Water shortages could hit India's growth, weigh on credit health: Moody's Ratings

Global ratings agency Moody's Ratings warned on June 25 that water shortages in India could prove detrimental to the health of independent, water-dependent enterprises such as coal-fired power plants and steelmakers.

The rating agency pointed out that a worsening water crisis could increase volatility in growth and weaken the country's ability to withstand shocks. “India's rapid economic growth, coupled with rapid industrialization and urbanization, is reducing water availability in the world's most populous country,” it noted in a report.

The global rating agency highlighted that drying water supplies could affect agriculture, increasing food inflation and reducing income for some businesses.

“India has among the G-20 economies the poorest access to basic services, including water, which is a key component for assessing the credit impact of ESG factors,” Moody's said. ESG stands for Environment, Social and Governance.

Moody's sovereign rating for India is Baa3 with a stable outlook. The rating agency expects India to become the fastest growing major economy in 2024 with growth of 6.5 percent.

India's food inflation is stuck at over 8 percent despite the overall inflation rate being below 5 percent. According to experts, food inflation remained at 8.7 percent in May and is likely to remain high for the coming months.

Moody's pointed out that investments in water infrastructure and renewable energy could reduce risks in the long term. The rating agency noted that “India's growing sustainable finance market can provide financing to companies for water investments.”

In February 2024, the Vadodara Municipal Corporation issued green bonds worth $12 million to expand its liquid wastewater management infrastructure. In 2021, Ghaziabad raised $18 million for water treatment plants.

The Center had earmarked $2.52 billion for Ganga restoration in the interim budget.

“According to the Ministry of Water Resources, India's per capita average annual water availability is likely to fall to 1,367 cubic meters by 2031 from an already low 1,486 cubic meters in 2021,” Moody's pointed out.

India considers levels below 1,700 as water stress and 1,000 cubic meters as water scarcity threshold.

Industry's water demand will double from 2.1 percent in 2025 to 4.4 percent by 2050, while hydropower demand will increase sixfold to 9 percent over the same period.