News Brief

Moody's Ratings Warns Of Water Shortage Impact On India's Sovereign Rating

Bhuvan Krishna

Jun 26, 2024, 01:38 PM | Updated 01:38 PM IST

Water shortage is a big challenge for India.
Water shortage is a big challenge for India.

Moody's Ratings has announced that the growing water shortage in India could negatively affect the country's sovereign rating.

Currently, India holds a 'Baa3' rating with a stable outlook, which is the lowest investment-grade rating, as per The Hindu Businessline's report.

Moody's has highlighted that India's increasing water consumption, driven by rapid economic growth and more frequent natural disasters due to climate change, poses a threat to the nation's credit health.

John Wang, VP-Senior Analyst at Moody’s Ratings, stated, “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.”

This report comes as many regions in India, including the national capital, are experiencing severe heat conditions and water crises, impacting reservoir levels.

A 20 June bulletin from the Central Water Commission noted that the live storage in 150 reservoirs is currently 37.662 billion cubic meters (BCM), or 21 per cent of their total capacity, down from 46.883 BCM during the same period last year.

Moody's Ratings noted, “India‘s fast economic growth, accompanied by rapid industrialisation and urbanisation, is reducing water availability in the world’s most populous country.”

Furthermore, the frequency and severity of extreme climate events, such as droughts, heat waves, and floods, will exacerbate the situation, as India heavily relies on monsoon rainfall for its water supply.

The report warned that reduced water supply could disrupt agricultural production and industrial operations, leading to food price inflation, income declines for affected businesses and communities, and potential social unrest. This could increase volatility in India's growth and undermine the economy's resilience to shocks.

Moody's identified coal power generators and steel-makers as the most vulnerable to water stress in India.

These industries heavily depend on water for production, and growing shortages could disrupt their operations, reducing revenue and credit strength.

The agency suggested that investment in water infrastructure and renewable energy could mitigate long-term risks for the sovereign, power generators, and steel-makers.

Furthermore, Moody's highlighted that India’s growing sustainable finance market could help companies finance water investments.

Bhuvan Krishna is Staff Writer at Swarajya.

Get Swarajya in your inbox.