David Foster argues that free water for the poor in India comes with a significant cost:
Although water supply in virtually all Indian cities is heavily subsidized, very few BPL (Below Poverty Line) families have household connections. While upper income families benefit from those subsidies, the BPL families are often forced to buy water from private vendors or carry water from public stand posts, water tankers, or public fountains and wells. Unfortunately, even where this water is provided free of charge, we often underestimate the true cost incurred by the poor in obtaining it.
Have you read http://phys4.harvard.edu/%7Ewilson/arsenic/arsenic_project_introduction.html
It is about the problem of arsenic poisoned wells in Bangladesh. The same problem is in India (search the indiawaterportal site in Google for arsenic) ~> http://www.indiawaterportal.org/Network/interview/citizens/Dipankar_Chakraborti_eng.html
This seems to be a more pressing cost than having people wait by a truck for actual clean, treated water because there are no mains to deliver it to houses.
There is a lack of capital and skilled labour to effect all changes necessary, so perhaps lack of pipes in city slums gets triaged-out in favour of arsenic free in villages. (Or maybe it is just a mess, without a good explanation.)