By Shritama Bose
MUMBAI- The world’s fifth-largest economy faces a fundamental risk to growth: water security. Erratic rainfall of late is one reason why India’s Ministry of Finance now reckons GDP growth will slow to 7 percent , if not lower, in the 12 months to the end of next March, from 7.8 percent in the previous year. Too much and too little water routinely affects everything, from cities to power plants to farming. Climate change and weak state capacity make it worse. Yet, this rising problem is usually either underappreciated or ignored.
The crisis takes on plenty of forms: political disputes over sharing rivers; inefficient irrigation techniques; inequitable drinking-water access; flooding in cities including New Delhi and Mumbai; and more. The drowning of three students after rainwater entered a basement library in the capital on Saturday is only the latest in a series of water-linked mishaps.
Shortages are as potent as deluges. Rating agency Moody’s in June identified water security as a sovereign credit risk to India and a significant threat to businesses like coal-fired power stations and steelmakers. Changing monsoon patterns hurt farm incomes and rural consumption.
Between 2013 and 2016, water shortage-induced shutdowns cost India’s thermal power-dependent utilities over $1.4 billion in lost revenue, the World Resources Institute found in 2018. The climate nonprofit calculated that for the largest of them, rising demand from other water users will, by 2030, increase competition for the resource by, on average, up to 28 percent . Saltwater incursion and groundwater depletion hurt farm output and force villagers to leave, usually to cities. An official survey in 2021 found water scarcity to be among the top reasons for internal migration among working Indians.
Prime Minister Narendra Modi’s administration has taken some steps. It has set a target of cutting freshwater extraction to less than 50 percent by 2030 from 66 percent , the highest rate in the world, Reuters reported on July 4, citing an official document. It also plans to more than triple wastewater recycling to 70 percent over the same period. Those are steep goals, not least because India’s federal structure gives states first dibs on legislating water issues. Yet, there’s little evidence plans to build roads, bridges and other infrastructure account for the rising incidences of water-linked shocks.
The problem is not top of investors’ minds. India’s vulnerability to climate change came up only briefly as a medium-term risk in Goldman Sachs’ conversations about the country with clients in Hong Kong and Mumbai, the bank said in a note on July 1. That’s partly because there are not enough data to quantify the threat, which is too often used as an excuse for inaction. It’s time to change that.
Three students at an exam training center in New Delhi died after rainwater flooded in the institute’s basement library, the Times of India reported on July 28.
India’s Ministry of Finance projected real GDP growth of 6.5—7 percent for the 12 months to March 2025 in its annual economic survey published on July 22. That’s lower than the 7.8 percent pace clocked in the previous financial year and the Reserve Bank of India’s estimate of 7.2 percent for the current year.
The survey flagged recent erratic rainfall as a risk to growth. A normal monsoon is expected to boost rural consumer demand, but the season still has some way to go, it said.
The Reserve Bank of India (RBI) has upgraded its growth forecast for the fiscal year 2024/25 to 7.2 percent, up from 7 percent, driven by a resurgence in private consumption, robust investment, and a rebound in exports.
Similarly, the International Monetary Fund has revised India’s growth forecast to 7 percent for 2024/25 from 6.8 percent, aligning with recent updates from rating agencies and private economists.
S&P expects India’s economy will grow at nearly 7 percent annually over the next three years.
Retail inflation in India has eased to around 5 percent from over 7 percent in 2022. Still, food inflation remains persistently high at around 9 percent, impacting rural and low-income urban households. This persistent inflation, coupled with minimal growth in real wages, is dampening expectations for early interest rate cuts by the RBI.
India’s federal fiscal deficit, which exceeded 9 percent of GDP during the pandemic, is projected to remain around 5 percent for the current fiscal year.
However, the combined federal and state fiscal deficits are estimated at 7.9 percent of GDP, reflecting a large debt stock and high-interest burden that constrain the capacity for increased state spending.
