How to increase much needed finance for India’s water sector
- India is on track to a 50% deficit in its water supply by 2030.
- There is also a significant gap between the supply and demand for the financing needed to address this problem.
- Here are four ways to change the funding ecosystem to avoid this coming disaster.
As the world reeling from COVID-19 statistics, the numbers on basic commodities essential to human survival are equally staggering. Water is a prime example.
One third of the largest underground basins in the world have been exhausted. Water shortages affect 40% of the world’s population. Many cities with large populations, mainly in emerging economies, are very stressed by water. The World Economic Forum ranked water crises among the top 5 risks in terms of impact Global Risk Report 2020. In India, a water supply deficit of up to 50% is expected by 2030, according to UNICEF. According to the federal think tank NITI Aayog, 21 major Indian cities are in immediate danger of running out of groundwater. Three quarters of India’s districts, home to 638 million inhabitants, are hot spots for water-related disasters.
Since humanity cannot exist without water, substantial efforts are needed to improve its access. However, it costs money. The global water financing gap is already estimated at $ 114 billion for SDG targets 6.1 and 6.2 alone.
Here are four ways to improve the water finance ecosystem, with a special focus on India – a country that is home to 18% of the world’s population but ranks among the world’s largest. 120th on the water quality index.
1. Policy, reforms and governance. Establishing an independent water regulatory authority and making mandatory disclosure by water-intensive industries of water use, treatment and recharge must be priorities for the government. Leveraging India loans to priority sectors standards for banks or the imposition of a specific allocation for water in infrastructure debt funds – or the development finance institution proposed in India’s recent budget – can attract capital dedicated.
Reforms should encourage municipalities to issue financial instruments. The recent bonds of the cities of Ghaziabad and Pimpri-Chinchwad are a good start. Regulations that step up nature-based solutions, such as porous pavements that absorb stormwater, can also help build resilience to climate shocks. Policies should replicate global use cases such as Chicago Green Roof Singapore’s initiative or goal of becoming a “ city of gardens ” by integrate its channels. Indian textile maker Arvind has built a wastewater treatment facility at its garment factory in Gujarat to save groundwater for local communities. Policy makers must encourage more industrial units to implement and scale up these types of measures. Finally, the development of usage-based billing (using smart meters) or water tariffs based on tax tiles can generate internal revenue.
3. Develop innovative financing structures. Since it is difficult to secure cash flow to development sector projects (such as water), innovative financing structures to mitigate risks become necessary. Blended finance structures that combine public and philanthropic capital with private investments using credit enhancement instruments can be useful. For example, the Philippines’ Water revolving fund combines aid and public funds with commercial finance to provide a lower cost of capital for water service providers. WaterEquity’s WCIF3 Fund uses a blended approach through low interest loans and a first loss guarantee. Mutual funds – such as Kenya Pooled Water Fund, which pools national pensions and institutional funds – fall into this category.
Solar power projects in Kenya and Rwanda have demonstrated the power of the pay-as-you-go (PAYG) model to tackle the problem of relative price deprivation – and this model can be extended to water. In the field of irrigation, India’s Claro Energy offers a PAYG service using electric rickshaws equipped with solar panels, which then supply water pumps. The Hybrid Annuity Model (HAM) is an instrument that reduces up-front payment pressure in long gestation projects like water. This is relevant for projects that involve operating income. the yieldco approach separates low-cash-yielding activities from high-cash-flow activities, reducing perceived risk to investors. Pension funds, often signatories to the United Nations Principles for Responsible Investment (PRI) network, are looking at the infrastructure of emerging economies. Extending this to water infrastructure in India would attract patient capital. Finally, combining corporate social responsibility funds with results-based funding would help achieve measurable results. And instruments like blue bonds, which are mainly focused on marine conservation, need to be extended to water-related projects. Given the challenges of water as a means of investment, most solutions will require innovative structuring.
The third method is related to the action of investors. This includes improving investor engagement as well as water risk disclosure to build investor confidence. Better understanding of the sector would increase investor interest; Water Toolkit for Ceres Investors helps investors identify, assess and manage water-related risks in investment decision making. PRI and WWF have jointly developed a Water stewardship framework which includes practices to facilitate dialogue between investors and companies. The use of these toolkits and frameworks should be encouraged in countries at risk of water such as India.
4. Community models. This includes community managed water technology solutions. On a small scale automatic water dispensers – which can be located in villages, train stations and slums – provide access to clean drinking water at low cost in places where last mile connectivity is a logistical challenge or where conditioned drinking water is unaffordable. Water.org’s Water Credit combines microfinance for local communities with loans for water solutions. Community-based peer-to-peer exchange (P2P) models can boost rainwater harvesting by creating an incentive for harvesting. Bangladesh SolShare demonstrated this P2P model with solar home systems. Of course, education and awareness are prerequisites for building community buy-in.
In the end, given the role of water as an existential resource in a world in demographic growth, it is urgent to lead the action of the stakeholders towards the financing of water. The silver lining is that scalable interventions are possible. Scaling up and replicating such interventions in other places can go a long way to improving the worrying water statistics we are currently facing.