India’s escalating water shortage, driven by high consumption due to rapid economic growth and frequent natural disasters, poses a significant threat to the nation’s sovereign credit strength, Moody’s Ratings stated on Tuesday.
The water crisis intensifies every summer as demand surges in agriculture, industries, and households, and this year, a prolonged heatwave has exacerbated the situation, notably in Delhi and the southern tech hub of Bengaluru.
“This is detrimental to the credit health of the sovereign, as well as sectors that heavily consume water, such as coal power generators and steel-makers,” Moody’s noted. The ratings agency emphasized that in the long term, investments in water management infrastructure could help mitigate the risks associated with potential water shortages.
Projections from the Ministry of Water Resources indicate a worrying decline in India’s average annual water availability per capita, expected to drop to 1,367 cubic meters by 2031 from 1,486 cubic meters in 2021. This level is below the threshold of 1,700 cubic meters, indicating water stress, with 1,000 cubic meters marking the point of water scarcity.
“Decreases in water supply can disrupt agricultural production and industrial operations, resulting in inflation in food prices and declines in income for affected businesses and communities, while sparking social unrest,” Moody’s highlighted. This could lead to increased volatility in India’s economic growth.
Climate change further compounds the issue, as the increasing frequency and severity of extreme weather events threaten India’s water supply, which heavily relies on monsoon rainfall. Industrialization and urbanization are expected to intensify competition for water among businesses and residents, exacerbating the scarcity.
Moody’s pointed out that the sustainable finance market in India could provide a crucial avenue for companies and regional governments to raise funds to address these challenges. The global agency currently maintains a Baa3 rating on India with a stable outlook.