6 days ago
Water credits: A solution to India's urban water crisis
As India continues its rapid urban expansion, one critical issue has emerged as both urgent and inescapable—water scarcity. With over 35% of the country's population now residing in cities, the pressure on freshwater resources is intensifying. The situation is further exacerbated by shifting land use patterns, climate extremes, and ageing infrastructure. Major cities like Bengaluru and Delhi face routine water rationing, Chennai has experienced entire reservoirs running dry during summers, and many Tier-2 and Tier-3 cities are urbanising faster than their water systems can support. Water (Photo by DIPTENDU DUTTA / AFP) / TO GO WITH Asia-environment-river-India-climate,SCENE by Abhaya Srivastava (AFP)
By 2050, the crisis is expected to deepen significantly. Between one-third to nearly half of the global urban population is projected to face water scarcity—with India likely to be among the most severely affected. In fact, the number of large cities, including 10–20 megacities, exposed to water stress is anticipated to reach 284. Surging demand and deteriorating supply infrastructure threaten not just the sustainability of urbanisation but also public health, social equity, and economic growth. In this context, traditional supply-side interventions—digging deeper wells or transporting water from distant sources—are not only unsustainable but also insufficient.
This is precisely where water credits emerge as a transformative, market-driven solution. Much like carbon credits, water credits assign a tangible economic value to every litre of water saved, reused, or replenished. This incentivises a shift from unchecked consumption to conservation. Developers, industries, and even households can earn credits by adopting sustainable practices—such as greywater recycling, rainwater harvesting, or water-efficient plumbing—and trade these credits with entities that exceed their usage thresholds. The system introduces a market mechanism into what has long been a regulatory domain, creating a self-sustaining ecosystem around water conservation.
In India's context, this mechanism holds significant promise. For the real estate and urban development sectors, water credits offer the best of both worlds: flexibility and sustainability. Developers can earn credits by integrating water-positive infrastructure into their projects and use these credits for regulatory compliance. Urban Local Bodies (ULBs) can set thresholds for per square metre water use in new constructions and allow excess usage to be offset through the purchase of water credits. This not only ensures compliance but also promotes innovation and avoids bottlenecks in development permissions.
Moreover, water credits align well with recent policy frameworks. India's Green Credit Programme, launched in June 2023, and specifically lists water conservation among the activities qualifying for green credits, paving the way for broader adoption. Further, the Power Tariff Policy of 2016 mandates power plants to use treated sewage water (STP water) within a 50-kilometre radius an existing regulation that could be synergised with Water Credits to monetise such compliance and incentivise industries to invest in water reuse. Similarly, companies implementing Zero Liquid Discharge (ZLD) technologies critical in curbing industrial wastewater discharge could be offered easier access to loans and green financing if linked to credit-generating frameworks, thereby mainstreaming water accountability in industrial growth.
On the global stage, California's Onsite Water Reuse Program serves as a compelling case study. By encouraging buildings to treat and reuse water on-site, the state has successfully integrated market incentives with regulatory frameworks to accelerate investment in decentralised treatment solutions.
Water credits could also catalyse an entirely new segment of economic activity. Startups, NGOs, and water-tech innovators focused on groundwater recharge, IoT-enabled monitoring, or decentralised water treatment can now monetise their impact by generating and selling credits. This makes water innovation commercially viable, reducing its dependency on government grants or philanthropic support. It also decentralises water resilience when neighbourhoods begin managing their own water cycles, it reduces reliance on overstressed municipal systems and enhances urban resilience during supply shocks or extreme weather events.
A new area of exploration could be green water credits, which integrate environmental co-benefits like improved groundwater recharge, reduced pollution loads, and biodiversity restoration into the water credit framework. This intersection between water conservation and ecosystem services would help enhance the environmental impact of credit-based systems and open up new financing channels via climate and resilience-linked funds.
Yet, for all their promise, implementing water credits in India will require robust groundwork. A key challenge lies in standardising what qualifies as a credit and establishing mechanisms for credible measurement, verification, and reporting. Without technical rigour and regulatory oversight, the credibility of the system could erode. Coordination across central, state, and municipal governments will be essential to scale adoption, enforce standards, and promote transparency. Equally critical is stakeholder awareness. Developers, planners, utilities, and citizens must be educated on the value of Water Credits not merely as a compliance tool, but as a long-term investment in urban sustainability.
Overall, water credits represent more than just an environmental policy they offer a scalable economic instrument to rebalance demand, reward stewardship, and future-proof India's cities. By embedding water conservation into the very economics of growth, they enable a shift from reactive crisis management to proactive resilience building. If adopted and implemented thoughtfully, Water Credits along with existing initiatives like the Power Tariff Policy, ZLD incentives, and green water credit frameworks could be one of the most important levers in securing a water-secure urban future for India.
This article is authored by YR Nagaraja, managing director, Ramky Infrastructure.
