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Water Is Scarce, But the Profits Aren't 

Fixing India's water problems is an imperative for the country's people, but it also provides an opportunity for investors. 

Water shortages are hardly unusual in the developing world. Consider China, which holds 7 percent of the world's water resources but uses 16 percent of the planet's water. But in India, the problem is even worse. The country contains about 18 percent of the world's population but only 3 percent of the planet's fresh water. That, combined with poor resource management, has yielded a situation in which the per capita availability of water is one-fifth of the global average: 1,200 cubic meters per year compared with 6,000 cubic meters worldwide.

The Increasing Need for Water All-Round

Agriculture accounts for 90 percent of the current demand in India, but increasing urbanization is boosting municipal needs, while improving economic growth is also boosting industrial demand. In Indian cities, only 64 percent of residents have their own water hookups – compare that to 91 percent in China and 80 percent in Brazil – and water often only runs for 1 to 6 hours a day. And when there is water, its quality is often poor. About 9 percent of homes in India have water that is contaminated with chemicals such as arsenic and nitrate, according to the government. Water is also frequently contaminated with bacteria during the rainy season.

Investment Opportunities – Water Treatment

Fixing such problems is an imperative for the country's people, but it also provides an opportunity for investors. The three main ways to mitigate the shortages are to improve efficiency, reduce pollution and create alternate supply sources. One key area of investment is water treatment: the country currently treats only 30 percent of wastewater compared with between 70 and 100 percent in developed countries. There are also opportunities in desalination, since the country's current capacity is miniscule. A project to clean the Ganga River, which flows through 11 states is estimated to cost 1 trillion rupees (15 billion dollars). The project is expected to generate an estimated 10 billion liters per day in additional treatment capacity over the next 10 to 15 years.

Investment Opportunities – Water Supply

All told, India needs some 13.5 trillion rupees (USD 220 billion dollars) of investment in urban water supply and sewers over the next 20 years, and that creates a major opportunity for water industry players, according to Credit Suisse. The government will supply much of that funding, but the involvement of the private sector – which consists of some 25 large companies and a handful of multinational companies – will grow as well. Water treatment companies – including equipment suppliers, plant operators, wastewater treatment companies, and desalination firms – are expected to find enough new business to support average earnings growth of 15 percent annually over the next few years. "Significant investments are required," says Anantha Narayan of Credit Suisse's India equities team, "to correct the mismatch in water resources."

This article has originally appeared in The Financialist.