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Tata faces crisis as $20 billion spent on water: corporate India

The nation with 120 crore people, which treats only 20% of its sewage, is pouring more money as inadequate clean water is threatening to stunt growth in industrial and farm output.  Photo: Priyanka Parashar (Priyanka Parashar)Premium
The nation with 120 crore people, which treats only 20% of its sewage, is pouring more money as inadequate clean water is threatening to stunt growth in industrial and farm output. Photo: Priyanka Parashar
(Priyanka Parashar)

The Union, state govts have set aside $20 billion for sewage treatment, irrigation, recycling for 5-year period ending March 2017

New Delhi: India, the world’s second-most populous nation, is doubling spending on water management to a record as conglomerates from the Tatas to Adani face shortages that the United Nations calls an impending crisis.

The federal and state governments have set aside Rs1.1 trillion ($20 billion) for sewage treatment, irrigation and recycling for the five-year period ending March 2017, G. Mohan Kumar, special secretary in the ministry of water resources, said in an interview.

The nation with 120 crore people, which treats only 20% of its sewage, is pouring more money as inadequate clean water is threatening to stunt growth in industrial and farm output.

Disputes with farmers demanding rights to their irrigated land have stalled about $80 billion of investment by companies including Posco and ArcelorMittal as Prime Minister Manmohan Singh seeks to revive an economy growing at the slowest pace in a decade.

Tata Steel Ltd., India’s biggest maker of the alloy, is setting annual targets to cut water usage as two-thirds of the country faces a scarcity, H.M. Nerurkar, managing director said in an 11 April interview.

Water availability is a very big issue and in the coming days this will be a far bigger issue, A.P. Choudhary, chairman of Rashtriya Ispat Nigam Ltd., India’s second-biggest state-run steelmaker, said in an interview. Water is critical for the steel industry’s growth and no company is comfortably placed.

Industrial demand

India has 18% of the world’s population and 4% of the globe’s water resources, President Pranab Mukherjee said at an 8 April conference in New Delhi. About 80% of the water available is used for farming and less than 10% by factories, water ministry’s Kumar said.

Industrial water demand in India may surge 57% by 2025, with the Asian country being the most water-stressed among the Group of 20 nations, which also includes China, according to estimates by HSBC Holdings Plc. Water availability in India per person dropped by 15% to 1,545 cubic liters in a decade, according to a 2011 census.

India’s demand for clean water by 2030 may exceed supply by 50% while pollution is making what’s available unfit for human consumption, industrial or farm use, according to McKinsey & Co. forecasts and a government report.

This five-year plan devotes far more space to water and it is clear that there is more political agreement on India’s water crisis, said Srinivasan Iyer, assistant country director at the United Nations Development Program.

‘ Extremely rich’

Still, the planned spending on water projects accounts for just 2% of the $1 trillion Prime Minister Singh says is needed to build infrastructure in the five years ending March 2017 to revive economic growth that slowed to an estimated 5% in the year ended 31 March, the least since 2003.

Jim Rogers, the investor who foresaw the start of a commodity rally in 1999, said he is extremely optimistic about investing in water amid scarce supply in countries from India to the US.

If you can find ways to invest in water, you will be extremely rich because we do have a serious water problem in many parts of the world like India, China, the southwestern part of the US, and west of the Red Sea, Rogers, chairman of Rogers Holdings, told reporters in Singapore on 15 April.

Beating gold

Shares of water-treatment companies are beating those of gold and oil explorers as governments from China to India boost spending on basic infrastructure to avert shortages threatening economic growth and political stability.

The S&P Global Water Index of 50 companies has surged 162% since 30 November, 2001, when Bloomberg began compiling the measure. In comparison, the S&P Global Oil Index has risen 137% in the same period and the S&P/TSX Global Gold Sector Index has climbed about 40%.

Suez Environment, Europe’s third-largest water company by market value, won €41 million ($54 million) of contracts to build and operate water-treatment units in New Delhi, a city of 17 million people, and Bangalore, according to a 13 March statement. Thermax Ltd., a Pune-based company that produces water-recycling equipment, has climbed 31% in the past year, compared with the benchmark S&P BSE Sensex’s 10% advance. VA Tech Wabag Ltd., the nation’s biggest builder of water-treatment plants, has risen 12% in the same period.

Work including sewage treatment and waste water management will help boost revenue as much as four-fold for VA Tech and double it for Thermax in five years, according to the companies’ chief executive officers.

Acquisition plan

We will participate in projects where there’s need for technology to treat water, M.S. Unnikrishnan, CEO of Thermax, said in an 9 April interview. Sewage treatment is getting increasing importance from the government.

VA Tech plans to spend as much as €50 million to buy two companies in Europe to help it gain access to new markets and technology, managing director Rajiv Mittal said in an interview on 17 April.

Thermax’s revenue from its environment business, which includes water, rose to a record Rs1,170 crore in the year ended 31 March 2012. VA Tech Wabag’s net income climbed 36% to Rs75.12 crore in the 12 months and sales rose to Rs1,000 crore, both an all-time high. Pretax profit margin in the quarter ended 31 December was 11.18% compared with 10.24% a year earlier.

Farmer suicides

Parts of Maharashtra and Karnataka, states that together account for 45% of India’s sugar production, have faced drought in the past two years. Output in India, the world’s top producer after Brazil, is set to decline for a second year, according to a survey compiled by Bloomberg.

Nearly a 1,000 farmers, unable to repay their debt after dry weather cut their incomes, committed suicide in one region of Maharashtra in 2012, India Today said in an article dated 21 January, a number the local administration disputes.

Plans by Posco, the world’s biggest steelmaker by value, to build a $12 billion mill in the eastern state of Odisha have stalled for eight years as the South Korean company failed to persuade farmers to move. ArcelorMittal, the world’s largest steelmaker by output, faces delays for a $10 billion plant in Odisha and in Jharkhand state.

We don’t have the luxury to use water the way we want, said Devendra Amin, vice-president and spokesman for Adani Group, which is controlled by billionaire Gautam Adani. Water cannot be taken for granted the way industries set up in the decades gone by used to. Adani has businesses in mining, power and ports. BLOOMBERG

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