Financing Sustainable Water Infrastructure to Achieve SDG 6 in Rural India

A country running dry

Access to clean water in rural India is not merely a development aspiration. It is a daily emergency. As of 2022, roughly half of rural households still did not have a tap water connection within their homes. Water quality surveillance remains patchy. Groundwater levels have been falling across large parts of the country, a decline accelerated by climate change, and the existing infrastructure for water delivery is frequently inadequate or poorly maintained. The situation is worst in the states that can least afford to fix it.

The Indian government has not been idle. The National Rural Drinking Water Programme (NRDWP), launched in 2009, aimed to deliver safe drinking water to every rural person. By 2019, it had managed to connect just 17% of rural households to piped water. Its successor, the Jal Jeevan Mission (JJM), launched in 2019 with considerably more ambition and funding, pushed that number to roughly 46% by 2022. That is remarkable progress in three years. But it also means that more than half of rural India still waits.

The $123 billion question

Numbers tell the story bluntly. The World Bank estimates that India needs $123 billion to achieve universal access to safe water and sanitation by 2030. The government's budgetary allocation for rural drinking water supply and sanitation in 2021-22 was approximately INR 66,252 crore, or about $8 billion. Even accounting for year-on-year increases, the gap between what is needed and what the exchequer provides is enormous.

This is the fiscal reality that motivates the project. Government spending alone will not close the gap. The question is how to design a financing architecture that brings private capital to the table without sacrificing the principle that clean water is a right, not a luxury. Previous attempts at public-private partnerships in India's water sector have had mixed results. Lima et al. (2021), in a meta-study of 122 studies on PPPs in the water sector, concluded that partnerships are valuable but that risk-sharing arrangements need significant improvement. The financing model we propose tries to learn from those failures.

Why markets alone will not solve it

The water sector in rural India is plagued by textbook market failures, and understanding them is essential to designing a financing mechanism that actually works. We identified four that matter most.

The first is asymmetric information. Water service providers typically know far more about the quality and quantity of water than the households they serve. Users cannot easily verify whether the water coming through their tap meets safety standards, which makes it difficult for them to make informed decisions about usage and willingness to pay. Previous programmes like the NRDWP suffered precisely because beneficiaries had no way to hold providers accountable for quality.

The second is adverse selection. When water services require some form of payment, the households most in need, and least able to pay, are the ones most likely to be excluded. Water.org's WaterCredit Initiative, which provides small loans for water access, encountered this problem: the intended beneficiaries were often reluctant to take on debt they feared they could not repay, creating a selection bias that undermined the programme's reach.

The third is moral hazard. When water is provided free or at heavily subsidised rates through government programmes, users have little incentive to conserve. Infrastructure built under the Swachh Bharat Mission was in some cases degraded within months because the people using it bore none of the cost of overuse. The tragedy-of-the-commons dynamic is alive and well in rural water provision.

The fourth is governance failure. Water projects involve multiple stakeholders across multiple levels of government, and corruption siphons off resources at every stage. Initiatives like the Tata Water Mission and the 2030 Water Resources Group, however well designed on paper, depend on institutional capacity and political will that is unevenly distributed across Indian states.

A hybrid financing architecture

The proposed model rests on a simple premise: private firms build and maintain water infrastructure (tap connections, wells, boreholes), and households pay usage fees that create both a revenue stream for the operator and an incentive for responsible consumption. The government's role shifts from provider to regulator and safety net. Rather than building infrastructure directly, it subsidises the most vulnerable households so that ability to pay never determines access to clean water.

This is not a pure privatisation model. It is a structured partnership where private entities are motivated by a combination of revenue from user fees, tax breaks on their investment, and the ability to count their upfront capital expenditure against mandatory Corporate Social Responsibility (CSR) obligations under Indian law. The CSR angle is not a feel-good add-on. Since the 2013 Companies Act, Indian firms above a certain size are legally required to spend 2% of net profits on CSR activities. Water infrastructure is a qualifying expenditure. For a firm evaluating where to direct its CSR budget, a project that also generates an operating revenue stream is considerably more attractive than a pure donation.

The Water Card

The centrepiece of the equity mechanism is the Water Card, an innovation modelled on India's existing Public Distribution System (PDS) card. Each eligible household receives a digital card linked to its Aadhar (the biometric unique identification number now held by virtually every Indian resident). The government, drawing on socioeconomic data already collected for other welfare programmes, determines differential subsidy levels. Credits are loaded onto the card monthly, removing the need for physical voucher distribution. Non-eligible households simply recharge their cards and use them to access water at the standard usage fee.

The design exploits two pieces of digital infrastructure that already exist. First, the Aadhar system provides a reliable way to identify eligible households and ensure subsidies reach their intended recipients rather than being siphoned off by intermediaries. Second, the PDS card verification infrastructure, already operational for food distribution across the country, can be extended to water subsidies without building a parallel system from scratch. Community members participate in card verification and distribution, adding a layer of peer monitoring that discourages fraud while creating local employment.

The tiered approach is deliberate. Households below the poverty line receive the largest subsidies, covering most or all of the usage fee. Those above the poverty line but still economically constrained receive partial subsidies. Better-off households pay the full fee. The point is not to make water free for everyone, which would recreate the moral hazard problem, but to ensure that the price signal works for conservation while no one is excluded on grounds of poverty.

Can it work financially?

We tested the model against a hypothetical village of 1,000 people requiring a new water facility costing INR 10 lakh (roughly USD 12,000). Under the proposed structure, the government provides half the capital cost as a grant. The private investor contributes the remaining INR 5 lakh, which qualifies as CSR expenditure under the Companies Act and may also attract tax relief.

On the revenue side, suppose a monthly usage fee of INR 50 per household and an uptake rate of 50% (conservative for a village with no alternative piped supply). That generates INR 50,000 per month in recurring revenue, which flows to the operating firm. Variable costs for maintenance, salaries and consumables are covered by a small markup over the fee. The initial capital outlay is effectively a sunk investment that the private firm recovers not through direct repayment but through CSR credit, reputational value and the option to scale the model across multiple villages.

In practice, we expect larger corporations to provide the upfront capital while smaller local firms handle day-to-day operations on a management contract. This separation makes economic sense. A large firm's cost structure and profit expectations are ill-suited to running a rural water point. A smaller local operator, with lower overheads and stronger community ties, can maintain the system sustainably on thinner margins while creating local jobs.

What it all means

Tools and methods