Growing water stress can exacerbate volatility in India's growth and undermine the economy's ability to withstand shocks besides affecting India's sovereign credit strength, Moody's Ratings says in a new report.
More than 40% of the country's workforce is employed in agriculture which consumes the most water and is the largest hirer in India. Changing rainfall patterns and reductions in water availability will make farmers and lower-income communities increasingly vulnerable to unexpected drops in production, which will reduce their income while inflating food prices and increasing social discontent, the rating agency says.
India's average annual water availability per capita is likely to drop to 1,367 cubic meters by 2031 from an already-low 1,486 cubic meters in 2021, according to the Ministry of Water Resources. A level below 1,700 cubic meters indicates water stress, with 1,000 cubic meters being the threshold for water scarcity, according to the ministry.
The water shortage, according to Moody’s, 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.
In the long term, investment in water management can mitigate risks from potential water shortages, the rating agency says.
India's fast economic growth, accompanied by rapid industrialisation and urbanisation, is reducing water availability in the world's most populous country. Increases in the frequency, severity or durations of extreme climate events stemming from climate change, such as droughts, heat waves and floods, will exacerbate the situation because India heavily relies on monsoon rainfall for water supply, says Moody’s.
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, the rating agency says. This in turn can exacerbate volatility in India's growth and undermine the economy’s ability to withstand shocks.
India is a big consumer of water as its economy is vast and still growing fast, with its large population continuing to expand. “We expect India's economy, which overtook the UK's as the fifth largest in the world in 2021, to grow 6.5% in 2024, faster than all other G-20 economies,” says Moody’s. India also has the largest population, which the United Nation projects will grow to 1.51 billion by 2030 from 1.43 billion in 2023.
Water stress in India is worsening because of an acceleration of climate change, which is causing increasingly intense and frequent extreme climate events such as droughts, heat waves and floods. For example, a heat wave in June 2024, with temperatures hitting 50 degrees Celsius in Delhi and northern Indian States, strained water supply
Monsoon rainfall is also lessening. The Indian Ocean warmed at a rate of 1.2 degrees Celsius per century during 1950-2020, and this will intensify to 1.7-3.8 degrees Celsius during 2020-2100, according to the Indian Institute of Tropical Meteorology. This is leading to a narrowing gap between land and sea temperatures and weakening the monsoon circulation because the higher the temperature of seawater relative to that of land, the weaker monsoon rainfall generally becomes.
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