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Water supply services in India are currently not regulated and remain essential monopolies under the strict control of government. These services are mostly perceived as inefficient, reflecting insufficient municipal revenue generations which result in loss-making municipalities that need to be subsidized by the government. The efficiencies and productivities remain largely unmeasured and undetermined, and therefore the perception of inefficient services is not backed by scientific studies. This paper therefore sets up a framework for measuring the performance and productivity of Indian water supply operations. The study utilizes panel data on 21 municipalities observed over the financial years 2005 and 2010, to analyze the relative efficiencies and productivity growths of utilities. Data envelopment analysis is used to obtain efficiency scores and productivity measures such as the Malmquist index. The results indicate the presence of large relative inefficiencies and decreasing productivity of water supply services over time, alluding to a failure to revise tariffs upwards despite increasing input costs over time, thereby driving the need for sector regulation and tariff revision in accordance with X-factors, which was found to have a mean value of 2.4% for possible price cap regulation in the sector. The paper highlights related policy implications. [ABSTRACT FROM AUTHOR]

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]