(A version of this article appeared in Firstpost on Oct 23, 2018)

A genuine water crisis

The Niti Aayog report on India’s water highlighted what many of us know – we’ve got a real crisis on our hands.

In Madurai, where my Institute ran our survey of 1000+ households, about 40% of the people buy water to fulfil some part of their needs. The pay, on average, about Rs. 400 a month for the same. Many more lose productive time, planning their lives around when the water comes, how to store it, and how to eke it out. And it’s getting worse – with entire neighbourhoods running out of groundwater, and not being connected to municipal water.

Given that many people pay (either in cash, in time or in affected health) multiple times the cost of water in developed countries, on would think this would be a raging electoral issue. But it doesn’t appear to be. In some wards, the provision of water, or underground sewerage is. But water management is not.

Why is this? We are a raucous democracy – every day there are protests – large and small. So why are we not protesting this lack of management (not provision) of our common goods, such as water.

Why don’t we care?

Let’s run through possible reasons.

One, people care about ‘provision’ and feel entitled to free water, but care less about its management, because they don’t pay a meaningful (explicit) price for it. There is some truth to this and explains why countries such as Israel and Singapore have done fabulously in water management while India does not. But again, if you were to ask the bulk of our voters, would they vote for an explicit water price, I’m not sure if the answer would be a resounding “yes!!!”. So, let’s move on.

Two, the electorate are not aware of the solutions that could give rise to more efficient water management. There is also some truth to this, so we will cover it in a later piece. But is this the main reason why water is not managed? Many of the solutions require significant investments to scale up – which takes us back to point#1. State capacity (especially at the local levels) is overstretched as is it, which makes private partnerships a meaningful way of implementing such solutions, which again takes us back to point#1.

I would argue that the reason the electorate does not care about water management is because of a mismatch of time frames.

Part of this is psychology. We tend to place more weight on a recent event, and thus vote based on the here-and-now rather than promises made about future actions.

Part of it, I would argue, is because of the discounting rate applied by the average Indian to future cash flows/benefits.

Huh? Come again?

For the average Indian, income is highly uncertain. Let us start with the rural poor – the landless labourers or the marginal farmers who own unfertile land or land that falls in the tail end of the irrigation system or, more likely, does not have any form of irrigation facility at all. Such persons would depend on whatever input is offered to them by the local moneylender, and will be forced to sell their output when (and at what price) he says. They are not only at the mercy of the monsoon, they are also at the less-tender mercy of the local petty merchant. Thus, their income is not only low and seasonal, but uncertain – both in quantum and in timing. Thus, to smooth their cashflows, they need credit, and whatever credit they have access to, carries an interest rate tag of between 20% to 100%+.

What about priority sector lending, you may ask?

Priority sector lending from formal public sector banks usually go to larger farmers with more reliable collateral (especially in these NPA-troubled days), and others who are easier (and safer) to cater to. The smallest farmer, with his lack of sound collateral, usually turns to unofficial channels, which is often the petty merchant in the village.

Now, let us look at his urban cousin – the slum dweller in the cities. Most slum dwellers have a patchwork of jobs – auto drivers, waste pickers, household staff, cobblers, part-time tailors, petty shopkeepers. They are the grease that keeps the city running but their incomes are far from predictable– if there is a puncture, that’s an hour’s income gone for the auto driver, a sick child means a day’s income lost for a maid, a customer may not pay, or a chance accident could ruin the stock. Their expenses, on the other hand, are steady – rent, school supplies, medical bills, alcohol, food. With this kind of precarious income, expensive credit becomes key to match their cash inflow and outflow.

Apart from a fickle income, there are other forms of uncertainty. There are so many blows to one’s health, that health becomes uncertain. Electricity is uncertain. When water will come is uncertain. For a child, whether their teacher will come to class that day is uncertain. All this uncertainty means the discount rate applied to future cash flows represented by promises made today is sky-high.

Now, tell me, if your cost of credit was about 50%, how long would your outlook horizon be? The uncertainty of the lives of our main voters – results in a short timeframe. Payback calculations based on 15% interest rates (forget 4%) don’t compute.

Houston, we have a real problem.

This may help explain why see a more transactional society – where increasingly choices are made favouring the immediate rather than the long term, on the basis of upfront cost and timing, rather than value of life-cycle impact. If this is indeed true (and my suspicion is that it is), this hammers the nail on climate change action, because climate change action works best when you apply a low discount rate, so that future costs compare meaningfully with current costs.

So, the question becomes, how can we change it?

Path to a Solution – understanding status quo

Before understanding how to change, let’s begin by agreeing on status quo.

We saw in an earlier article, that the social contract in India requires the provision of government services (especially at the local level) needs to be broken, or at least flawed. This is to allow, to paraphrase Dr. Raghuram Rajan, the [local] politician, to carve out a role for himself.

What are some ways by which local services can be broken?

Lack of competition: Both the middle class and the poor cannot really influence the quality of many of the services they receive from the government. This is partly because, for many of the services (such as those pertaining to water, sanitation, air), there is no competition to the government. In most places in India, if you are economically vulnerable, and you don’t care for how often the corporation worker collects your waste, there is no one else you can turn to. If you don’t get water as often or for as long as you like, and you cannot afford the tanker services, there is not much you can do. You can only complain to your local councillor. Thus, we see that the common citizen can only influence the process only through her politician, especially the local politician.

If this were true, one would expect corruption, one indicator of broken services, to be higher at the local, rather than the central level, which appears to be the case: A Transparency International survey cites

“The related national poll showed that 84% of the bribery transactions relate to local level bodies and wings of the local government, i.e. municipality, police, tax, power, property registration, tenders etc. only 9% said most of the bribes were paid to the central government departments, i.e. PF, income tax, service tax, railways etc. 2% said it was paid to the private sector and 5% said it was paid to other parties like for school admissions, NGOs, courts etc.”

However, a single, economically vulnerable individual cannot hope to command the attention of the local politician. Only an individual who is a member of ‘Caste A’ or ‘Religion B’ can. Behold the reason why caste is so important in our politics. A study by Azim Premji University and Lok Niti has shown that Indians prefer a political leaders from their own caste. Given the importance of access to the local politician in enabling service delivery, this begins to make sense.

A broken service to give the local politician a role, the importance of caste as a means of access, and the ensuing bribery to act as a lubricant. We have an equilibrium in place. Going deeper, lack of competition is one reason for the poor quality of services continuing. But it is not the only one. There is also the lack of data. Data needs to be unavailable, hard to access, or outdated.

As the inimitable Sir Humphrey Appleby of Yes Minister, a British series, says,

“our new masters will realise that secrecy may be the enemy of democracy, but it is the foundation of government.”

After all, you cannot check performance or fix a system without good data – and for a subject like water – we need granular data at the local level.

The Niti Aayog compiled its Composite Water Management Index from the state and the agriculture statistics, or “Annual report/ Ministry of Agriculture / Any other report available in the public domain State Report/ Collect Project details”. But here comes the rub: the Niti Aayog report frankly states,

“However, several states shared the final values in the form of a declaration and not the details of how it was calculated…accepted the data for this year as there are only a few monitoring and reporting mechanisms currently in place.”

It goes on to lament

“Also, since the data was collected from nine different departments in a state, the irrigation or water sources authorities acting as points-of-contact often did not have the complete details of the data calculations and sources of other departments.”

Oh God.

The Niti Aayog is the government’s policy thinktank. They have the clout, the contacts and the capability to get the states to give the best data available. And yet, on a life-and-death issue like water, even the Niti Aayog openly states the data quality is dodgy.

With good data, there is a hope in hell, that diverse interests can be reconciled in a politically contentious issue like water. Without good data, there is little hope. In this sense, the role of the Niti Aayog in highlighting this faultline is significant.

With this understanding, let us now move to defining the contours of a solution.

The Contours of a Solution

There are two parts to any solution in dealing with the water crisis: part A: is ensuring the voting population is politically receptive to the solution, and, part B is the solution itself

Let’s begin with part A.

With this background, the main arrow in our arsenal to ensure our population becomes politically receptive to “stuff” like management of common goods is to lower their discounting rate. There are several ways to do this. Effective interventions would involve lowering the uncertainty in the lives of the economically weaker sections of our population. Private (both for and not for profit) efforts can work with vulnerable populations to reduce uncertainty and provide supplemental income schemes, as is being done across the country in pockets.

Ensuring access to healthcare and cheaper food (far easier said than done) will also lower risks. But that again leans heavily on the delivery mechanisms of many arms of the government – which could be problematic and as we have seen, susceptible to be broken under the current equilibrium.

An effective to lower discounting rates is by bettering our (especially our vulnerable) population’s access to credit – something microfinance and other institutions have done to some success. For example, one of the great ways to get farmers to improve their yield is to ensure give them access to cheaper credit/working capital. Ergos, a warehousing solutions company in Jharkhand, does just that by providing a verifiable storage receipt against any produce a farmer stores with them. They have tied up with public sector banks to lend to farmers against that receipt at rates far lower than that available through informal channels. This encourages (and enables) farmers to store grain and sell when prices rice.

Some may argue that the cost of credit to the economically weaker sections of society is so high because their income is so uncertain, making them risky to lend to.

One way to reduce both uncertainty and not lean hard on service delivery infrastructure is by giving a Universal (more-or-less) Basic Income (UBI). By ensuring regular, predictable income, a major source of uncertainty is removed, thus lowering the discounting rate and should make the electorate more supportive of longer-term government initiatives. While there is not a lot of data to measure the ‘effectiveness’ of a UBI, preliminary data suggests it does make a tangible difference. Funding for such a programme in rural India could come in part from current subsidies which are often cornered by larger and better-connected farmers. Of course, such a programme is unthinkable without Aadhaar.

The second factor has to do with the narrative, and the importance given to a given topic by our general population. Press coverage – both quantity and narrative – is an important determinant of that. But looking at Figure 1, we see that consistently, the share of voice given water crisis can afford to move up.

The third arrow is climate change itself. By making extreme events more frequent, climate change does three things (at least). One, it activates the estimation bias in favour of extreme events, making us think they are more likely to occur, and thus be willing to support action in adapting to them. Second, because extreme events hurt the economically vulnerable sections far more than anyone else, they will be willing to support action on it, especially if they understood that such extreme events need not hit them so hard if common goods were managed better.  This is poignantly true for India because climate change will hit India hardest, and its past time we build up our resilience. Third, it disrupts the current equilibrium of access-favour-rent. If you keep losing your house to the floods, suddenly the need to lean on the local councillor to keep your house becomes less attractive. Flood-proofing becomes more enticing. When a severe drought came once in twenty years, unchecked tapping of groundwater simply appeared to make water access more democratic. But now, as groundwater supplies fade and drought becomes more common, pricing and regulating groundwater becomes more attractive. Therein lies the kernel of attraction for the politician to support this shift in equilibrium.

It’s only when we lay the ground for Part A, will the solutions we come with (Part B) actually be implemented. We conclude this mini-series by seeing what two of those could be.