Moody's Warns Water Scarcity Poses Risk To India's Sovereign Credit Strength

The Ministry of Water Resources predicts that India's average annual water availability per capita will decrease to 1,367 cubic meters by 2031, down from 1,486 cubic meters recorded in 2021

India's escalating water scarcity, exacerbated by increased consumption amid rapid economic expansion and frequent natural disasters, poses a significant threat to the country's sovereign creditworthiness in South Asia, Moody's Ratings warned on Tuesday. Every summer, millions of Indians confront water scarcity as demand surges across agricultural fields, offices, and households, straining against limited supply. 

However, an extended heatwave has exacerbated the deficit this year, notably impacting Delhi and 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. In the long term, investment in water management can mitigate risks from potential water shortages," Moody's Ratings said.

The Ministry of Water Resources predicts that India's average annual water availability per capita will decrease to 1,367 cubic meters by 2031, down from the already limited 1,486 cubic meters recorded in 2021. According to the ministry's classification, a per capita availability below 1,700 cubic meters signifies water stress, with the threshold for water scarcity being set at 1,000 cubic meters.

"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 said.

Moody’s cautioned that this could amplify fluctuations in India's economic growth. The global agency highlighted that heightened occurrences of water scarcity and increased severity and duration of extreme weather events due to climate change will further compound the issue, given India's significant reliance on monsoon rainfall for water supply. Additionally, it underscored that industrialisation and urbanisation will escalate competition for water resources among businesses and residents.

Moody's presently has given India a Baa3 rating with a stable outlook.