Water crisis may weigh on India's sovereign credit strength: Moody's

It can 'exacerbate volatility' in the country's economic growth and spark social unrest, says agency

India’s water crisis, made worse by high consumption amid rapid economic growth and frequent natural disasters, may “negatively affect” its sovereign credit strength, according to Moody's Ratings.

Rapid industrialisation and urbanisation are reducing water availability in the country. "Increases in the frequency, severity, or duration of extreme climate events stemming from climate change, such as droughts, heat waves, and floods, will exacerbate the situation because India heavily relies on monsoon rainfall for water supply," said the agency.

Water supply disruption can hurt agricultural production and industries, resulting in food price inflation and a decline in income for affected businesses and communities "while sparking social unrest."

"This in turn can exacerbate volatility in India's growth and undermine the economy’s ability to withstand shocks," said the agency.

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

"Based on our methodology for assessing risks related to environmental, social, and governance (ESG) factors, India is one of the sovereigns that are the most vulnerable to risks associated with water management," said Moody's.

Delhi is battling a water crisis. Atishi, the state’s water minister, was on a hunger strike to protest against neighbouring states allegedly not supplying the capital. She broke her fast after being admitted to the hospital on Tuesday amid worsening health.

Moody's said that the sustainable finance market in India can provide companies and regional governments with a critical avenue to raise funds.

Moody's currently has a Baa3 rating for India with a stable outlook.