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Chennai's drought has tough lessons for Asia's economies

Chronic water shortages risk hampering industrial globalization

| India

Chennai is meant to be India's great manufacturing center, a self-styled "Detroit of Asia," with plans to transform itself into a global hub for electronics and smartphone exports. But lately this megacity has made headlines for a less happy reason: running out of water.

For months many of Chennai's seven million residents have survived on deliveries from tankers, lining up each morning for a daily water ration. These travails illustrate a wider problem which will soon be faced by many other developing Asian countries, in which water supplies begin to act as a major barrier to industrial development.

Put simply, water scarcity may soon be as important as supplies of cheap labor in shaping the direction of Asia's next stage of globalization -- and it will do so in ways that damage both India's prospects and those of other, poorer nations around the region.

When foreign companies ponder investing in emerging markets, they tend to pay attention to a relatively narrow range of factors and regulations which affect their ability to do business. India's water problems are now sufficiently dire to merit inclusion in that list.

"Earlier industrialists had to think about labor cost and reliable energy, and now with water we must add one more factor," says Vijay Sankar, deputy chairman of the Sanmar Group, a prominent Chennai-based conglomerate.

Currently about half the country is experiencing drought-like conditions. By 2030, nationwide water demand will be twice supply, according to Niti Aayog, a government think tank, while without action water scarcity is set to cost India around 6% of its gross domestic product by 2050.

In response, Prime Minister Narendra Modi was forced to set up a new water ministry as one of his first acts following reelection in May. His most recent national radio address on July 28 beseeched citizens to preserve water too.

Chennai draws attention because its situation is so similar to the crisis that hit Cape Town last year -- bringing to mind the threat of an imminent "day zero" in which water supplies from taps are entirely switched off. The city has so far avoided this fate, although its situation remains perilous, with India's government forced to bring in emergency supplies by train.

India's government has bee forced to bring in emergency supplies to Chennai by train.   © Reuters

Businesses have been hit, with local software companies asking employees to work from home, while auto groups like Hyundai have responded to water scarcity by investing in rainwater harvesting and other conservation techniques.

Chennai's problems stem from a mixture of natural scarcity and bureaucratic incompetence. Excessive use of groundwater, in which barely-regulated bore wells suck supplies up from deep beneath the earth, is a particular issue.

Although the current drought is not directly the result of climate change, Chennai provides a worrying vision of what the United Nations recently dubbed "climate apartheid," meaning a future where the poor suffer environmental calamities which the rich can mostly pay to avoid.

The city's predicament gives a taste of wider problems that will soon hit other megacities too. Many other major Indian commercial centers are running out of water, notably the southern tech hubs of Bangalore and Hyderabad. Jakarta and Dhaka face similar fates. Taps in Manila in the Philippines were turned off temporarily earlier this year too.

Even beyond its human costs, this matters because water scarcity is set to have important effects on industrial growth and investment. For decades, Asian globalization has been driven by cheap labor, as companies in richer economies shifted production in search of inexpensive workers, most obviously in China.

Over recent years this pattern has already begun to shift, with factors such as inexpensive energy or the availability of skilled workers playing a greater role in location decisions. In future, water is likely to become a similarly critical factor, especially in water-intensive industries like chemicals and steelmaking. But it is hard to run large factories of any kind without reliable supplies, particularly if you are also forced to rely on thirsty workers.

Chennai's problems are driven by basic failures of governance, for instance its inability to measure water supplies and use, and thus to control water demand. Corruption is often a problem in India too, with urban tanker supplies controlled by so-called "water mafias."

That said, basic technical fixes can make a big difference, from water metering and rainwater harvesting to investment in new desalination plants, two of which have so far helped stave off disaster in Chennai. Reusing waste water, as countries like Singapore do, is another avenue, and one that is especially appropriate for industrial use.

Much harder, however, will be grappling with the politics of water in many developing Asian countries. This tends to pit industrial users against farmers who consume more than three quarters of India's water and are politically powerful too. At base, India's route to rapid industrial development and improved water supplies lie in the same place, namely moving toward a far smaller and more efficient agricultural sector.

This is of course easier said than done. One of the tragedies of Asia's coming water crisis is that it is likely to deepen existing political divisions, for instance between rural areas and cities, making political reforms that actually fix the problem much harder to achieve. Yet Chennai's situation should still act as a wider warning. If the taps run dry, the odds that any Asian nation can pull off a future economic miracle are slim.

James Crabtree is an associate professor in practice at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is author of "The Billionaire Raj."

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