The newly minted Aam Aadmi Party (AAP) government in Delhi has announced its water distribution tarriffs. First, it would make 20,000 litres of water available free of charge to every household of Delhi with a water meter. Second, to a household that exceeds the 20,000 litre figure by even 1 litre, it would charge them for every litre they use, not just the water used over and above the 20,000 litre mark.

Experts, bureaucrats and political rivals have all criticized the party for this “populist” measure. The principle argument is the application of a “mass subsidy” on a relatively inexpensive commodity. In other words, why is everyone, including the middle class and the rich being given free water. (There are other arguments about how this measure does not grant access to those without water connections, the poorest and the most needy. To be fair that is a medium term measure and the AAP has ideas to that effect in their plan document). Returning to the principal criticism.

The AAP decision is anything but a mass subsidy. It is a very targeted subsidy based on consumption. The assumption here is very simple. The poor would use water sparingly and try to stay within the 20,000 litre limit, whereas those better off would exceed those limits. The latter would then pay for even the first unit they consumed, and in effect subsidise the poor. This is in effect better than the tarriff structure we have today, where everyone pays a low per unit price for the first few units they consume, and then everyone pays higher.Till today, you paid more if you used more, for the excess you used, but everyone paid the same low rate for the first 10,000 litres (Rs 2 per 1000 litre for the first 10,000 litres used and Rs 3 for 10-20,000, Rs 15 for 20-30,000). Which then is a mass subsidy? The existing graded pricing, or AAP’s proposed telescopic pricing.

Not just water, mass subsides are applied in India today even in fuel and electricity. For instance, in Delhi, every households pays Rs 3.90 for the first 200 units of electricity, Rs 5.80 for 201-400 units, Rs 6.8 for 401-800 units and Rs 7.0 for greater than 800 units consumed. Here, everyone is being subsidized for the first 200 units. A house that runs Air Conditioners and water heaters (and crossing 800 units) is also paying the same 60% of peak tariff for the first 200 units as a house that only uses lights and fans (and stays within the 200 units per month). The LPG is priced similarly, where every household in the country gets 9 cylinders a year at a subsidized price.

A second argument being levelled is that people would tinker their meters to run slow, to not cross the 20K litre mark. Fair point, but in the current tariff structure, there is a 5 fold jump at the 20K litre mark. Isn’t this incentive enough to slow the meters? Enforcing the meters are a matter of political will, and given the anti-corruption plank of this government, my asumption is that they ‘should’ make efforts to enforce it.

A third perhaps valid criticism is that is level of water consumption may not be the right proxy for affluence. In electricity the link between consumption and affluence is more direct. Is it necessary that a rich or middle class family would really cross the 20K litre mark? For the most part yes. The use of washing machines, electric water purifiers, showers (as opposed to bathing with buckets), washing cars, watering plants/lawns and all such activities would most likely take their consumption to the level, where they would pay for every unit, rather than just the excess units used. It is possible that a few rich people don’t exceed this level? That is because they would choose to be conservative in water use, and in which case the policy rewards them for for being responsible. (A direct income based tariff subsidy is simply impractical in India, because the salaried poor would always bear the brunt of the rich farmer or trader who declares much less income than he earns). The 20K litre figure perhaps may need to be readjusted once the policy is implemented and revisited after 3 months.

Finally, the fact that water is available free to every household with a connection, would be an incentive for many poor households, currently without a connection, to want legitimate connections, than remain at the mercy of tankers.

In sum, I refuse to see this as a mass subsidy. Telescopic pricing is anything but that. It is ensuring that heavy consumers pay for making the basic usage of a fundamental (and scarce) resource free for all who use it responsibly within reasonable restrictions. It may need some fine tuning, but the principle of the policy is spot on.