Remembering Water…

In this hot and fractious season of water shortages, cricketing villains and simmering public anger, I was reminded of an Op-Ed I wrote for The Economic Times on August 9, 2006. It was titled “Water of Love, Deep in the Ground”. Is it coming true? Here it is:

With the government unwilling to act, except to frame effete policy, and the sharks devouring public assets by tacit political consent, it won’t be long before water becomes the incendiary fuel for public strife, warns Rajrishi Singhal

STOCKS are jejune, gold is passe and land is old-fashioned. So, what’s the next big asset class, which will allow investors to get in on the ground floor before every other punter in the land wisens up to it? I asked this question to a couple of my senior colleagues and pat came the reply: “Water”! Certainly not what I was expecting to hear, but the more one thought about it, the more convincing and compelling the idea seemed. In fact, as a commodity and an asset class, water has already triggered wars between nations in Africa and the Middle East and, closer home, strained relations between Tamil Nadu and Karnataka. It also plays a vital role in determining property rates in almost all the major cities — Mumbai, Chennai, Delhi definitely being the main ones. 
The query came up in connection with the unabashed land grab that’s going on in the name of every conceivable enterprise — SEZs, shopping malls, educational institutes, highway projects. What’s more, every major metro has seen the emergence of land sharks who have been cornering large swathes of land — mostly at rock-bottom prices by threatening owners and using the shield of political clout. The modus operandi usually involves bending a few rules here, paying off a few politicians there. But it’s all kosher as long as there’s a profit at the end of the transaction. So, don’t be surprised if you see the same sharks — or at least sharks with similar intentions — taking to water before you can spell aqualung. 
This raises a basic issue — what is an asset? Can water be called one? An asset can, loosely, be defined as an investment that generates cash flow, whether it is a machine owned by a company or a fixed deposit owned by an individual. There is huge opposition from certain quarters to water being termed either as an asset or a commodity since it is part of the “commons”. The argument certainly does have an element of logic to it but does not entirely do justice to ground reality. In fact, various policy documents from the government — including the last National Water Policy of 2002 — also curiously maintain a studied silence on the issue, leaving it not only open to interpretation but to subsequent bending of rules. 
The reason for considering water as an asset is pretty obvious. It is getting increasingly scarce and its supplies have started carrying a premium. In fact, certain members of the conspiracy theory camp even ascribe the current conflict in Lebanon to Israel’s growing thirst for water resources and yearning to control the Litani river basin. Agreed, this probably sounds a bit outlandish, especially given the Iran-sponsored Hezbollah’s involvement in the conflagration, but water is irrefutably a flashpoint in West Asia and Africa. British journalist and author Adel Darwish said in a conference way back in 1994: “Most borders have been set, oil fields mapped and reserves accurately estimated — unlike the water resources, which are still often unknown. Water is taking over from oil as the likeliest cause of conflict in the Middle East.” 
In India, the problem is not over availability of water, though that might soon become the issue. Inadequate and corrupt service delivery standards crimp the pipeline. However, given that water supply is largely in the domain of state governments and urban local bodies (ULBs), their inherent inefficiencies and embedded corrupt practices are bound to create opportunities for private sector investment. In a 1996 survey by the Indian government, in 241 towns with populations between 50,000 to 100,000, more than one-third ULBs could not provide more than 100 litres per capita per day. 
SO, THERE does exist a gap between demand (which is growing, with rising population and urbanisation) and supply, which the government bodies seem incapable of addressing. Given this, there does exist an investment opportunity which will certainly be exploited by the sharks, unless the central and state governments, along with the private sector, jointly pursue rigorous structural reforms in the management and delivery of water resources. In fact, at the risk of being labelled a neo-liberal, it must be said that a large part of the responsibility might have to be shouldered by the private sector. 
Involving the private sector in water has many detractors, but the choices are limited. Given the huge investment outlay required to provide water to every Indian, a World Bank document observed: “On the ‘supply side’ there are ultimately only two sources of financing — tax revenues and user charges — and both are falling.” Also, the government has proved to be entirely incapable of delivering the required services at economic rates. Therefore, if we assume that the private sector will play a larger role, it might as well sharply define which areas work and which do not. For instance, building physical infrastructure might not be feasible for all private sector enterprises, given the long payback period and the system allergy towards paying user charges. Some private companies might find it useful to invest in bottled water, given the phenomenal growth rate in the sector (an annual growth rate of over 50%) and the fragmented nature of the industry structure (200 brands with 80% local brands). 
There could be opportunities in other areas that have already seen the emergence of water sharks — water tankers. A lot has been written about them and their unshakeable grip over water supply in metros as well as smaller towns. These sharks have close links with politicians, or have been indirectly promoted by them, prevent the ULBs from investing in the supply infrastructure and then supply to the deprived neighbourhoods at exorbitant prices. Tanker sharks have today become ubiquitous in both metros as well as smaller towns. 
This signifies only one thing: even though the NWP is silent about water markets and the Maharashtra Water Resource Regulatory Authority Act of 2005 wants a water market in the state, a parallel and unregulated water market has already sprung up and is thriving under the official tutelage of the political class. And with the government unwilling to act, except to frame banal and effete policy documents, and the sharks devouring public assets by tacit political consent, it won’t be long before water becomes the incendiary fuel for public strife.
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