Reforming rural water: Govt nod to NRDWP restructuring an important step

At this time of debate on the 2018-19 Budget, the conversation is typically about whether funding for a particular sector or programme has increased or decreased. Perhaps a more useful discussion would be on the efficacy of government spending and whether real outcomes and results on the ground have been achieved through public funding. I would venture to suggest that the main challenge facing most centrally sponsored schemes (CSS) has not been the lack of funding but that of strengthening implementation, monitoring and, more fundamentally, linking funding to performance. The rural drinking water sector, under the National Rural Drinking Water Programme (NRDWP) has made a beginning in this direction.

Hitherto, the provision of rural drinking water under the NRDWP was no exception to the usual “formula” based approach to releasing the Central share of funds, leading to a sense of entitlement among states and little incentive to improve performance. A recent policy shift has moved this CSS firmly towards a results-based, competitive and sustainability-focused direction. Consistent with global best practices (such as the Program-for-Results lending instrument of the World Bank) in performance-based financing of service delivery, the restructured NRDWP adopts a results-based and sustainability-focused approach to financing rural water supply schemes across the country and, in the process, has also introduced a measure of competition among states to compete for Central funds.

The NRDWP, a successor to the Accelerated Rural Water Supply Programme, was started in 2009. This CSS, with funding on a 50:50 sharing basis between the Centre and the states, had invested about Rs 1.2 trillion on rural water between 2009 and 2017. Until now, NRDWP funds were allocated from the Centre to the states on a “formula” basis, mainly using population, water scarcity and water quality as criteria. 

Funding to the extent of the available budget envelope was assured to states based mainly on their “utilisation” of Central funds and not on actual delivery of services.

In the spirit of cooperative, competitive federalism, the Union Cabinet recently decided that a significant proportion of Central resources for rural water supply should be used to incentivise performance by the states on a competitive basis. Three key reforms have now been introduced: (i) reimbursement mode: half the funds of the second instalment released by the Centre are being done on a reimbursement basis, with the states having to pre-finance implementation; (ii) challenge mode: if a state does not pre-finance, its notional funding envelope under the second instalment goes into a common pot to be shared among other “performing” states (that is, those who successfully pre-finance and implement); and (iii) sustainability mode: the other half of the second instalment is to be distributed among states based on their performance with respect to the functionality of their completed rural drinking water schemes as assessed through an independent, third party survey.

The key rationale underpinning these sector reforms was to incentivise states to take more direct responsibility under their Constitutional mandate (water being a state subject) for the service delivery of drinking water. Some states, like Telangana, are already doing this by providing piped water supply with household connections to all rural households with most of the funding being arranged by the state itself. Bihar is also planning to provide piped water supply through tap connections to rural households with its own resources. It would be a moral hazard of sorts if the Centre continues to apply the earlier funding formula to all states, without acknowledging the self-financing initiatives taken by some states.

While the reform agenda recently initiated is expected to lead to speedier implementation and better and more sustainable rural drinking water services across the country, there remain challenges that need to be addressed. Institutional and financing reforms should go hand in hand with the new approach. The Public Health Engineering Departments in states responsible for implementation of rural water supply services need to shift from a construction-centric approach to a consumer-centric approach. Management of drinking water services in rural areas also need to be increasingly devolved to the lowest appropriate level, ideally letting gram panchayats  and village water and sanitation committees manage services for smaller schemes. Several such models already exist across India and models from other countries, such as the rural utility model of Vietnam, can be applied depending on the local context. In addition to institutional reform, more robust financing mechanisms are also required. User fees for drinking water, ideally at least covering the operation and maintenance cost, should be encouraged.

In summary, while further and deeper reforms are needed in the rural water sector, the recent Cabinet approval of NRDWP restructuring is an important first step towards achieving the goal of providing safe and sustainable piped water through household connections to the rural population of the country. Service delivery will significantly improve through a performance-based and competitive approach.

The author is secretary, Ministry of Drinking Water and Sanitation, Government of India.