Water resources exhibit externalities in the sense that they have the property of "mutually interfering usage." Individuals & industries take the valuable commodity of clean water from the same environment which they then use to dump wastes, thus interfering with the use of the no-longer-clean water by themselves and others.

Despite of the fact that the industrial sector only accounts for 3% of the annual water withdrawals in India, its contribution to water pollution, particularly in urban areas, is considerably high. Wastewater generation from this sector has been estimated at 55,000 million m3 per day, of which 68.5 million m3 are dumped directly into local rivers and streams without prior treatment (MOWR 2000).

The government has called for the establishment of Common Effluent Treatment Plants (CETP) in industrial areas but implementation has been slow, and most industries are not connected to CETPs or only partially treat their wastewater before disposal. The Central and State Pollution Control Boards have identified 1,532 "grossly polluting" industries in India, although almost all industries do not comply with emission standards (World Bank 1999).

Wastewater from industrial activities is often contaminated with highly toxic organic and inorganic substances, some of which are persistent pollutants and remain in the environment for many years. For instance, over 50% of the urban organic load in some cities originates from industrial effluent, and heavy metal contamination from thermal power, tannery and mining activities has occurred in several locations (World Bank 1999). Water contamination from industrial areas is compounded due to the usually high concentration of industries over a small area. Increasing industrial development, coupled with inadequate zoning and emissions regulations, will only aggravate the problem in coming years.

The mammoth task ahead to address the water & wastewater treatment issues in India can be gauged from the following estimates:

• 70% urban population does not have covered sewerage system
• 30% urban population does not get safe drinking water
• 70% industrial effluent either not treated adequately or not at all