India’s growth runs up against water

India likes to tell a success story in megawatts, gigabytes and harvests. But beneath that story is a harder truth: the country’s next phase of growth will be decided not only by capital, labour and technology but also by water. According to a World Bank 2023 report, India accounts for roughly 18% of the world’s population but has access to only about 4% of global freshwater resources, highlighting how deeply stretched India’s water availability is relative to its demographic weight. That imbalance is no longer an environmental footnote — it is becoming a macroeconomic constraint.

For decades, water was treated as a rural welfare concern or a municipal problem. That view is outdated. Water now lies at the heart of industrial policy, exports and urban growth — and if mismanaged, it will mean higher investment risk, wider regional gaps and slower growth.

The warning signs are already visible in the power sector. A Reuters Special Report (2025) noted that India plans to invest nearly $80 billion in new coal-fired power capacity by 2031, with much of this expansion located in water-stressed regions. Thermal power generation is water-intensive because cooling systems require substantial volumes. When water runs short, plants reduce output or shut down temporarily — a recurring pattern seen in drought years. That is not merely an environmental disruption; it is a capital allocation problem. Building long-lived infrastructure in hydrologically fragile zones increases the risk of stranded assets and financial stress.

The same tension is emerging in the digital economy. India’s ambition to become a global data hub is driving the rapid expansion of data centres across Maharashtra, Telangana, Tamil Nadu and Uttar Pradesh. According to Reuters (2025), the sector could attract around $100 billion in investments by 2027, with operational capacity already at about 1.4 GW and several gigawatts more planned. But data centres also depend on water for cooling. A widely cited study in Nature (2021) estimated that a 1 MW data centre load can consume roughly 25.5 million litres of water annually, depending on cooling technology and climate conditions. Multiply that across gigawatts of capacity, and water demand becomes a serious local planning issue.

The sectors that define “New India” — digital infrastructure, energy and manufacturing — are also intensifying competition over scarce water. If planning fails to keep pace, growth gains could lead to conflict among cities, farms, and industry.

At its core, this reflects underpriced natural capital. Subsidised electricity and assured procurement lower the cost of groundwater extraction, delivering short-term gains in output and exports while deferring the long-term costs of depletion, rising subsidies and ecological stress.

The official data confirm both progress and persistent risk. According to the National Compilation on Dynamic Ground Water Resources of India, 2024, released by the Ministry of Jal Shakti (2024), India’s total annual groundwater recharge is estimated at 446.90 billion cubic metres (BCM), while annual groundwater extraction stands at 245.64 BCM. About 11.1% of assessment units are classified as over-exploited.” Nationally, about 11.13% of assessment units are classified as over-exploited. While this suggests improvement in aggregate sustainability compared to earlier assessments, stress remains geographically concentrated in the very regions that anchor agricultural output, industrial clusters and expanding cities.

For business leaders and policymakers, the central question is no longer whether water scarcity exists. It is whether India will internalise water constraints into its growth model.

First, water must be treated as a binding input in industrial policy, with project approvals based on basin-level capacity, not just plant-level compliance. Second, agriculture must shift from incentivising water consumption to rewarding water productivity through crop diversification and efficient irrigation. Third, cities must move beyond tanker-driven crisis management toward water accounting, reuse, leakage control and rational pricing that balances equity with sustainability.

India aims to sustain 7–8% growth, expand manufacturing, electrify mobility and lead the digital economy. But none of this will endure if water stress disrupts power generation, industry or food supply. In the decade ahead, water will shape inflation, subsidy burdens, interstate politics and investor confidence.

The true balance sheet of growth is not just fiscal or current account deficits; it is also aquifer levels, reservoir storage and basin sustainability.

If India wants its growth story to last, it must stop treating water as a shadow variable. Water is not incidental to development — it is the constraint that will define it.

(The writer teaches economics at ICFAI Foundation for Higher Education, Hyderabad)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.