Deforestation-induced costs on the drinking water supplies of the Mumbai metropolitan, India

The success of incorporating natural capital into resource- and land-use decisions hinges on the ability to quantify the ecosystem services, forecast the returns to the investments, convert these values into effective policy and finance mechanisms, and the presence of well-functioning institutions and infrastructure. However, ecosystem production functions i.e., the relationship between regulatory functions of the ecosystem and the economic activity it protects or supports are often poorly understood.Even with respect to Forest Watershed Services - a service that is widely recognized and even institutionalized through market based mechanisms in some parts of the world - the biophysical relationships between forests and services such as stream flow stabilization, water quality and water quantity are undefined, particularly for the tropics. For this reason, this study through time series data and multivariate analysis characterizes the relationships between Forest Cover (all lands with tree cover of a canopy density of 10% and above when projected vertically on the horizontal ground with minimum areal extent of 1 ha), water quality and cost of water treatment in the Western Ghats of peninsular India.In particular, the recursive relationship between the economic and environmental components is estimated by tracing the effects through the two-stage model. Annual value of impacts (increased 'treatment cost', increased 'water losses due to backwash and desludging', and changes in 'water yield') induced by loss of Forest Cover is estimated as 64.96 Indian rupee/m3 treated water/ha/year ($1.32/m3 treated water/ha/year). At an annual rate of change in the forest cover by 0.0088% (average annual rate of change in the forest cover between the years 1994-2007) the deforestation induced costs translate to 3.73 million Indian rupee/year ($0.075 million/year) according to the 2010-2011 prices for the Panjrapur treatment plant of the Municipal Corporation of Greater Mumbai. Thus, if deforestation is avoided the Municipal Corporation can save significant amount towards recurring costs of water treatment and to some extent mitigate the costs for the development of a new source.