The report titled 'Caught Short--How lack of toilets and clean water contribute to malnutrition' was released today by WaterAid, an international development charity.
It said 48 million children in India, or two in every five children under the age of five, suffer from stunted growth, affecting their physical as well as cognitive and emotional development.
While Nigeria and Pakistan rank second and third with 10.3 and 9.8 million stunted children, the South East Asian nation of Timor-Leste, one of the world's newest countries, tops the list with the highest percentage of children who are stunted in proportion to their population at 58 per cent, it said.
The report stated that alongside the higher number of people without access to adequate toilets, India also has the highest concentration in the world of people practising open defecation.
Research shows that high rates of open defecation have a strong correlation with increased rates of stunting, as faeces in the environment contaminate hands and surroundings, and spreads diseases and infection.
Nearly 50 per cent of malnutrition cases are linked to infections, especially chronic diarrhoea, caused by lack of safe Water, Sanitation And Hygiene (WASH), including hand washing with soap, it said.
Globally, around 650 million people still do not have access to clean water and more than 2.3 billion to basic sanitation, it said.
"Water, sanitation and hygiene are important determinants of nutrition. With open defecation rampant in India, frequent diarrhoea hinders the ability of children to absorb nutrients," Arundati Muralidharan, WaterAid India's Policy Manager, said.
"India has made significant efforts to improve the nutritional status of children and women, but the beneficial impact of these efforts are threatened by poor WASH.
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