In June 2026, Moody's Ratings assigned India as the highest level of water-management risk country, on its five-point environmental risk scale, citing its fragmented water governance, distorted water pricing, inadequate infrastructure and slow water reallocation. The agency warned that delayed investment in water infrastructure could weaken economic growth, industrial productivity and fiscal stability, with implications for both sovereign credit worthiness and bank lending portfolios. The warning implies that water risk is no longer an environmental concern sitting on the margins of a bank's balance sheet, it is becoming a mainstream financial risk
This comes at a time when India’s manufacturing sector is projected to increase its share of GDP from 12.9% to 25% by 2035, driven by investments in automotive, pharmaceuticals, capital goods, semiconductors, electronics, electric vehicles, chemicals, food processing, and AI data centres. Many of these industries are highly water-intensive. Semiconductor fabrication, for example, requires large volumes of ultra-pure water, similarly data centres depends on huge quantity of potable water for its evaporative cooling system and generation of electricity. Water sustainability is, therefore, becoming a prerequisite for industrial competitiveness, as water demand, for instance, in power sector is likely to increase to 70 BCM (2050) compared to 33 BCM (2025) even with limited water supply.
As we cross critical 1.5° C global warming threshold, India must adapt to a hotter, more water-stressed future. The UNEP Adaptation Gap Report 2025 finds that South Asia's single largest sectoral adaptation need is water supply, accounting for roughly one-third of all adaptation finance required in the region. Globally, there is a huge shortfall in adaptation funding in between $ 284 and $ 339 billion. As water is the primary medium through which the impacts of the climate crisis are experienced, and nearly 60% of adaptation measures are water-related, strengthening water resilience is central to achieving effective climate adaptation and sustained industrial growth.
The risks of inaction are already evident in India. Water resources are finite. According to NITI Aayog, the water demand in 2050 is likely to be twice the water supply in India. According to a World Bank study, water scarcity could reduce India's GDP by up to 6% by 2050. The country’s industrial and digital transformation depends on reliable water supplies. Water shortages have already disrupted power generation, manufacturing and agriculture. Between 2017 and 2021, inadequate cooling water caused India's thermal power plants to lose 8.2 terawatt-hours of electricity generation—enough to power 1.5 million households for five years. Water-related disruptions increase default risk by interrupting production, reducing revenues, increasing operating costs and lowering asset values. Integrating water risk into credit appraisal, therefore, protects banks from future non-performing assets while improving portfolio resilience.
{{/usCountry}}The risks of inaction are already evident in India. Water resources are finite. According to NITI Aayog, the water demand in 2050 is likely to be twice the water supply in India. According to a World Bank study, water scarcity could reduce India's GDP by up to 6% by 2050. The country’s industrial and digital transformation depends on reliable water supplies. Water shortages have already disrupted power generation, manufacturing and agriculture. Between 2017 and 2021, inadequate cooling water caused India's thermal power plants to lose 8.2 terawatt-hours of electricity generation—enough to power 1.5 million households for five years. Water-related disruptions increase default risk by interrupting production, reducing revenues, increasing operating costs and lowering asset values. Integrating water risk into credit appraisal, therefore, protects banks from future non-performing assets while improving portfolio resilience.
{{/usCountry}}The exposure is already sizeable: A 2019 WWF-India and Indian Banks' Association study estimated that more than 39% of Indian banks' total gross credit exposure sits in sectors where water risk is significant — power sector is primary concern, given how dependent thermal plants are on fresh water for cooling.
India’s growth story will be sustained not only by artificial intelligence, semiconductors, and advanced manufacturing, but also by the infrastructure that secures water—pipes, reservoirs, treatment systems, and reuse networks. Mobilising finance for water resilience requires active participation from industries, private investors, and financial institutions. Financing climate-proofing of private assets can strengthen business continuity while reducing financial risks. Investments in industrial water-use efficiency, water conveyance, wastewater reuse, closed-loop ZLD water systems, water resilience upgrades across supply chains and efficient cooling systems are no longer environmental expenditures—they are business continuity investments.
Closing the water financing gap will require a broader coalition of financial actors. Central banks, commercial banks, development finance institutions, credit rating agencies, and insurers all have a role to play in integrating water resilience into lending, investment, and risk assessment frameworks. As businesses invest in water-resilient infrastructure, they also stimulate markets increasing demand for climate-resilient technologies, creating positive economic spillovers.
This makes investment in water resources management a financial imperative--critical to short-term business continuity, creditworthiness, and investment safety, and to long-term economic stability. Industries should increase transparency around their water stewardship efforts, disclose progress, and set clear water efficiency targets. Improved disclosure will enable investors and lenders to better assess exposure and reward responsible water management practices.
Financial institutions, must recognise water as a strategic and finite resource in industrial lending decisions. Credit appraisal frameworks should assess borrowers' commitments to water stewardship and resilience, supported by robust regulatory oversight and periodic audits.
Banks should actively incentivise lending toward climate-resilient technologies and practices — advanced monitoring systems and smart water management solutions, desalination, rainwater harvesting, treated wastewater reuse, zero liquid discharge (ZLD) systems, and decentralised wastewater treatment technologies. Such investments reduce the risk of stranded assets and non-performing loans, while strengthening the long-term competitiveness and resilience of Indian industry.
The Bureau of Water Use Efficiency of the ministry of jal shakti can play an important role in helping industries adopt technologies and measures for sustainable water use. State governments should enact Water Regulatory Acts, establishing independent regulatory authorities in each state to oversee industrial water use. These authorities should facilitate financing for adaptation through instruments such as green bonds, blue bonds, and blended-finance mechanisms, while also promoting industry partnerships for technology adoption, innovation, and research and development. In addition, they should commission independent Third-party audits to assess industrial water efficiency and progress toward water neutrality goals
By working together, financial institutions, regulators, and industries can build long-term economic resilience while positioning India as a global leader in water-smart industrial development. As India advances towards Viksit Bharat 2047, water management must be treated as a strategic investment—on par with energy, talent, and supply chains—to secure industrial growth while building long-term climate resilience.
(The views expressed are personal)
This article is authored by Neha Lakhwan, research scientist, Mu Gamma Consultants Pvt. Ltd and SK Sarkar, senior advisor, Water Resources Division, TERI, New Delhi.