Triggered by high consumption amid rapid economic growth and frequent natural disasters, India's worsening water shortage can negatively impact the South Asian nation's sovereign credit strength. This statement was made by Moody's Ratings on Tuesday. There are millions of Indians facing water shortages every summer when water demand rises across farms, offices and homes against a limited water supply. However, a prolonged heatwave that India witnessed this year has worsened the shortfall. This includes places such as 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," highlighted Moody's Ratings in a note. "In the long term, investment in water management can mitigate risks from potential water shortages," it added.
From an already-low 1,486 cubic meters in 2021, according to the Ministry of Water Resources, India's average annual water availability per capita is likely to drop to 1,367 cubic meters by 2031. Furthermore, with 1,000 cubic meters being the threshold for water scarcity, according to the ministry, a level below 1,700 cubic meters indicates water stress.
Moody’s exclaimed, "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."
It has warned that this in turn can exacerbate volatility in India's growth. With the increases in the frequency of water shortage, severity or durations of extreme climate events which stems from climate change will further exacerbate the situation as India heavily relies on monsoon rainfall for water supply.
Moody’s has also added that the industrialization and urbanization will intensify competition for water among businesses and residents. The sustainable finance market in India can provide companies and regional governments with a critical avenue to raise funds. Currently, Moody's has a Baa3 rating on India with a stable outlook.
