Incorporating Unaccounted for Water into the Performance Measurement: An Application to the Indian Water Sector

Abstract

In some Indian cities, unaccounted for water (UFW) is more than half of the water produced. Benchmarking must credit utilities for reduction in UFW and improvements in service delivery. Using data from 20 Indian urban water utilities, the study evaluates utility performance considering that reduction in UFW is costly. It applies directional output distance function as an analytical tool for measuring technical inefficiencies of the utilities. The results exhibit that at the mean level, the Indian water utilities have potential of increasing water delivery level and reducing UFW by 20 percent. About half of that can be realized by changing the scale of operation. The results concerning returns to scale support the idea that water should be priced at marginal cost of supply. The regression results reveal that percentage of metered connections and length of distribution network are major determinant of performance of water utilities.