Water security has thankfully, taken center stage in our public and academic discourse. Yet, like all things Pakistani, proposed solutions are highly divisive and have brought mud-slinging in different camps.
Advocates of water pricing, for example, believe that it is the best way to bring about long-term changes in consumption pattern given the growing population. Such folks believe that the focus on building reservoirs is misplaced, given the associated infrastructure costs. Unsurprisingly, these “dam sceptics” are shouted down for betraying national interest: doubting Thomas(es) sowing suspicion against a patriotic cause.
Is the rancor really necessary? Research reveals that ground realities are not so binary. LEAD Pakistan, an Islamabad based independent think tank, recently published a case study on access to drinking water in urban Faisalabad. Based on primary research, the paper makes for an interesting read.
For believers in water pricing, the paper has some bad news. Empirical findings indicated very low-price elasticity of demand for filtered water, at just 0.20. Income elasticity for filtered water is even lower, at 0.08. The story of unfiltered water access is not quite different either. Price and income elasticity for unfiltered water are 0.25 and 0.13, respectively. In terms of microeconomics, that makes the product highly inelastic.
Does that render pricing as a policy tool completely ineffectual? Not necessarily. For one, water is a “necessary good”, hence its demand inelasticity is not really surprising. At the same time, it is not an “inferior good”, meaning that as we go higher on income strata, demand for water does not necessarily decline.
This has two policy implications. One, introducing consumption-based pricing will not help in controlling consumption. This means that pricing will not necessarily help regulate demand of a scarce commodity. However, since the demand is inelastic, policymakers and regulatory authorities have significant room to maneuver to use pricing rationalization as a tool for revenue generation.
Second implication is a logical outcome of the first. While consensus may not exist on “a specific mega dam”, need for smaller reservoirs are broadly recognized. Similarly, that the water supply system is grossly under invested is also generally accepted. Thus, funds generated from introducing water pricing could potentially be used in augmenting the existing infrastructure. Investing in access to clean potable water for domestic consumers is another area needing attention.
It should be noted that the public supply of water in Pakistan is currently highly under-priced when compared to operating and maintenance charges that keeps the system running. The flat pricing currently enforced is primarily a problem of capacity as the country lacks any viable systems of water-metering. Therefore, one could potentially argue that beyond a certain price point, income elasticity may reflect in lower consumption patterns.
Moreover, scope of the study is obviously limited to one region and findings of research in other regions may disagree with the conclusion drawn. Hence, similar research efforts should be commissioned for other regions, especially for irrigation, which is the consumer of 90 percent of country’s water supply. Nevertheless, the study is a good reminder that there are no easy answers to complex problems.