Archives: Publication

Groundwater crisis needs more than just wells

India’s water crisis is no longer a spectre of the future; it is a daily reality. As the summer of 2025 looms, farmers from Punjab to Tamil Nadu brace themselves for parched fields while urban residents grow anxious about taps running dry. Beneath the cracked earth and empty rivers lies an even more alarming threat: the relentless depletion of groundwater—the lifeline of Indian agriculture and rural drinking water supply. While government schemes like the Jal Jeevan Mission (JJM) and Atal Bhujal Yojana (ABY) attempt to address the issue, funding constraints and implementation delays continue to undermine progress.

India’s groundwater situation is precarious. It provides 80% of rural drinking water, 50% of urban drinking water, and nearly 90% of water used in agriculture, yet our extraction rate has soared to unsustainable levels. The average groundwater extraction rate now stands at 60%, with states like Punjab and Rajasthan exceeding 150%, a dramatic rise from 32% in 1995. Despite significant government spending on water programs, groundwater is being consumed faster than it is replenished, turning a renewable resource into a diminishing asset.

Policy Gaps and Financial Hurdles

The Atal Bhujal Yojana (ABY), launched in 2020, was a step in the right direction. It focused on community-led water security plans and incentivised water-saving practices in seven states. However, only 57% of allocated funds have been released, and just 48% have been utilised as of early 2025. While technical targets such as equipment installation have exceeded expectations, only 21% progress has been made on actually reducing the rate of groundwater decline—the scheme’s core objective. The finance exists, but not the fluidity needed for results. The financial bottlenecks are systemic. Centrally sponsored schemes like JJM and ABY follow a co-funding model, requiring states to match funds. Yet, as of February 2025, only 31% of the central share for JJM was released, primarily because states could not mobilise their share or demonstrate fund utilisation. This rigid model penalises less wealthy states and reinforces regional disparities. Moreover, implementation suffers from terrain challenges, cost overruns, and delays in statutory clearances, pushing deadlines further into the future.

Rethinking How We Fund and Govern Water

A fresh financial approach is required—one that matches the complexity and urgency of India’s groundwater crisis. First, the government must expand interest-free loans to states for capital expenditure, a policy already in place but underutilised for water conservation. Currently, a fraction of the Rs 1.5 lakh crore allocated for capital assistance is earmarked for groundwater projects. Earmarking a dedicated groundwater resilience fund within this corpus could ensure states with limited fiscal space are not left behind. Second, we must explore innovative financial instruments. For instance, Green Bonds could be issued specifically for groundwater recharge and rainwater harvesting infrastructure. These bonds can attract private and international climate finance, especially when tied to performance metrics like aquifer recharge levels or reductions in water table decline. Involving corporate CSR funds and impact investors—as seen with partial success in the Clean Ganga Fund—can also bring in alternative capital flows, provided there is better transparency and data sharing.

Third, a pricing rethink is long overdue. Free electricity for agriculture has incentivised water-intensive crops like paddy and sugarcane, worsening groundwater depletion. As recommended by the Central Water Commission, electricity subsidies must be decoupled from water usage and replaced with direct benefit transfers or incentives for adopting water efficient practices. Schemes like Haryana’s “Meri Pani Meri Virasat,” which pays farmers to switch crops, should be expanded with adequate financial backing. Finally, groundwater governance must shift from siloed programs to an integrated institutional framework. The 2016 Mihir Shah Committee recommended merging the Central Water Commission and the Central Ground Water Board into a single National Water Commission with multidisciplinary expertise. Nearly a decade later, this remains unfulfilled. Fragmented data collection, overlapping mandates, and lack of accountability continue to plague outcomes. Establishing a digital National Water Resource Information System with real-time data and open access can help track usage, plan recharge, and build trust with funders.

The Cost of Inaction Is Too High

Sceptics may argue that India cannot afford such expansive financial strategies during economic uncertainty. But the cost of inaction is far greater. Water insecurity affects food production, health, urban development, and climate resilience. The World Bank estimates that water scarcity could cost India up to 6% of its GDP by 2050. Investing in groundwater today is not a luxury—it is economic common sense. Moreover, decentralised groundwater recharge projects create rural employment and reduce climate vulnerability, offering a high return on public investment.

India’s groundwater story does not have to be a tragedy. With smart financing, decentralised planning, and political will, the country can reverse the decline and secure its water future. Just as India led the world in scaling up solar power through bold financial models, it can now become a leader in sustainable water governance. Groundwater may be invisible, but the urgency to act cannot remain hidden.

Mohapatra and Mitra with IIT Jodhpur and NCAER New Delhi, respectively. Views are personal.

The NCAER Business Expectations Survey for India Fourth Quarter 2024–25

The National Council of Applied Economic Research (NCAER), one of India’s premier economic policy research think tanks, carried out the 132nd Round of its Business Expectations Survey (BES) in March 2025. NCAER has been carrying out the BES every quarter since 1992, covering 448 firms across four regions.

Beyond the drain: Can India reclaim its wastewater future?

NDIA is entering a defining decade for its water and wastewater management. The challenge   is monumental, but so is the opportunity. With surging industrialisation, relentless urbanisation, and climate-sensitive agriculture, the country’s wastewater market is no longer an environmental issue alone-it is an economic, social, and political imperative.

According to recent estimates, India’s water and wastewater treatment market, valued at USD 13.1 billion in 2023, is projected to reach USD 23.8 billion by 2033, growing at a CAGR of 6.2%. This growth trajectory reflects not just expanding demand but a systemic necessity to fix a deeply fragmented and under-equipped wastewater infrastructure.

The Paradox of Growth: More Water, More Waste

India’s  wastewater challenge is largely urban. Over 70% of the urban population con­ tributes significantly to the country’s waste­ water load. Shockingly, 70°/o of urban waste­ water remains untreated, flowing directly into rivers, lakes, and coastal zones. This is not merely an environmental tragedy; it is a ticking time bomb for public health, groundwater reserves, and food security.

The industrial footprint further complicates the scenario. Thermal power plants alone consume 87.8% of industrial water-a figure that dwarfs other sectors. As industrial output increases, so does the complexity of waste­ water composition, necessitating advanced, sector-specific treatment technologies. Industries such as textiles, pulp and paper, chemicals, and FMCG are now among the top consumers of treatment solutions.

Yet, while the need is apparent, implementation is patchy. In 2023, India’s effluent treatment market was estimated at just USD 1.4 billion, trailing significantly behind water treatment (USD 6.6 billion) and sewage treatment (USD 5 billion). By 2033, effluent treatment is expected to grow to USD 2.4 billion but still lags behind, indicating an insufficient industrial response to regulatory and sustainability pressures.

Public Intent, Private Hesitation

The government has responded with a flurry of policies and missions: Jal Jeevan Mission, AMRUT 2.0, Namami Gange, and SWAJAL. Together, these initiatives aim to transform water access and sanitation infrastructure across 700,000 villages and all urban local bod­ ies. Budgetary allocations have surged, and institutional convergence through the Ministry of Jal Shakti has improved inter­ agency coordination.

But public investment alone is not enough. Private sector participation remains hesitant due to several factors: (1) High capital and operational costs: Equipment installation and maintenance are expensive. Many municipalities and industrial units are reluctant to commit to long-term investments without guaran­ tees of ROI. (2) Technological fragmentation: A wide range of competing treatment technologies-ranging from activated sludge processes to membrane bio-reactors-creates confusion and implementation bottlenecks. (3) Lack of techno-commercial awareness: Several states still struggle with basic feasibility assessments, cost-recovery models, and vendor management, leading to failed or underperforming projects. (4) Limited reuse mindset: Despite the potential, the adoption of wastewater recy­ cling and zero liquid discharge (ZLD) is still nascent. Cultural perceptions and regulatory ambiguity restrict the use of treated water, especially in agriculture and industry.

Innovation Meets Inequality

Despite these hurdles, innovation is taking root. Tamil Nadu and Gujarat are leading the way in deploying large-scale desalination plants for both municipal and industrial use. The private sector is increasingly shifting from chemical-based to membrane-based technologies, notably reverse osmosis (RO), sequencing batch reactors (SBR), and membrane bioreactors (MBR).

Such technologies not only enhance treatment efficiency but also align with India’s broader environmental goals. In fact, the market for these technologies is expected to grow exponentially as industrial and municipal actors seek low-footprint, high-output systems that offer flexibility and reuse potential.

Moreover, the concept of a circular water economy is gaining momentum. Industries are gradually embracing the “3R” principles-Reduce, Recycle, Reuse-to minimise freshwater dependency and lower their regulatory liabilities.

However, India’s wastewater story is also a story of regional disparity. States like Maharashtra, Tamil Nadu, and Delhi lead in terms of installed treatment capacity, while others like Bihar, Jharkhand, and the north­ eastern states remain grossly underserved. As per recent assessments, state-wise sewage treatment capacity in several regions still falls short of the generation volume by over 40%.

The consequence is not merely localised pollution but national-level risks. Untreated waste­ water contaminates groundwater tables, increases the salinity of arable land, and worsens India’s growing agro-climatic stress, especially in rain-fed regions. These risks are magnified by the lack of centralised monitoring systems, further complicating policy responses.

Policy Gaps and the Path Forward

While the regulatory environment has become stricter, enforcement remains weak. Many private units operate without functional ETPs (Effluent Treatment Plants) and often discharge untreated water due to loopholes or lack of oversight. Additionally, pricing models for water-heavily subsidised or politically manipulated-fail to reflect the real cost of treatment, discouraging conservation and infrastructure investment.

To future-proof the market, India must address these gaps through clear pricing signals for water use and wastewater discharge, mandatory ZLD requirements for high-pollution industries, tax incentives and green bonds to lower financial barriers for private players, decentralised treatment systems for peri­ urban and rural clusters, and real-time monitoring systems using IoT and AI for compliance and transparency.

India’s wastewater market can no longer rely on ad hoc schemes and fragmented governance. What’s needed is a national water strategy that integrates climate adaptation, groundwater recharge, urban planning, and industrial policy into one cohesive blueprint.

If the projections hold true, by 2033, India will be treating over USD 24 billion worth of wastewater annually. Yet, the true metric of success will not be market size-but how much of this water is reused, how equitably services are distributed, and how many ecosystems are restored.

The road ahead is difficult but navigable. The convergence of public funding, private innovation, and community ownership could transform wastewater from a liability into a resource. In the coming decade, wastewater is no longer waste-it is India’s most under­ utilised asset.

Dr. Souryabrata Mohapatra, Assistant Professor, IIT Jodhpur, Dr. Sanjib Pohit, Full Professor, NCAER New Delhi, Views are personal.

Preventing trade shocks from igniting the next financial crisis

‘Preparedness, not prediction, is the watchword’ 

History has a habit of repeating itself, particularly with recent shifts in global trade and financial instability in developing economies.

When the Latin American debt crisis hit in the 1980s, it was sparked by oil price shocks and deteriorating trade terms, and then made worse by an over-reliance on foreign, dollar-denominated debt. Decades later, the 1997 Asian financial crisis followed a similar script, with unsustainable current account deficits and risky currency exposures linked to trade flows and volatile capital. Even the euro area debt crisis was rooted, in part, in persistent regional trade imbalances that pushed sovereigns and banks to the brink.

These were no accidents or stand-alone events. They reveal a persistent threat that trade and, crucially, trade finance, can amplify underlying financial sector weaknesses. Currency mismatches, precarious dependence on the dollar and concentrated credit risks often lie dormant – until a trade shock wakes them up.

Familiar tremors in today’s landscape

Vulnerabilities from trade shocks or a new global trade regime ripple outward, potentially crippling financial systems and inflicting serious harm on the broader economy. The echoes of the Covid-19 pandemic are still felt in fractured supply chains, brutally exposing the risks of narrow export bases. Russia’s invasion of Ukraine sent food and energy prices soaring, hammering the terms of trade for import-dependent nations. The financial sector fallout is increasingly visible, not least in the growing risk aversion surrounding trade finance.

Data confirm the pressure points. According to the Bank for International Settlements, over 55% of cross-border bank lending to emerging markets and developing economies is still in dollars, leaving trade finance exceptionally vulnerable to exchange rate volatility and sudden dollar liquidity crunches. The World Bank estimates the trade finance gap in sub-Saharan Africa alone now exceeds $100bn – a 30% increase since 2019.

These figures reflect real economic strain. Central banks from Ghana, Zambia and Ethiopia report rising non-performing loans, particularly in trade-dependent sectors. At the same time, regulators are seeing tighter credit conditions and weakening bank capital adequacy – flashing indicators that trade-related stress is embedding into bank balance sheets. The United Nations Conference on Trade and Development warns that smaller economies are especially more vulnerable to tariffs, making financial risk management that much harder.

While the high-level dangers are well-flagged, such as economic slowdowns, inflation spikes and market volatility, there’s less clarity on how these macrofinancial risks translate into practical changes in financial sector supervision. How are examination priorities shifting? Are data requests becoming more granular or frequent, specifically for trade exposures? Can there be a more explicit, forward-leaning approach that reassures exporters, importers, and bank and non-bank lenders?

Financial sector supervisors do not set trade policy but ensure trade shocks do not capsize the domestic financial system. This requires moving beyond routine oversight to a pre-emptive, globally aware strategy.

Getting ahead of the shockwaves

In many cases, financial supervisors are still catching up. There is an urgent need to monitor trade-linked exposures more closely, from foreign exchange lending and trade credit exposures to cross-border liquidity reliance, especially for key banks. This means that real-time dashboards need to fuse bank and non-bank data with external stress indicators: terms-of-trade shifts, commodity volatility, shipping woes, and, crucially, fraying correspondent banking relationships vital for trade payments (a challenge recently acute in parts of East Africa).

Banks and non-banks must also be tested against severe trade and FX shock core scenarios, not just edge cases. What happens if a major export market collapses or access to offshore dollar funding suddenly dries up? Supervisors must start asking those questions now, not after the damage is done.

Increased transparency is vital. Uncertainty fuels fear and clear, consistent disclosure from banks and large firms on FX exposures, maturity mismatches and hedging must become a proactive standard practice. Reliable data help markets spot emerging vulnerabilities early. Meanwhile, regional regulators must strengthen cross-border co-operation, particularly where banking and non-bank groups operate across multiple markets.

Above all, financial sector supervisors must communicate and signal their assessments and actions. Forward guidance on expectations (such as FX liquidity planning), planned stress tests or available resilience tools anchors market expectations and builds confidence. Proactive signalling shows preparedness, not panic.

Implementing this is tough where resources are thin, mandates fragmented or politics intrusive. Understaffing and technical gaps are real constraints. However, solutions exist: regional pooling of functions, vibrant peer-learning networks and targeted technical assistance from bodies like the Toronto Centre, the IMF and the BIS, focused on practical tools and diagnostics.

The next financial storm in many developing economies might be brewed not by a domestic credit boom, but by turbulent global trade, commodity swings or disruptions in dollar funding critical for trade finance. For supervisors, the imperative is not predicting the next shock but building resilience to withstand it. This demands a shift from compliance or standards-based checking to proactive risk management, informed by global tremors and grounded in local current account vulnerabilities. Preparedness, not prediction, is the watchword.

Udaibir Das is a visiting professor at the National Council of Applied Economic Research, senior non-resident adviser at the Bank of England, senior adviser of the International Forum for Sovereign Wealth Funds, and distinguished fellow at the Observer Research Foundation America. He was previously at the Bank for International Settlements, the International Monetary Fund, and the Reserve Bank of India.

A Failure to Communicate Is an Economic Policy Risk

The International Monetary Fund (IMF) appears to have recognized that communication is no longer subordinate to economic design — it can make or break reform and change, especially where trust in institutions is thin and fiscal room is limited. The IMF’s latest Fiscal Monitor dedicates a chapter to public consent as a precondition for good policy. Whether governments seek to phase out energy subsidies, reform pensions, or expand tax bases, success now hinges on how well reforms are explained, sequenced, and backed by credible commitments.

The report uses large language models to build a new Reform Sentiment Index, analyzing over two million news articles from 170 countries since 1990. The results highlight four enduring patterns. First, macroeconomic conditions matter: reforms are more likely to succeed during stable growth and low inflation periods. Second, communication quality is decisive: policies land better when governments clearly explain why changes are needed and how they will unfold. Third, targeted compensation works: well-communicated transfers for affected households can soften resistance; diffuse or opaque benefits often fail. Finally, timing and trust are central: reforms implemented outside election cycles and in settings with higher institutional credibility enjoy greater public acceptance.

These findings are not academic abstractions. They reflect lessons from dozens of contested reforms in the Global South. In Indonesia and the Philippines, phased implementation and public dialogue helped anchor energy subsidy reforms. In Ecuador (2019) and Sudan (2022), abrupt price increases without adequate preparation triggered street protests and reversals. In Pakistan and Ghana, repeated program breakdowns are as much a function of eroded public legitimacy as fiscal mismanagement. Reforms now live or die on spreadsheets and in the contested terrain of public perception. For policymakers, this means treating communication not as a postscript but as core infrastructure.

The Global Financial Stability Report (GFSR) takes this further. It links policy ambiguity and weak signaling directly to financial stress. Using measures of geopolitical risk and economic policy uncertainty, the IMF shows how unclear or inconsistent communication widens risk premia, drives capital flight, and exacerbates volatility. These effects are especially pronounced in emerging markets with thin buffers and open capital accounts. Financial markets, like citizens, respond to coherence. Vague central bank guidance, unclear fiscal frameworks, or opaque debt restructuring plans now generate market reactions well before any data release or budget vote. Sovereign spreads, currency pressures, and investment decisions increasingly reflect what governments do and how credibly they are seen doing it. In that environment, expectation management is no longer optional but macro-critical.

The World Economic Outlook (WEO) adds a longer-term lens, focusing on the demographic transitions confronting many middle-income economies. Aging populations will place a growing strain on pensions and public healthcare. Structural reforms — longer working lives, pension eligibility changes, expanded labor participation — are fiscally necessary but politically unpopular. These are intertemporal trade-offs: today’s costs in exchange for tomorrow’s sustainability. However, reforms will be cast as austerity, not solvency, unless that bargain is made clear. The WEO underscores that political acceptance depends on a credible narrative. Where communication fails, reforms do not stick.  That lesson is consistent across the Fund’s work.

A single through-line emerges across the April 2025 flagship reports: communication failure is now a structural policy risk. Moreover, the costs are compounding. When reforms collapse repeatedly, a deeper erosion sets in. Citizens grow cynical. Expectations shift from reform to reversal. This “reform fatigue” weakens state capacity, narrows the scope for action, and raises markets’ premium on policy continuity.

The implications go beyond national governments. Global convenings, including the IMF–World Bank Spring Meetings, are intended to coordinate and communicate. However, for many developing countries, these gatherings can feel like set pieces — complex, hierarchical, and difficult to engage meaningfully. If policy legitimacy depends on communication, then institutional platforms must also evolve. Dialogue must move from performance to participation. Institutions, too, must speak clearly — and listen more.

The stakes are high for developing economies, especially. Reforms in these contexts are often externally financed, technically guided, and politically fragile. If sentiment turns, the window for action closes fast. Therefore, the quality of communication is not an accessory — it is the very ground on which fiscal, monetary, and structural reforms stand. In short, public sentiment has become a binding constraint — not because democracy has intruded on policy — but because, without legitimacy, there is no policy. Without clarity, there is no legitimacy. In a fragmented world, communication is no longer the last mile of policy. It is the first.

Udaibir Das is a Distinguished Fellow at ORF America, Visiting Professor at NCAER, Senior Non-Resident Adviser at the Bank of England, Senior Adviser to the International Forum for Sovereign Wealth Funds, Distinguished Visiting Faculty at the Kautilya School of Public Policy, and Senior Advisor at the Toronto Centre. He previously held roles at the BIS, IMF, Reserve Bank of India, and Bank of Guyana.  

    Get updates from NCAER