Dry taps in Delhi and Bengaluru are injurious to India's economic health, warns Moody's

The long queues for water Delhi is seeing for the past few weeks are detrimental to India's credit health. Moody's Ratings in a report said worsening water shortage, triggered by high consumption amid rapid economic growth and frequent natural disasters, can "exacerbate volatility in India's growth".

Millions of Indians face water shortages every summer when water demand rises in farms, offices and homes against a limited supply, but a prolonged heatwave this year has worsened the shortfall, including in Delhi and Bengaluru.

India's average annual water availability per capita is likely to drop to 1,367 cubic metre by 2031 from an already-low 1,486 cu mtr in 2021, according to the Ministry of Water Resources. A level below 1,700 cu mtr indicates water stress, with 1,000 cu mtr being the threshold for water scarcity, according to the ministry.

 Moody's also highlighted that India is a big consumer of water as its economy is vast and still growing fast, with its large population continuing to expand. The agency said it expects India's economy to grow 6.5% in 2024, faster than all other G20 economies.

"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," it said in the note. "In the long term, investment in water management can mitigate risks from potential water shortages," it added.

Amongst industrial sectors, coal power generators and steel-makers are most vulnerable to water stress in India, the global rating agency said. Thermal coal power plants are one of the largest users of water as India heavily relies on coal-based power generation. 

Moody's also noted that the Indian government is investing in water infrastructure and making a push for the development of renewable energy, which will help the country reduce its reliance on water-intensive power generation from coal. Rated power-generating companies are investing in renewable energy under government targets to cut greenhouse emissions, which will help reduce their dependence on water, it added.

The sustainable finance market in India can provide companies and regional governments with a critical avenue to raise funds, it said. Moody's currently has a Baa3 rating on India with a stable outlook.