A background note can be accessed here: OECD on Water Regulation to Balance Equity and Climate Risk
The OECD working paper argues that water regulation must simultaneously protect affordability for vulnerable users while enabling investments needed for climate resilience. How should regulators navigate this trade-off in India, where water tariffs often remain below cost-recovery levels?
India's water sector is confronted by a dual challenge. On the one hand, water must remain affordable and accessible to vulnerable populations in accordance with principles of social equity and the constitutional obligation of the State to promote public welfare. On the other hand, climate change is increasing the need for substantial investments in drought resilience, flood protection, water recycling, groundwater recharge, desalination, smart metering, and distribution system modernization.
An important challenge to achieving this balance is that water tariffs in most Indian cities remain significantly below cost-recovery levels. As a result, utilities often lack the financial capacity to maintain assets, improve service quality, or invest in climate-resilient infrastructure. Further, political economy constraints are evident in India, where local governments often delay tariff revisions and prefer budgetary subsidies instead of user charges (Mathur, 2003). Over time, India has relied heavily on government grants such as the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). In addition, water network systems often deliver only a small percentage of total produced water as billed consumption, undermining full cost recovery.
The National Water Policy of India (2012) already recognises that differential pricing may be retained for drinking water, sanitation, livelihood support, and food security purposes. A future-proof water regulation policy should therefore integrate lifeline water tariffs for basic needs and vulnerable populations, along with dedicated climate-resilience financing mechanisms that enable long-term adaptation investments.
The paper highlights that climate change is increasing spatial disparities in water availability, infrastructure stress, and service reliability. To what extent should water regulation move away from uniform standards toward risk-adjusted approaches?
According to NITI Aayog's Composite Water Management Index (2019), 600 million people in India face high to extreme water stress. In addition, climate change impacts are already visible and are expected to intensify droughts, floods, groundwater depletion, and seasonal variations affecting water availability, particularly in territories such as the Andaman and Nicobar Islands, which rely largely on rainwater.
India's water challenges are spatially differentiated. Rajasthan faces chronic drought, Chennai struggles with groundwater depletion, Assam is prone to riverine flooding, and the Himalayan region faces glacial variability. Evidently, applying a uniform regulatory approach across such diverse contexts is unpragmatic.
A sustainable water regulation policy should therefore promote risk-adjusted approaches that reflect local climate vulnerabilities while safeguarding equity. Such an approach could include differentiated tariff structures integrating subsidies for vulnerable populations, seasonal tariffs, universal metering and volumetric pricing, progressive cost recovery for higher consumption, and dedicated climate-resilience surcharges where adaptation requirements are particularly acute. This would allow regulators to balance uniform service objectives with region-specific climate adaptation needs.
The analysis emphasises that climate resilience depends not only on physical infrastructure but also on the quality of regulatory institutions overseeing water services. How adequate are India’s existing regulatory arrangements for managing increasingly complex climate-related water risks?
Historically, India has adopted a mission-based model for water services through programmes such as the Jal Jeevan Mission (JJM) and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). Regulatory frameworks such as the National Water Policy (2012) and the National Action Plan on Climate Change are comprehensive. However, deep-rooted challenges remain, including institutional fragmentation, multiple regulatory bodies, and limited incorporation of climate-risk protection and resilience mechanisms into routine regulatory practice.
In India, groundwater regulation falls largely under state authorities, surface-water planning under water resources departments, urban water supply under municipal corporations, water quality oversight under pollution control boards, and rural drinking-water programmes under separate missions. These fragmented arrangements make coordination increasingly difficult as climate-related water risks become more complex.
The existing framework is not fully equipped to address growing climate-induced water insecurity. To strengthen resilience, India needs legislative reforms that promote climate-resilient regulation, digital monitoring, and risk-based regulatory approaches. Equally important are governance reforms such as integrated water resources management, basin-level governance, and simpler, more effective, and coordinated institutional arrangements capable of supporting climate-resilient water infrastructure and long-term adaptation planning.