5 Issues in Reforming Informal Water Economies of Low-income Countries: Examples from India and Elsewhere

The past decade has witnessed a growing sense of urgency in reforming water sectors in developing countries like India faced with acute water scarcity. India, like many other developing countries, is still focused on build-ing water infrastructure and services, and making these sustainable in all senses of the term. The new wave of ideas is asking it to move from this supply-side orientation to proactive demand management by reforming water policy, water law and water administration, the so-called ‘three pillars ’ of water institutions and policies. But making this transition is proving difficult in India and elsewhere in the developing world. Here, making water laws is easy – enforcing them is not. Renaming regional water departments as basin organizations is easy – but managing water resources at basin level is not. Declaring water an economic good is simple – but using the price mechanism to direct water to high-value uses is proving complex. This chapter explores why. It distinguishes between Institutional Environment (IE) of a country’s water economy, which comprises the ‘three pillars’, and the Institutional Arrangements (IAs), which refer to the humanly devised rules-in-use, which drive the working of numerous informal institutions that keep a vibrant economy well lubricated. The relative influence of IE and IAs varies in high- and low-income countries because the water economies of the former are highly formalized, while those in the latter are highly informal. In high-income countries ’ formalized wate