Modi’s Water Push Could Be A $270-Billion Opportunity But…

Prime Minister Narendra Modi’s water infrastructure push could potentially be a $270-billion opportunity for everyone from makers of pipes and irrigation equipment to construction companies. But there’s a big hurdle: lack of resources.

In the budget, Finance Minister Nirmala Sitharaman allocated nearly 70 percent more funds at Rs 9,150 crore for the rural drinking water programme—now called ‘Nal Se Jal’ or ‘piped water supply for all’ scheme. It completes the quartet of water initiatives by the government—the other three are Namami Gange for the clean-up of India’s holiest river; river interlinking to create inland waterways; and Pradhan Mantri Krishi Sanchai Yojna aimed at boosting irrigation in a nation where nearly two-thirds of farmland is watered by monsoons.

Bank of America Merrill Lynch sees the four plans as a $270-billion opportunity over five to 15 years. Of this, it expects the largest chunk to be allocated to river linking at $168 billion, followed by piped water supply at $94 billion. JM Financial sees Rs 5.6-6.3 lakh crore ($81-91 billion are current forex rates) being spent on the piped water supply project alone between 2019-20 and 2024-25, almost doubling budget spends on water and sanitation.

Yet, finding funds may prove to be a challenge when India breached fiscal deficit target for two straight years and relies on off-budget borrowings and stake sales in state-run companies to meet the budget shortfall.

But if the government finds resources and pushes through execution, here’s who stands to gain:

Construction Contractors

The water-led infrastructure push will open order spigots for engineering, procurement and construction players and asset owners alike, according to Rohit Natrajan, research analyst at Antique Stocking Broking.

Har Khet Ko Pani (water for every field) under prime minister’s irrigation scheme will be a good opportunity for EPC players like KNR Construction Ltd., Nagarjuna Construction Ltd. and Sadbhav Engineering Ltd., Natrajan told BloombergQuint. But for Namami Gange, the residual orders may not be bigger for existing contractors, he said.

Rohan Suryavanshi, head-strategy and planning at Dilip Buildcon Ltd., said over the last three to four years, the company bagged orders worth Rs 1,500 crore from the water infra segment from states. However, he said, the central government has not floated a single tender yet.

Execution of most of these water schemes is a great opportunity but would take some time, according to Suryavanshi. The newly formed Jal Shakti Ministry—that merged multiple related departments—will have to identify consultants to identify the mode of awarding projects, which will be followed by detailed project reports before tendering, he said.

Pipe, Pump Makers

In Budget 2019, Finance Minister Nirmala Sitharaman said the Har Ghar Jal (water for every home) programme would merge central and state schemes.

About 55 percent of the rural population had piped water and 15 percent had household connections as of 2016, according to the government’s official document. By 2030, the goal is to provide piped water to all rural Indians, with 95 percent household connections.

Implementation would benefit pipe makers Astral Poly Technik Ltd., Supreme Industries Ltd., Jindal Saw Ltd. and Tata Metaliks Ltd., among others.

A former head at a pipe company said on condition of anonymity that the rural water supply scheme is an ambitious target and a long-drawn process and execution will take at least two to three years. While pipemakers stand to gain, he said shapes and forms of the plan are yet to emerge.

Pump makers will also gain as water will be required to be drawn from bore wells, open wells, storage facilities. Among the companies that would benefit include Shakti Pumps (India) Ltd., V-Guard Industries Ltd. and Crompton Greaves Consumer Ltd., JM Financial said in a note.

Reality Check

While BoFA and JM Financial underscored the opportunity, government spends on existing water schemes aren’t in line with the lofty targets. The total expenditure under the three key schemes in the last five years was Rs 68,100 crore.

In fact, the government’s share of capex towards water supply and sanitation schemes fell from 12 percent in FY03 to 9 percent in FY18 budgeted estimates, Amish Shah, BoFA’s co-head of research in India, said in a report.

Another challenge to a sustainable water supply is that it’s widely subsidised across states, according to report released under the Har Ghar Jal By 2030 scheme. While the 14th Finance Commission recommends setting tariffs for water supply, various states charge as little as Rs 30-70 from every household every month. Moreover, water has historically been provided for free, it said.

The report acknowledged that gargantuan infrastructure spending needs ways to raise resources. The sector as a whole struggles to resolve tariff and collection issues and hence improving operational and cost efficiencies by entering public-private partnership would help states retain regulatory and supervisory controls, it said. The report suggested public-private pacts, transparency and coordination between state and central government as ways to make the plan a reality.

Shah of BoFA agreed. Apart from creating awareness to avoid water wastage, he said the government should try and build political consensus with states, and devise a concrete plan of extracting water through harvesting rainwater, desalinating sea water or through river linking.