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BW Businessworld

Economy In Troubled Waters?

Could the profligate use of scarce water drive India’s industrial and agricultural users to tears in the long run? Anuradha Shukla takes stock of a situation that could dent the GDP by 6% if not rectified on time

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We never know the worth of water till the well is dry – Thomas Fuller

It was an uneasy summer for the two global beverage giants, Coca-Cola and PepsiCo. Struggling for scarce water, retailers and local inhabitants in Tamil Nadu and Kerala turned against the two multinationals, holding them responsible for their water woes. The agitators called for a ban and boycotted the beverages in the two states, living through the worst water crisis in two decades.

Maharashtra, reeling under a drought, cut off water supply to many manufacturing units and power plants, driving them to financial losses from the disruption in production schedules. Andhra Pradesh and Telangana also imposed similar restrictions on many industries, causing project delays and loss in revenue and production.

Experts say that the economic cost of water is likely to be high. According to a World Bank report published last year, “water scarcity will cost India six per cent of its GDP, if it continues to mismanage water resources by 2050 by affecting business, agriculture, income and property”. Climate change will further aggravate the situation. Going by an OECD estimate, water insecurity costs the global economy about $500 billion annually, by dragging down the global gross domestic product (GDP) by one per cent.

“Drought in ten states of India is estimated to impact the economy by at least Rs 6,50,000 crore as about 33 crore people across 256 districts are facing the grave situation,” states a study by the Columbia Water Centre and Ficci, titled, ‘India’s Deepening Water Crisis, Water Risks for Indian Industries’. Apprehending social unrest because of the drought, the Union government has released Rs 25,000 crore prematurely for the MNREGA scheme.

Ground Reality

The Indian economy is hurtling towards a crisis now that half the country’s water reserves are drying up. The World Bank forecasts that by 2030, India would have a water deficit of 50 per cent. With a projected population of 1.4 billion by 2050, the total availability of water resources would barely match the total requirement of water in the country.  

Since ground water is the source of 70 per cent of the country’s water for irrigation, 80 per cent of the water for domestic use and 55 per cent of the water for industrial use, the struggle for this scarce resource will only intensify.

The demand for water from the industrial sector is increasing by eight per cent per annum. Industry, which is now responsible for six per cent of the country’s total water consumption, will soon be using up 11 per cent of it. Industry will guzzle up 18 per cent of India’s total available water by 2050, compelling it to compete with municipalities and agriculture, for ground water resources. Only by then, there may be no water left to exploit.  

“The biggest impact of drought is on the physical access to water for industries. During drought months, the state’s water allocation policies give priority to drinking and agricultural use. This year, there have been instances where thermal power plants in West Bengal, Karnataka and Maharashtra had to shut down due to lack of water,” says Romit Sen, Deputy Director, India office of  the Columbia Water Centre.

Impending Crisis

The economies of the water-stressed states are already feeling the heat, in the way of a dip in agricultural production, shutting down of manufacturing units, resulting in job losses and social unrest. The situation thwarts investment into these states and upsets their economic goals. The worst-impacted are water-intensive industries like power plants, the iron and steel industry, agro-based industries, food products and beverages, textiles, and pulp and paper.

India’s thermal power plants, which consume 22 billion cubic meters of water a year, lost out on roughly 30.1 terawatt-hours (TWh) of thermal electricity generation since 2013 owing to the water scarcity, according to a study by World Resource Institute. The Parli power plant alone, which remained closed for 506 days for lack of water, lost $1.2 billion in the way of revenue and 20.9 TWh of power generation.

Union Minister for Power, Piyush Goyal, has informed Lok Sabha that nearly seven billion units (kWh) of coal-based power generation, worth a potential revenue of Rs 24 billion, was lost in the first five months of 2016. In the current fiscal, water scarcity has led to a loss of a whopping 5.87 billion units of power generation owing to water scarcity so far.

Says Dhruv M. Sawhney, Chairman, CII-Triveni Water Institute, “the impact on industry is huge. The drought entails a loss in the form of productive capital damage as a direct consequence of water scarcity or power cuts”.

Tamil Nadu Newsprints and Papers Limited, one of the largest bagasse-based paper mills in Asia had to shut its two units down, following protests from local inhabitants and restrictions imposed by the state government on use of Cauvery water.

Other paper companies also suffered losses because of stalled production. The textile processing units in Tirupur, Erode, Namakkal and Salem had to halt production, as did the construction industry, which required 30,000 litres of water daily to complete its pending projects. Agricultural output was an obvious casualty of the drought. Tea production, for instance, dropped by 12 per cent in south India last year.

In Maharashtra, the decision to cut down water supply to industries in the Thane-Belapur, Raigad-Taloja, and Aurangabad regions impacted 13,400 units of which the majority are small and medium enterprises, with a total turnover of Rs 1,12,000 crore, employing more than three lakh people. Acknowledging the revenue loss to the industry, Maharashtra Minister for Water Resources, Girish Mahajan, has said that the government had no option but to rejig its water allocation priorities in the wake of the severe drought.

“Faced with a drought situation the government needs to make judicious use of available water. Industry is important but people and cattle in the affected regions are more important. Industry will have to bear with the water cuts,” Mahajan said. Coca-Cola scrapped the expansion of its bottling plant at its Mehdiganj unit near Varanasi and Haryana witnessed delays in many housing projects, owing to the water crisis. Many companies and industry associations say the water scarcity would adversely impact industrial production.

“With civic bodies imposing cuts on water supply to industry across several states, the resultant shortage could pull down the Index of Industrial Production by around 40-50 basis points while the manufacturing sector alone could take a hit of about 50-75 basis points,” says Sawhney.

Kapil K. Narula, Executive Director and CEO, CII- Triveni Water Institute says, “Even when water is so important for the industry, businesses and governments are giving it too little consideration when making investment decisions. While developing industrial policies and attracting investments, it is important to consider that industries coming up in their state have access to resources like water.”

According to the reports, more than 40 per cent of India’s proposed coal-based plants are in highly stressed water use areas. If these plants get constructed, the country’s water consumption will double to 15.33 billion cubic metres a year. In some of these areas, the demand for water already exceeds 100 per cent of the available resources. So, if 52 GW of thermal power plants proposed in red-list areas and 122 GW in high water stress areas get a go-ahead, the water scarcity in the country will simply get worse.

Foul Water

Water contamination is another problem that entails both a health risk and a huge cost for both manufacturing units and the government in the way of remedial measures. Official figures show that daily, approximately 500 million litres of waste water from industrial units gets dumped into the Ganga. The Yamuna receives 850 million gallons of sewage every day from Delhi alone. The total waste water discharge from industries will rise to about 83,000 million litres per day by 2025.

The quality of the river waters impacts both crops and the food and beverages industries. Two reports have surfaced already of fluoride contamination in crops in Assam, with traces of the chemical in rice and tea, the two main crops of the state.

“Presence of pollutants like arsenic, nitrate, and fluoride increases the cost of water treatment for the industry manifold. Industry is ready to pay for water if municipal bodies can ensure that the water they receive is treated,” says Narula.

Presence of arsenic in water now impacts 900 million people, mainly in the Ganga-Brahmaputra valley. The Union government has put aside Rs 20,000 crore for the Namami Gange project, to clean the Ganga. In spite of Rs 7,000 crore of public money having been spent, there is no concrete result on the ground.

Policy, People, Pricing

Water is likely to become a constraint for economic growth by 2050, aggravated by economic disturbances caused by floods and droughts. India needs a sound water policy and legislation. It requires investment in infrastructure for storing and purifying water. Consumers need the right pricing of water and the government needs to sensitise people and the private sector to efficient usage of water.

According to an OECD projection, India will have to spend 2.5 per cent of its GDP on building infrastructure for water by 2025, which means an average annual investment of $108.31 billion. In the long run water security may impede economic growth and job creation.

Recognising the need to tackle the impending crisis, the Centre is working on legislation to restrict unregulated use of fresh water. During her spell as Minister for Water Resources, Uma Bharati had acknowledged that “In future, people would need to rely more on treated water, and use fresh water only for limited purposes.” “We have to bring clarity on the uses,” she had said, “Otherwise, we are staring at a huge water problem in the country.”

Water accounting is another significant initiative. The government, in collaboration with the Water Resources Group and the India-EU Water Partnership, is developing a blueprint for water accounting. This will provide an architecture for appropriate policy decisions at the national and state-levels for sustainable, equitable and economics-driven use of water.

Industry can also contribute greatly. The CII-Triveni Water Institute, which has undertaken about 120 water audits across industries, says that 15 per cent to 20 per cent of the water in use could be saved through low-cost strategies with payback in four to five months. Another 30 per cent to 40 per cent of the water could be conserved through medium to high-cost strategies with payback in 12-18 months.

In recent years businesses have started looking at their water use more comprehensively than before, adopting technologies that consume less water, improve water efficiency and recycle and harvest water. Accountability for water supply chain operations could be achieved if manufacturing units are able to accurately measure and disclose their water usage patterns.

Pricing is another contentious factor in managing a scarce resource like water. Economists say that lack of economic pricing encourages overuse and wastage of water. According to KPMG, unaccounted for water (UFW) makes up as much as 32 per cent of the water consumption owing to leakage and inefficient usage. Water allocated through economic instruments, such as prices and permits, promotes better stewardship of water resources.