New Delhi, Moody's Ratings said on Tuesday that India's growing water scarcity may disrupt the agricultural and industrial sectors and is detrimental to the sovereign's credit health, as rising food inflation and declining incomes may lead to social unrest.
He said declines in water supply can disrupt agricultural production and industrial operations, resulting in inflation in food prices and therefore can be detrimental to the credit health of water-intensive sectors, such as coal-fired power generators and steel manufacturers.
India's rapid economic growth, accompanied by rapid industrialization and urbanization, will reduce water availability in the world's most populous country, he said. In addition, water stress is worsening due to an acceleration of climate change, which is causing phenomena increasingly intense and frequent extreme climate events, such as droughts, heat waves and floods.
India faces growing water scarcity as water consumption increases amid rapid economic growth and increasingly frequent natural disasters due to climate change, Moody's said in a report on the environmental risk facing India.
"This is detrimental to the credit health of the sovereign, as well as to water-intensive sectors such as coal-fired power generators and steel manufacturers. In the long term, investment in water management can mitigate the risks of a possible water shortage," Moody's said. Ratings said in the report.The report comes amid a growing water crisis faced by residents in some parts of the national capital, which has sparked protests and political conflicts. Delhi Water Minister Atishi, who began her hunger strike on June 21 over the issue, was hospitalized on Tuesday morning after her health deteriorated.
"Decreases in water supply can disrupt agricultural production and industrial operations, resulting in food price inflation and decreased income for affected businesses and communities, while causing social unrest. This in turn may exacerbate volatility in India's growth and undermine the economy's ability to withstand shocks," Moody's said.
Citing data from the Ministry of Water Resources, Moody's said India's average annual per capita water availability is likely to fall to 1,367 cubic meters by 2031 from the already low 1,486 cubic meters in 2021. A level below 1,700 cubic meters indicates water stress, with 1,000 cubic meters being the water shortage threshold, according to the ministry. Moody's said a heat wave in June 2024, with temperatures reaching 50 degrees Celsius in Delhi and northern Indian states , limited the water supply. Floods, one of the most common types of natural disasters in India, disrupt water infrastructure, which is insufficient to retain water in the event of sudden large downpours.
Floods in northern India and Cyclone Biparjoy in Gujarat in 2023 caused economic losses of between $1.2 and $1.8 billion and damage to infrastructure, according to an estimate by the State Bank of India, he said.
Monsoon rains are also decreasing. 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.The amount Rainfall has decreased, while droughts have become more severe and frequent. In 2023, monsoon rainfall in India was 6% below the 1971-2020 average, and the country suffered an unprecedented rainfall shortage in August of that year. According to Moody's report, more than 70 percent of India's rainfall occurs between June and September each year.
In the past, disruptions to agricultural production and increased inflationary pressure have led to increases in food subsidies that have contributed to India's fiscal deficits. Food subsidies were budgeted at 4.3 percent of central government spending for the current fiscal year (2024-25), one of the largest items in the budget, the report said.
Coal-fired power generators and steel manufacturers rely heavily on water for their production and increasing water scarcity may disrupt their operations and hamper their revenue generation, eroding their credit strength, it said.Moody's said the Indian government It is investing in water infrastructure and promoting the development of renewable energy. At the same time, large industrial consumers of water seek to improve the efficiency of its use. These efforts can help reduce water management risks for both the sovereign and companies in the long term.
"The sustainable finance market in India is small but developing rapidly. It can provide businesses and regional governments with a critical avenue to raise funds. Some states facing severe water shortages have used the sustainable finance market to raise funds to invest in water management. Moody said.
Moody's said industrialization and urbanization will lead to intensified competition for water between businesses and residents. India has significant scope for industrialization and urbanization. The industry's share of India's GDP was 25.7 percent in 2022, lower than the G-20 emerging market average of 32 percent, according to the World Bank. Furthermore, residents in urban areas accounted for only 36 percent of the country's total population in 2022, a proportion that is likely to increase given that the G-20 emerging market median is 76 percent. According to a Bank report February 2023 World Cup, for the past decade, the multilateral lender has supported the Indian government's efforts to bring clean water to rural communities. A series of projects with a total funding of $1.2 billion have benefited more than 20 million people.
He said declines in water supply can disrupt agricultural production and industrial operations, resulting in inflation in food prices and therefore can be detrimental to the credit health of water-intensive sectors, such as coal-fired power generators and steel manufacturers.
India's rapid economic growth, accompanied by rapid industrialization and urbanization, will reduce water availability in the world's most populous country, he said. In addition, water stress is worsening due to an acceleration of climate change, which is causing phenomena increasingly intense and frequent extreme climate events, such as droughts, heat waves and floods.
India faces growing water scarcity as water consumption increases amid rapid economic growth and increasingly frequent natural disasters due to climate change, Moody's said in a report on the environmental risk facing India.
"This is detrimental to the credit health of the sovereign, as well as to water-intensive sectors such as coal-fired power generators and steel manufacturers. In the long term, investment in water management can mitigate the risks of a possible water shortage," Moody's said. Ratings said in the report.The report comes amid a growing water crisis faced by residents in some parts of the national capital, which has sparked protests and political conflicts. Delhi Water Minister Atishi, who began her hunger strike on June 21 over the issue, was hospitalized on Tuesday morning after her health deteriorated.
"Decreases in water supply can disrupt agricultural production and industrial operations, resulting in food price inflation and decreased income for affected businesses and communities, while causing social unrest. This in turn may exacerbate volatility in India's growth and undermine the economy's ability to withstand shocks," Moody's said.
Citing data from the Ministry of Water Resources, Moody's said India's average annual per capita water availability is likely to fall to 1,367 cubic meters by 2031 from the already low 1,486 cubic meters in 2021. A level below 1,700 cubic meters indicates water stress, with 1,000 cubic meters being the water shortage threshold, according to the ministry. Moody's said a heat wave in June 2024, with temperatures reaching 50 degrees Celsius in Delhi and northern Indian states , limited the water supply. Floods, one of the most common types of natural disasters in India, disrupt water infrastructure, which is insufficient to retain water in the event of sudden large downpours.
Floods in northern India and Cyclone Biparjoy in Gujarat in 2023 caused economic losses of between $1.2 and $1.8 billion and damage to infrastructure, according to an estimate by the State Bank of India, he said.
Monsoon rains are also decreasing. 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.The amount Rainfall has decreased, while droughts have become more severe and frequent. In 2023, monsoon rainfall in India was 6% below the 1971-2020 average, and the country suffered an unprecedented rainfall shortage in August of that year. According to Moody's report, more than 70 percent of India's rainfall occurs between June and September each year.
In the past, disruptions to agricultural production and increased inflationary pressure have led to increases in food subsidies that have contributed to India's fiscal deficits. Food subsidies were budgeted at 4.3 percent of central government spending for the current fiscal year (2024-25), one of the largest items in the budget, the report said.
Coal-fired power generators and steel manufacturers rely heavily on water for their production and increasing water scarcity may disrupt their operations and hamper their revenue generation, eroding their credit strength, it said.Moody's said the Indian government It is investing in water infrastructure and promoting the development of renewable energy. At the same time, large industrial consumers of water seek to improve the efficiency of its use. These efforts can help reduce water management risks for both the sovereign and companies in the long term.
"The sustainable finance market in India is small but developing rapidly. It can provide businesses and regional governments with a critical avenue to raise funds. Some states facing severe water shortages have used the sustainable finance market to raise funds to invest in water management. Moody said.
Moody's said industrialization and urbanization will lead to intensified competition for water between businesses and residents. India has significant scope for industrialization and urbanization. The industry's share of India's GDP was 25.7 percent in 2022, lower than the G-20 emerging market average of 32 percent, according to the World Bank. Furthermore, residents in urban areas accounted for only 36 percent of the country's total population in 2022, a proportion that is likely to increase given that the G-20 emerging market median is 76 percent. According to a Bank report February 2023 World Cup, for the past decade, the multilateral lender has supported the Indian government's efforts to bring clean water to rural communities. A series of projects with a total funding of $1.2 billion have benefited more than 20 million people.