16 Sep 2008

Does "Free" Water Help the Poor?

J. David Foster writes this guest post from Hyderabad:

"I fully recognize that the U.S. has its share of problems but as an analyst one of the great things about India is that they leave so many of their problems out in the open where they are so easy for me to see. Not-with-standing this apparent oppeness, people then become very adept at ignoring (and perhaps not even seeing) those same problems. The Hidden Cost of "Free Water" is an interesting case in point.

When I inquired about the poor who were supposed to benefit from the tremendous water supply subsidies in urban India and yet were not even connected to the water lines, I was told not to worry because the poor got their water "for free" from public standposts, fountains, and water tankers. This link provides a useful look at the true cost (to the poor) of that water and it has been a useful class room exercise for helping students and policy makers better see some of those hidden costs.

Armed with this little spreadsheet and other analysis we have been able to persuade some policy makers that it is far better to provide household connections and charge for the water than to provide "free water" at the stand posts. With direct connections, especially if those connections are metered, the city benefits through increased revenue and the poor benefit because even if they had to pay as much as the richest man in town, the water still costs them less than the "free water" they had to fight for.

Unfortunately, traditional subsidies are highly perverse because they subsidize consumption but not connections. Water tariffs are typically 2 to 5 Rupees per kiloliter (5 to 10 cents) while typical connection costs can run as high as 10,000 Rupees ($250.00), and insurmountable barrier to the poor and, perhaps, not altogether accidental. Such low tariffs encourage profligate water use while high connection costs do nothing to encourage conservation.

Interestingly when direct connections are provided, not only does the incidence of water borne disease go down and the standard of living go up but the attendance of young girls in school goes up as well because they are the typical water carriers for their families."

[DZ's] Bottom Line: Don't condescend to "help" the poor by giving them "free" stuff. If free comes at a cost (longer waiting, lower quality, lower reliability, etc.), then perhaps the poor would prefer to pay for service.