India wants more factories, fabs and data centres. Where will the water come from?

India is home to nearly 18 per cent of the world's population but only has access to about 4 per cent of global freshwater resources, according to the World Economic Forum. As the country aspires to become a developed nation or Viksit Bharat by 2047, its growth story has a big constraint that cannot be solved by making faster highways, bigger data centres or more industries or factories; it will require something more basic and essential for the very existence of life on this planet - water.

From steel mills to semiconductor fabs, no major industry can run without water. India’s case is more alarming because water as a resource has already been stretched in many parts of the country, and it is no longer just a civic concern but has quickly become a business constraint with livelihoods at stake.

The question of the hour is not just how much water India needs to keep its growth engine humming but whether the problem can be solved by finding new sources of water or opting for ways to recycle more water that goes unused and to waste.


“Water will not stop India's industrial growth nationally, but it will decide which clusters grow and at what cost,” said Sumouleendra Ghosh, Global Infrastructure Water Sector Lead, KPMG and Partner, KPMG India.

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That risk is already visible. NITI Aayog's Composite Water Management Index had projected that water demand could reach twice the available supply by 2030, with a potential 6% loss in GDP. Its 2019 assessment also estimated the rise in industrial water requirements at roughly fourfold between 2005 and 2030. Meanwhile, the Central Ground Water Board's 2025 assessment found 730 of 6,762 assessment units, or 10.8%, to be over-exploited.

The worry is multifold amidst the present state of affairs because many of India's planned and big growth engines on which it is betting its growth are located in or near areas that are already experiencing water stress.

“The challenge is not simply a mismatch between water availability and demand at the national level; it varies regionally and depends on the timing, quality and reliability of water sources,” said Prof. Ligy Philip, Institute Chair Professor, Department of Civil Engineering, IIT Madras.

Philip told ET Online that thermal power, textiles, pulp and paper, steel, aluminium, chemicals, cement, electronics, semiconductor manufacturing and data centres are among the most vulnerable sectors. Long-term industrial growth, she added, will require water-efficient processes, recycling and reuse, as well as basin-level water management.

The industrial water squeeze

Thermal power provides an early warning of what water stress can mean for industry. According to Ghosh, the World Resources Institute found that 14 of India's 20 largest thermal utilities had shut down at least once because of water shortages between 2013 and 2016, resulting in about $1.4 billion in lost revenue. Around 40% of plants were located in highly water-stressed areas.

"The new risk is in the sectors India is betting on -- semiconductor fabs, pharmaceuticals and data centres -- all need ultra-pure or cooling water with zero tolerance for supply interruptions," Ghosh told ET Online.

Semiconductor fabs need ultra-pure water to make chips. Meanwhile, data centres also require huge quantities of water to keep them cool. Traditional and old industries like chemicals, pharmaceuticals, textiles, paper and steel are big water guzzlers. So, it’s no longer just about compliance or environmental concerns. Water can also become a major investment risk, as future scarcity could not only hurt expansion plans but also force companies to rethink their investments in the first place.

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Ghosh said large, listed and export-facing companies are already shifting from simply “saving water” to “managing water as a supply risk”, although many mid-sized companies and MSMEs remain largely at the compliance stage.

“Thermal power plants are adapting operations to MoEF&CC water-consumption norms, notified in 2015 and amended in 2018, and increasingly using closed-cycle cooling, ash-water recirculation and zero liquid discharge systems. Industries in Surat's Pandesara and Sachin GIDC (Gujarat Industrial Development Corporation), Chennai's SIPCOT belts and Nagpur's power stations now source cooling water from city sewage treatment plants. That is a structural change: industry stops competing with citizens for freshwater and starts using a supply that grows with the city,” Ghosh added.

From sewage to industrial supply

India already has scarce freshwater, and because of that, industries are looking to treat municipal wastewater as an alternative source. It is not a new or fancy idea, but a simple one: cities generate huge amounts of wastewater continuously, while industries need a regular supply of water. These two factors can complement each other and provide a practical solution.

“Treated wastewater is one of India's most scalable industrial water sources: it is relatively reliable, close to urban demand centres and grows with cities,” Ghosh said. The bigger gap, he added, is not technology alone but the creation of a functioning market with dependable quality, conveyance and long-term contracts.

The potential resource is substantial. CPCB data cited by Ghosh shows urban sewage generation at 72,368 million litres per day, against installed treatment capacity of 31,841 MLD. Only around 20,235 MLD was actually being treated.

That leaves a large potential source of industrial water underused.

Nitin Bassi, Fellow, Council on Energy, Environment and Water (CEEW), estimates that treated used water could have a market value of Rs 72,000 crore by 2047 at current prices.

“Urban local bodies need to identify reuse avenues that can earn them revenue,” Bassi told ET Online. One opportunity is supplying treated used water for cooling in thermal power plants, data centres and semiconductor fabrication units. He also suggested pricing treated used water below the freshwater tariff currently paid by these industries to encourage adoption.

It also brings an important point into focus that industries or policymakers could treat sewage treatment plants not just as disposal infrastructure but also as important industrial water-supply assets.

Technology offers solutions, but not the whole answer

There is no single technology or process that can solve India’s massive industrial water challenge.

Philip said technology can address a substantial proportion of the problem, but only when combined with better resource allocation, economic viability and governance.

“The solution lies not in a single breakthrough technology, but in integrating water audits, demand reduction, improved water-use efficiency, wastewater recycling and reuse, source diversification, process optimisation and advanced treatment technologies,” she said.

Wastewater recycling and reuse offer the greatest short- and medium-term potential, according to Philip. Membrane technologies such as ultrafiltration and reverse osmosis can help recover high-quality water, while zero liquid discharge can be used where regulations or the nature of the industrial effluent demand it.

“Wastewater recycling and reuse offer the greatest potential for short- and medium-term impact, and many industries are already implementing these approaches. Membrane technologies are important enablers of high-quality water recovery and, where necessary, zero-liquid discharge (ZLD), although concentrate management remains a key challenge. Desalination is a viable option for coastal regions with limited freshwater supplies, but its economic feasibility in inland areas is constrained by water conveyance costs and the need for sustainable brine management,” Philip added.

Desalination can play a role in coastal, water-stressed regions, but it becomes less attractive inland because of conveyance costs and the need to manage brine.

Ghosh sees a similar hierarchy, beginning with something much less glamorous than desalination plants or advanced membranes: data.

Digital metering, online quality sensors and plant-level water balances can identify leaks, losses and inefficient processes before companies commit to large capital investments. AI can then be used for predictive maintenance, anomaly detection, demand forecasting and treatment optimisation — but only if the underlying instrumentation and data are reliable.

In short, the first water technology an industrial plant may need is not necessarily a sophisticated treatment system. It may simply be knowing exactly where every litre is going, Ghosh says.

The economics of reuse

The solutions appear simple, but the main obstacle is not whether the technology will work. It is something else.

“The main barrier is not technology. It is the price of the alternative, followed by conveyance infrastructure and weak enforcement,” Ghosh said.

“Freshwater, especially groundwater, is underpriced. A unit with a borewell pays only for electricity and pumping. Any recycled source, however well-designed, looks expensive against that,” Ghosh added.

“The 'last mile' pipe is the missing infrastructure. STPs sit at the edge of cities; industrial estates sit elsewhere. Someone must finance, build and operate the transmission main, storage and distribution network. When contracts leave this unclear, plants are built but water goes unsold,” he added.

Thus, recycled water appears expensive even when freshwater itself carries substantial environmental and economic costs.

Philip said this creates a structural disadvantage for companies investing in reuse.

“Treated wastewater often requires additional treatment, pumping, and conveyance to meet process-specific quality requirements, increasing operational costs,” she said. Freshwater, by contrast, is frequently available at a price that does not reflect its extraction, treatment and environmental costs.

The result is a familiar problem: companies may know that recycling water is the sustainable option, but the financial calculation does not always encourage them to make the switch.

The economics change when the full delivered cost of freshwater — including scarcity and reliability — is taken into account.

Ghosh cited examples from Varanasi, Chennai, Surat and Delhi to illustrate the difference. Treatment costs in Varanasi rise from roughly Rs 6-9 per kilolitre for secondary treatment to Rs 21-23 per kilolitre for UF+RO, before conveyance, storage and financing costs are added.

Chennai's tertiary RO water is supplied at around Rs 80 per kilolitre directly to companies and Rs 65 per kilolitre to SIPCOT, while Surat has built a reclaimed-water market by keeping the price below its freshwater tariff.

Delhi presents the opposite problem. Treated effluent priced at around Rs 7 per kilolitre has struggled to attract buyers because groundwater is almost free.

This brings the big question to the forefront: the issue is not whether recycled water is cheap, but whether freshwater is priced realistically.

The missing piece is often the pipe

One of the most neglected factors in this is that even if a city has enough resources to treat its wastewater efficiently and there is an industrial cluster which has huge demand for water, the two may not be connected.

This “last mile” problem can determine whether a reuse project succeeds.

The common thread is a clear buyer.

The main point is that instead of building a treatment plant and then searching for customers, Ghosh argues that projects should secure industrial offtake first. Long-term bulk supply contracts, potentially lasting 15-30 years, can give cities and financiers enough certainty to invest in treatment and pipelines.

Industrial development corporations could play a particularly important role by aggregating demand. SIPCOT in Tamil Nadu and GIDC in Gujarat are examples of how such intermediaries can sign bulk contracts and manage distribution across industrial clusters.

Policy has to change the price signal

Experts stress that India needs stronger policy intervention, but that alone would not be enough in the long run.

Ghosh wants the focus to shift to metering and appropriately pricing industrial freshwater abstraction, particularly groundwater. That means industries should face volumetric charges that reflect local scarcity, while treated wastewater should remain economically competitive.

Philip also wants a mechanism in place for a rational water-pricing framework that reflects local scarcity and the true cost of freshwater abstraction. She wants progressive pricing based on water stress and industrial consumption, sector-specific freshwater consumption benchmarks and tighter regulation of industrial groundwater extraction.

A policy foundation is already there. The 2016 Tariff Policy mandates that thermal plants within 50 km of an STP use treated sewage. AMRUT 2.0 sets a reform target of recycled water meeting 20% of city demand and, at the state level, 40% of industrial demand. The National Framework on Safe Reuse of Treated Water (2022) gives states a template. Gujarat’s 2018 policy makes treated water mandatory for thermal plants, GIDC estates and large industries within 50 km of an STP.

The problem is implementation.

Ghosh argues that existing mandates need to be monitored and enforced, while infrastructure funding could support tertiary treatment and conveyance where industrial demand is already contracted.

For MSMEs, the answer may be shared infrastructure rather than forcing individual companies to build expensive recycling systems.

Ghosh further added that industrial corridors, special investment regions and production-linked incentive clusters should have a water balance before they are approved, including identified sources and a drought-year fallback.

Philip's recommendation is similar: water security must become a core criterion in industrial development decisions, with planning carried out at the river-basin level and a clear shift away from dependence on freshwater.

If India manages to implement these recommendations, the potential prize would be significant, as it would not only reduce stress on freshwater resources but also create a new revenue stream for urban local bodies and ensure a reliable supply of water to industries.

Water may increasingly determine not just how fast India industrialises, but where that growth can happen and how much it will cost.