investment divisons PPP cell. The Public Private Partnership (PPP) Cell is responsible for matters concerning Public Private Partnerships, including policy, schemes, programmes and capacity building and all other matters relating to mainstreaming PPPs. Functions of PPP Cell include. 1. Examination and approval of all Central Sector PPP projects costing more than 100 Crores and less than 250 Crores. 2. Examination and approval of proposals relating to the Scheme for Financial Support to Public Private Partnerships in Infrastructure- Viability Gap Funding (VGF) Scheme. 3. Developing innovative interventions and support mechanisms for facilitating PPPs in the country, including Technical Assistance programmes from bilateral and multilateral agencies on mainstreaming PPPs and support to State and local governments.

4. Managing training programmes, strategies, exposures for capacity building for PPPs. Other organizations related to water supply sector.

1. Central Water Commission


Central Water Commission is a premier Technical Organization of India in the field of Water Resources and is presently functioning as an attached office of the Ministry of Water Resources, Government of India. The Commission is entrusted with the general responsibilities of initiating, coordinating and furthering in consultation of the State Governments concerned, schemes for control, conservation and utilization of water resources throughout the country, for purpose of Flood Control, Irrigation, Navigation, Drinking Water Supply and Water Power Development. The commission also undertakes the investigations, construction and execution of any such schemes as required.

2. Central Ground Water Board


Central Ground Water Board (CGWB), a subordinate office of the Ministry of Water Resources. It is responsible for providing scientific inputs for management, exploration, monitoring, assessment, augmentation and regulation of ground water resources of the country. The Authority is engaged in various activities related to regulation of ground water development to ensure its long-term sustainability.

3. Central Water and Power Research Station


The Central Water and Power Research Station (CWPRS), began in 1916 as a Special Irrigation Division of the then Bombay Presidency is now part of the Union Ministry of Water Resources. CWPRS is the principal central agency to cater to the R&D needs of projects in the fields of water and energy resources development. CWPRS is a part of is one of the foremost organizations in the world in the field of hydraulics and allied research. CWPRS provides specialized services through physical and mathematical model studies

4. National Water Development Agency


National Water Development Agency was established as a autonomous society under the societies registration Act, 1860. Now it is a society under Ministry of Water Resources. In 1990, NWDA was entrusted with the task of Himalayan Rivers Development Component of National Perspectives. Recently, the functions of NWDA have been further modified and the work of preparation of detailed Project Reports (DPR) of various link proposals and Pre-feasibility Reports and feasibility reports of intra-State links as proposed by the States. Other Ministries and institutions associated with the water supply sector are 1. Ministry of Environment and Forests. 2. Central Pollution Control Board 3. Water and Power Consultancy Services Ltd 4. National Projects Construction Corporation Limited 5. National Institute of Hydrology

Role of State Government:According to constitution of India it is the State Governments responsibility to provide water to the citizens. But recently, after the 73rd, 74th Amendments and schemes like JNNURM which mandates that responsibility for drinking water and sanitation services should be with local Governments, Various States in India are at different stages of giving effect to this Constitutional mandate. In some states such as Gujarat, Kerala, Maharashtra and Tamil Nadu the WSS Boards have been constituted to handle urban and rural water supply. Though there are some complexities involved, but the overall national trend is to decentralize the operation and maintenance and the investment responsibilities to ULBs in the urban areas. .

Currently the State Governments use mix of functional agencies like


State Water Supply and Sewerage Boards Metro Water Authorities/Boards Municipal Corporations through their Water Supply and Sewerage Divisions State public health engineering departments, District engineering agencies Urban Local Bodies (ULBs)

Apart from this State Governments also set up the Water Quality Review Committee (WQRC) to review of water quality, and generation of reliable water quality data, analysis and interpretation of the data to identify problem areas and developing action plans for improving quality on a sustainable basis. All State Governments have also constituted State Pollution Control Board for prevention and control of water pollution. These Boards have been entrusted with the responsibility of enforcing various acts and rules related to prevention, control and abatement of water pollution. The State Pollution Control Boards maintain laboratories in their respective region for testing water and waste water samples. These boards are collaborating with the Central Pollution control Board in monitoring the water quality in the country. At the central level the Union Ministry of Water Resources is responsible for development, conservation and management of water as a national resource, i.e., for the general policy on water resources development and for technical assistance to the states on irrigation, multipurpose projects, ground water exploration and exploitation, command area development, drainage, flood control, water logging, sea erosion problems, dam safety and hydraulic structures for navigation and hydropower. It also oversees the regulation and development of inter-State rivers. These functions are carried out through various Central Organisations. Urban water supply and sewage disposal is handled by the Ministry of Urban Development while Rural Water Suppy comes in the purview of

Department of Drinking Water under Ministry of Rural Development. The subject of Hydro-electric power and thermal power is the responsibility of the Ministry of Power. Pollution and environment control comes under the purview of the Ministry of Environment and Forests. Water being a State subject, the State Governments have primary responsibility for use and control of this resource. The administrative control and responsibility for development of water rests with the various State Departments and Corporations. Major and medium irrigation is handled by the irrigation/water resources departments. Minor irrigation is looked after partly by water resources departments, minor irrigation corporations, Zilla Parishads/Panchayats and by the other departments such as agriculture. Urban water supply is generally the responsibility of public health departments and panchayats take care of rural water supply. Government tubewells are constructed and managed by the irrigation/water resources department or by tube well corporations set up for the purpose. Hydro-power is the responsibility of the State Electricity Boards. Generally, Big cities have City Corporations., Medium size cities have City Municipal Committees and towns have Town Municipal Committees. All these are elected bodies. Administration is carried out by an appointed Chief Executive who is answerable to the elected bodies.

Nodal agencies and agencies outside the government


NGOs (both national and international) have played a significant role in the sector in India over the past three decades. They have exhibited comparative advantages that other organisations lack. These include the capacity to reach the rural poor and remote areas, promote local participation, operate at low costs, and adapt and be innovative when needed.

Policy interventions in the sector


The water supply sector has witnessed the considerable policy interventions not only by the Central and the State Governments but also by the municipal agencies and urban local bodies which is definitely a positive sign for the water sector in India. Water supply and sanitation were added to the national agenda during the first five-year planning period.(1951- 1956) National Water Policy was adopted in September, 1987. Since then, a number of issues and challenges have emerged in the development and management of the water resources. Therefore, the National Water Policy (1987) has been reviewed and updated with the issue of National Water Policy 2002 The Key salient features of the NWP 2002 are 1. The NWP defines water as a prime natural resource, water as a crucial element in developmental planning, to be managed in a sustainable manner and guided by the national perspective. 2. Private Sector Participation: It encourages participation of private sector in planning, development and management of water resources projects with a view to introduce innovative ideas, generate financial resources, and bring in better management practices. All models of private sector participation, viz. build, own, operate and transfer, are acceptable. 3. Emphasis on Asset Utilization: It stipulates that there is an urgent need for paradigm shift from creation of new projects to improvement of the performance of existing projects. 4. The policy encourages those projects development and proposals, which account for the sustainable use of surface and groundwater, incorporating quantity and quality as well as environmental considerations. 5. Water Charges will reflect the full recovery of the cost of administration, and O&M of water resources projects.

6. Adequate emphasis on physical and financial sustainability. 7. Participatory approach to management of the water resources. 8. Private sector participation to be encouraged wherever feasible. 9. Establishment of well developed information system for water related data. 10. Emphasis on demand management in planning 11. In allocation, water for life-support first priority, livelihoods next, followed by environment and ecology, everything else afterwards. 12. Thorough examination of all alternatives in Project planning and implementation 13. Ensure physical sustainability of water resources, particularly the groundwater resources. And based on the national water policy, all the states were told to form their state water policy. The 2002-2003 Budget called for setting up an Urban Reforms Incentive Fund with an initial outlay of Rs. 5 billion to provide reform-linked assistance to states. The Government of India approved the proposal on 28th June 2003. In the first phase, the URIF will provide incentives to state governments to carry out reforms in the sectors which also include water sector. The URIF encourages urban bodies to reform, increase operational efficiency and reduce subsidies. The plan mandates providing water access to the urban poor, setting tariffs to discourage overuse, introducing water efficient flushes etc, providing drinking water to all, increasing community participation and NGO participation and so on. In return, funding and financial incentives are given to urban bodies AUWSP (Accelerated Urban Water Supply Program)

This program is promoted by the Ministry of Urban Development (MoUD) and provides funds for providing water connections to smaller urban cities. Launched in 1993-94, Rs.2000 crore was spent by 2001. The Government of India sanctioned a Pilot Scheme for National Project for

Repair, Renovation & Restoration (RRR) of Water Bodies directly linked to Agriculture in January, 2005 with an estimated cost of Rs.300 crore to be shared by Centre and State in the ratio of 3:1 9th five year plan some major policies highlighted included extending the watter services to the entire population, decentralization of the resposibilities to the ULBs , enhancing financial viability through full cost recovery. 10th five year plan included, prioritizing the water services to the currently uncovered populations, emphasizing the participation of all the stake holders. 11th five year plan focused on project approval, design and implementation by professionals, improved water efficiency, groundwater development, stake holder participatin and deployment of multi disciplinary professionals. The Central Government has set up a PFDF (Pooled Finance Development Fund) to provide credit enhancement to the ULBs and help them to access the capital and financial markets based on their creditworthiness. 74th Constitution Amendment is a path breaking development in strengthening the urban local bodies in India. It was passed by the Parliament in December, 1992 and received presidential assent on April 20, 1993. The main characteristic of 74th Constitution Amendment Act, 1992 is that it provides constitution a recognition to the constitution, powers and functions of the urban local bodies for the first time in the history of India. The MoWR is now planning to revise the national water policy,

MoWR is also planning to establish a regulator in the water supply sector. Water efficeincey label on electronic machines and buildings , exemption from property tax for those buildings who are water efficient are in the planning process by Ministry of Water Resources.. State Governments of West Bengal, Andhra Pradesh, Karnataka, Orissa and Delhi have already formulated the laws to control the groundwater usage. Punjab govt has approved the accelerated and integrated urban development plan to develop water supply. Hariyana government is planning to launch a state wide urban infrastructure development programme called, Rajiv Gandhi Urban Development mission on the lines of JNNURM and has budget of 25 billion for that. Karnataka government has decided to launch a 15 point agenda and action plan for ULBs, Banglore warter supply board has offered a rebate of 5 percent in property tax to the citizens who install rainwater harvesting system. MCA in the water is not ready yet, Ministry of Urban development has requested the WSP- SA to formulate the Model Concession Agreement for the water sector. Viability Gap Funding (VGF) There are many projects with high economic returns, but the financial returns may not be adequate for a profit-seeking investor. For instance, a rural road connecting several villages to the nearby town. This would yield huge economic benefits by integrating these villages with the market economy, but because of low incomes it may not be possible to charge user fee. In such a situation, the project is unlikely to get private investment. In such cases, the government can pitch in and meet a portion of the cost, making the project viable. This method is known as viability gap funding. Cabinet Committee on Economic Affairs in its meeting of 25th July, 2005 approved the Viability Gap Funding Scheme for support to Public Private Partnerships in Infrastructure.

VGF is typically provided in competitively bid projects. Under VGF, the central government meets up to 20% of capital cost of a project being implemented in public private partnership (PPP) mode by a central ministry, state government, statutory entity or a local body. The state government, sponsoring ministry or the project authority can pitch in with another 20% of the project cost to make the projects even more attractive for the investors. Potential investors bid for these projects on the basis of VGF needed. Those needing the least VGF support will be awarded the project. The scheme is administered by the Ministry of Finance. For the approval of the projects there are different slabs based on the projects cost. Viability Gap Funding up to Rs. 100 crore for each project will be sanctioned by the Empowered Institution. Proposals up to Rs. 200 crore will be sanctioned by the Empowered Committee, and Amounts exceeding Rs. 200 crore will be sanctioned by the Empowered Committee with the approval of Finance Minister The Ministry of Finance is now considering to revise the limits upwards. The Viability Gap Funding (VGF) Scheme to address the following concerns: Address the issue of affordability of user fee. Leverage government grant to improve commercial viability of projects Promote user pay principle. Ensure market based selection of promoter Promote concept of developer (in place of contractor) and address project life cycle costs. Through VGF the Government normally provide funds as capital grant during construction.

In January 5, 2006, under the Companies Act 1956, IIFCL was incorporated on as a wholly Government owned Company with an authorized capital of Rs. 2000 crore and paid-up capital of Rs. 1800 crore. The main objective of the establishment of India Infrastructure Finance Corporation limited was to provide long term financial assistance to various viable infrastructure projects in the country. There are various criteria to be eligible for funding by IIFCL which are as follows. 1. Project must be commercially viable, It was pre-decided that IIFCL will provide the finance only to those projects which are commercially viable. 2. The project must be implemented by public sector company or a private sector company under a PPP initiative. 3. If the project is implemented by private sector company then the private company must have undertaken some projects at the place where the proposed project is supposed to be implemented. OR 4. The project is being set up under an MoU arrangement with the Central, any State government or a Public Sector Undertaking. 5. Total lending for such private projects shall not exceed 20% of the lending programme of the company in any accounting year 6. The tenor of IIFCL lending should be larger than that of the longest tenor commercial debt by at least two years. The IIFCL would be helpful in funding commercially viable projects that face problem in raising long term debt Government of India guarantees to IIFC to raise funds in the market.

In order to make maximum utilization of this assistance window, Department of Economic Affairs has suggested that the Ministries which do not have a Model Concession Agreement ( MCA) may initiate steps to formulate such a Model Concession Agreement. This Ministry has requested WSP-SA to prepare MCA for water supply & sanitation sector.

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