Water shortage can negatively impact India’s sovereign credit strength, says Moody’s

Moody’s Ratings warned on June 25 that India’s growing water shortage and increasingly frequent climate change-driven natural disasters, amid a rise in consumption and rapid economic growth, can negatively affect the country’s sovereign credit strength.

Currently rated Baa3 stable by Moody’s, which denotes the lowest investment grade rating, India is susceptible to increasing water stress, and any drop in water supply, for which it is heavily reliant on monsoon rains, could disrupt operations in factories and farms. This, the firm said, would result in inflation in food prices and declines 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 given that more than 40% of the country’s workforce is employed in agriculture,” Moody’s said in a note on environmental risks for India, identifying coal-fired power generation and steel production as the industrial sectors most vulnerable to water stress.