The inability of the state to deliver on basic services has nurtured many a business: inverters and bottled water, to name just two.

A third one is beginning to flourish: water purification and waste-water treatment. As the state increasingly relinquishes these functions to the private sector, and even discusses the idea of privatising water supply, companies in this business are seeing a likely suitor: private equity (PE).

In the past year, PE investors have invested Rs 506 crore in seven Indian companies that are either in the business of purifying water for drinking or of treating wastewater for reuse (See graphic). Of this, Rs 370 crore has trickled in the past five months alone into companies like Waterlife. Started in 2009, Waterlife seeks to provide “access to safe water with a focus on underserved areas”.

Towards this end, the Secundrabad-based company works with state governments at the district level to set up community water-filtration plants for villages, as well as for urban slums. Each plant filters 24,000-100,000 litres a day. They treat raw water to eliminate contaminants like fluoride, arsenic, nitrates, chloride and heavy metals. Waterlife charges users Rs 3-5 per 20 litres of water; for most, this is the price they have to pay for the ineptitude of the state.

At present, Waterlife reaches 1.2 million in 1,700 villages. “In the next three years, we will cover 20-30 million people and the scale up will be very fast,” says Sudesh Menon, the company’s managing director. A scale up like this made PE firm Matrix Partners invest Rs 22 crore in Waterlife.

“Large funding and spending in this sector has not yet happened, but it will due to the policy push,” says Avnish Bajaj, managing director of Matrix Partners India. Policy Push Water is scarce in India. And it is projected to become scarcer, with increasing urbanisation and industrialization.

At Water 2010, organised by the Confederation of Indian Industry (CII), water availability per person is projected to fall to 1,140 cubic metres, from 5,177 in 1951 and 1,829 in 2001. This is dangerously close to the water stress line of 1,000 cubic metres. The new National Water Policy will direct how India tackles this problem.