India's persistent water shortages, exacerbated by a prolonged heatwave and high consumption rates amid rapid economic growth, are posing significant risks to its credit health, according to a recent report by Moody's Investors Service.
The global ratings agency highlighted that the worsening water scarcity could intensify economic volatility in India, affecting sectors heavily reliant on water such as coal power generators and steel-makers.
Moody's noted that India's economy is expected to grow at 6.5% in 2024, outpacing other G20 economies, but this growth comes with heightened water consumption challenges.
"India's large and expanding population coupled with its robust economic growth make it one of the world's largest consumers of water," Moody's stated in its report. The Ministry of Water Resources predicts a further decline in per capita water availability from 1,486 cubic meters in 2021 to 1,367 cubic meters by 2031, highlighting the increasing strain on water resources.
The situation is particularly dire in urban centers like Delhi and Bengaluru, where millions of residents face acute water shortages every summer. The recent heatwave has exacerbated the shortfall, underscoring the urgency for sustainable water management practices.
"Below-average water availability per capita indicates water stress, and India is approaching the threshold of water scarcity," the report warned.
Moody's highlighted the critical importance of long-term investments in water infrastructure to mitigate risks associated with potential water shortages.
In response to these challenges, the Indian government has been ramping up investments in water management and promoting renewable energy initiatives. Moody's noted that the shift towards renewable energy sources could help reduce the water-intensive demands of sectors like thermal coal power generation.
"The sustainable finance market in India presents a crucial avenue for companies and regional governments to raise funds aimed at bolstering water infrastructure," Moody's added. It emphasized that such investments could play a pivotal role in safeguarding India's credit ratings and mitigating risks associated with water stress.
Currently, Moody's maintains a Baa3 rating for India with a stable outlook, acknowledging both the country's economic potential and the challenges posed by its water consumption patterns.
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