India’s water crisis may harm sovereign credit strength: Moody’s

India's rapid economic growth and high water consumption exacerbate the water crisis

June 25, 2024

Industrialisation and urbanisation are reducing water availability

Water supply disruptions could hurt agriculture and industries, leading to food inflation and social unrest

Per capita water availability is projected to drop significantly by 2031

The sustainable finance market could help mitigate water management risks

According to Moody’s Ratings, India’s water crisis, driven by rapid economic growth, high consumption, and frequent natural disasters, may negatively impact its sovereign credit strength. Rapid industrialisation and urbanisation are decreasing the country’s water availability. Extreme climate events, such as droughts, heatwaves, and floods, exacerbated by climate change, will worsen the situation as India heavily relies on monsoon rainfall for its water supply.

Disruptions in water supply could negatively affect agricultural production, for instance, leading to food price inflation and reduced income for affected farmers. Similarly, industries that rely on water, such as textile manufacturing and power generation, could face significant challenges, potentially sparking social unrest. This could increase volatility in India’s economic growth and weaken its ability to withstand shocks.

According to the Ministry of Water Resources, India’s average annual water availability per capita is projected to drop from 1,486 cubic metres in 2021 to 1,367 cubic metres by 2031. A level below 1,700 cubic metres indicates water stress, with 1,000 being the threshold for water scarcity.

Moody’s highlights that India is highly vulnerable to risks associated with water management. Delhi is facing a severe water crisis, with the state’s water minister, Atishi, recently ending a hunger strike over neighbouring states’ alleged failure to supply water to the capital.

Moody’s suggests that India’s sustainable finance market could offer companies and regional governments a critical avenue to raise funds to address water management challenges. Moody’s currently rates India at Baa3 with a stable outlook.

Source: Business Standard

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