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Water supply services in urban India are essential functions of urban local bodies or municipalities. These services are mostly perceived as unsatisfactory across urban centres and the sector is widely perceived to be misgoverned with large number of municipalities making financial losses. However, this common perception of inefficient services has not much scientific basis as the efficiencies of these services are not measured. This paper, therefore, attempts to evolve a framework for evaluating the relative inefficiencies of water supply services and applies a non-parametric approach, data envelopment analysis (DEA), to 20 urban centres in the state of Madhya Pradesh in India, by applying three different models. The results of the analysis indicate that there are significant inefficiencies amongst the various municipalities that supply water. It was found that larger cities exhibit better efficiencies than smaller ones, requiring policy interventions. However, even the larger municipalities need restructuring and downsizing of their operations to be more efficient. DEA results also show that significant savings with respect to operating expenditures, staff and non-revenue water are actually possible if best practices are adopted. The paper discusses the results of the study in the context of policy issues that are relevant from a developing country perspective. [ABSTRACT FROM AUTHOR]