HONG KONG: India has long undervalued one of its most precious resources. Now the country's chronic mismanagement of water is emerging as a threat to Make in India, Prime Minister Narendra Modi's ambitious plan to create jobs and turn the world's fastest growing large economy into a global manufacturing hub.

Modi has toured the world championing the initiative. Success is critical. Around 12 million Indians join the workforce every year. Factories, which can provide much-needed employment, account for just 16 per cent of India's gross domestic product, according to the World Bank. That is low, even for a developing country.

Make in India has big shortcomings when it comes to natural resources, however. Water intensive industries like construction, food processing, energy, textiles and leather works feature prominently amongst the sectors the scheme is targeting. And although most of the sites for planned industrial corridors are supposed to include water infrastructure, they are predominantly located in the parched western regions.

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Liquidity issues

The core issue is that water is undervalued and overused. Tariffs have not been revised for over a decade in many municipalities. Often there are no direct charges at all, or thirsty consumers simply help themselves. Metering is also rare - penetration is as low as 10 per cent in some areas. India produced $2.7 of gross domestic product for every cubic metre of freshwater withdrawals, according to a Breakingviews calculation using World Bank data. By contrast, China added $18.7 of GDP for every cubic metre.

That leads to massive inefficiencies for companies too. Manufacturers tend to avoid placing factories in drier areas even when the location looks logical from a supply chain perspective.

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Damp squib

Policymakers see the problem but lack the political capital to raise prices or tighten regulations. The biggest water users in the country are local farmers - agriculture soaks up some 90 per cent of water withdrawals - and rural communities represent the majority of India's voting constituencies. So when elections come around, candidates often promise to keep water cheap or free.

New Delhi plays lip service to the crisis. In June the Ministry of Water Resources, River Development and Ganga Rejuvenation released a draft bill calling for a new pricing system and stricter controls. But even if the bill passes through parliament, it is unclear that the central government will be able to implement the new rules  .....