Understanding Water’s Role in India’s Economy
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- Published 17 Jul 2026
Water is becoming an increasingly important economic issue for India.
The country has only 4 per cent of the world’s freshwater resources, but it supports nearly 18 per cent of the global population.
As demand continues to rise faster than supply, pressure on available water resources is increasing.
This pressure is coming from several directions.
Agriculture remains the largest user of water in India.
Irrigation demand is expected to increase by around 71 billion cubic metres by 2025 and by nearly 250 billion cubic metres by 2050 compared with 2010 levels.
Industrial water demand is also growing. Sectors such as chemicals, textiles and paper are seeing water use rise by around 5 to 9 per cent a year.
A newer source of demand is coming from artificial intelligence and data centres.
Water is used for cooling servers and managing heat. Water consumption by AI data centres is expected to rise from around 150 billion litres to 358 billion litres by 2030.
At the same time, India’s water availability remains under pressure.
India receives around 4,000 billion cubic metres of rainfall every year.
However, only around 1,123 billion cubic metres is considered usable due to geographical, storage and infrastructure limitations.
Several major river basins are also moving closer to severe water stress.
Reservoir levels provide another warning signal.
Between April 30 and May 14, 2026, water stored across 166 reservoirs fell by around 8 billion cubic metres. 13 major reservoirs were below 50 per cent of their capacity.
This shows that water stress is not only a seasonal issue. It is also a structural challenge linked to demand, storage, distribution and efficiency.
The economic impact can be significant.
A NITI Aayog report estimates that water scarcity could reduce India’s GDP by 6 per cent by 2050.
Urbanisation could add further pressure.
Around 416 million more people are expected to move to Indian cities by 2050. This will increase demand for housing, electricity, food, medicines, transport and infrastructure.
Many of these activities require large amounts of water.
Agriculture currently accounts for nearly 80 per cent of India’s water consumption. Industry and domestic use each account for around 10 per cent.
While agriculture is likely to remain the largest user, the share of industrial and domestic consumption could rise as cities expand and manufacturing grows.
Within industry, thermal power stands out.
Thermal power accounts for nearly 88 per cent of industrial water use in India. Water is required mainly for cooling and steam generation.
Other users include engineering, pulp and paper, textiles, steel and manufacturing.
For these sectors, water is not just an input. It is essential for daily operations.
Water shortages can reduce production or force plants to shut down. Higher water prices can put pressure on margins. Stricter regulations can increase compliance costs.
Groundwater stress can also create risks for facilities located in vulnerable areas.
Disputes with local communities may cause delays, opposition or reputational damage.
The government has responded by increasing spending on water access, irrigation and groundwater management.
The Jal Jeevan Mission has an outlay of around ₹8.69 lakh crore and aims to provide tap water to rural households.
AMRUT 2.0 focuses on urban water supply and sewage systems across more than 4,700 urban local bodies, with an outlay of around ₹2.99 lakh crore.
The Pradhan Mantri Krishi Sinchayee Yojana aims to improve irrigation efficiency and expand micro irrigation coverage. The Atal Bhujal Yojana focuses on groundwater management.
The policy direction is clear. India needs both better access to water and more efficient use of existing resources.
Water also affects sectors in different ways.
Thermal power, steel, cement, textiles and pharmaceuticals depend heavily on water for operations.
At the same time, water treatment, recycling, pipes, irrigation equipment, pumps and water technology may benefit from rising investment in infrastructure and efficiency.
This creates two sides to the water theme.
Some companies face growing operational risks due to water dependence. Others provide the equipment, systems and technology needed to manage water more efficiently.
India’s urban water infrastructure alone may require around $150 billion of investment over the next 15 years.
Most of this sector still depends heavily on government funding. Greater private participation could become important as the investment requirement increases.
For investors, water is becoming an important business risk to track.
Companies that manage water efficiently may be better placed to control costs, reduce disruption and meet regulatory expectations.
In the coming years, water may influence not only sustainability strategies but also production, profitability and long-term growth.
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