Water shortage to affect industrial output: Experts

MUMBAI: The ongoing water scarcity in several parts of India, especially in Maharashtra, one of the most industrialized states in the country, is expected to have a negative impact on industrial production in the next 2-3 months. With civic bodies imposing cuts on water supplied to industrial belts across several states, the resultant shortage could pull down Index of Industrial Production ( IIP) growth by around 40-50 basis points, while the manufacturing sector alone could take a hit of about 50-75 basis points, economists said (100 bps = 1 percentage point).

The adverse impact of a poor monsoon on the agriculture sector is widely discussed, but the current water shortage hitting the industrial sector is an emerging 'headwind' for the economy, they said. A textile manufacturer in Maharashtra said that over the last few weeks, his unit has remained shut whenever the Maharashtra Industrial Development Corp (MIDC) did not supply water.

A recent TOI report quoted Anirudha Kelkar, an employee in a small dye manufacturing unit in a Mumbai suburb, as saying that initially when the water cuts began, the company bought water supplied in tankers. "However, it was getting very expensive. Now we just close down production during water cuts. The production is obviously lower than usual, but at least we are not incurring losses," Kelkar was quoted as saying. The MIDC management, on its part, "is trying its best to manage the situation", said Jayadevan K, an adviser to some industries around the city.

With water fit for industrial production in short supply, such initiatives are, however, not enough to arrest the expected drop in industrial production.

With drought in 10 of the 29 states, mainly due to poor rainfall in much of the country for two consecutive years, dams and reservoirs are left with unusually low levels of water, said SBI chief economic adviser Soumya Kanti Ghosh. Several industries depend on supply from these reservoirs and due to the shortage, water is being rationed in both residential and industrial areas. "We believe there are three industry categories - food products & beverages, textiles, and paper & paper products - that will get affected the most from this water shortage. These three industry categories weigh 14.4% in IIP-Manufacturing. Our internal estimate suggests that these three industry segments may push down IIP-Manufacturing growth by around 50-70 basis points," Ghosh said. Since the manufacturing segment has a 75.5% weight in IIP, the overall impact on the IIP could be about 40-50 basis points.

Economists also pointed out that water shortage hitting India's industrial sector is an emerging phenomenon. "While adverse weather conditions playing spoilsport for agriculture is widely discussed, the current situation can potentially act as a headwind for manufacturing in certain pockets of the country," said Siddhartha Sanyal, chief India economist, Barclays.

The government on Tuesday said IIP for February was 2%, compared to -1.5% in January, which surprised economists and analysts. However, this sudden reversal in growth rate may be short lived as the current water shortage is expected to keep this rate in check. "The headline IP (industrial production) growth (year-on-year) will likely hover mostly around the low-to mid-single digit zone in the coming months. Overall, the economic activity is on a path of recovery, albeit only at a modest rate and potentially in an uneven fashion," Sanyal said.