The report draws on a Water andSanitation Program (WSP) study from 2008 which made acomparative analysis of 23 Urban Local Bodies (ULBs)-lookingat seven cities in detail and another 16 based on secondarydata-to understand the factors affecting cost recovery inIndia and provide an indication of current performance. Italso draws out examples and lessons to inform reformapproaches and guidelines for reform. The first part of thepaper discusses operational and tariff-related factors thatimpede cost recovery by urban water service providers inIndia, especially low service coverage; high water lossesand nonrevenue water; inefficient metering, billing andcollection; and high staffing levels. It also shows thatdistorted tariff structures and subsidies undermine costrecovery further, and often benefit middle and upper incomelevels, rather than the poor. The second part of the notediscusses policy reform and practical initiatives andoptions to achieve improved cost recovery and, byimplication, achieve service improvements, capitalmaintenance, and expansion of coverage.