New Delhi: Few expected India’s science minister to cut the monsoon outlook as he unveiled a weather forecasting system on June 2. The surprise contributed to a Rs1.5 trillion ($86.67 billion) two-day slump in the nation’s equities.

The rupee also slid as Harsh Vardhan’s prediction of weaker rainfall stoked concern that reduced farm output may hurt the economy. The episode is the latest example of growing water risks for investors and companies in India.

About half of the country’s 1.26 billion people face potential surface-water supply disruptions, setting the stage for clashes with thirsty industries just as Prime Minister Narendra Modi seeks to make his nation a manufacturing power. And India isn’t alone: From Africa to the Americas, surging demand is exacerbating a global water deficit as groundwater diminishes.

“While India is just one of many markets that’s being impacted by water issues, it appears to be particularly acute there,” said Ben Caldecott, a programme director at Oxford University’s Smith School of Enterprise and the Environment. Water risk will be of increasing importance for investment decisions, he said.

India relies on groundwater as piped supplies can’t meet demand, but the World Bank has flagged aquifer over-exploitation by farms, businesses and cities. The University of California at Irvine says the Indus basin aquifer of northwestern India and Pakistan is the second-most overstressed in the world. The impact on companies is wide and deep.

Coca-Cola last year scrapped a $24-million expansion in Uttar Pradesh state, citing delays in water extraction permits. Farmers there had protested about dwindling supplies. Brewer SABMiller’s local unit has studied the aquifers it relies on and is trying to manage usage with the local population.

ITC, British American Tobacco’s Indian associate, plans to double its agri-business watershed management programme to cover 1 million acres of farmland by 2018. “If we don’t have a long-term perspective, our raw material availability is at risk,” said Ashesh Ambasta, a vice-president at Kolkata-based ITC.

In the energy sector, some Indian coal-fired power plants are in areas of “extremely high” water stress, which can trigger blackouts and affect profitability, according to a report by the Smith School of Enterprise and the Environment. The plants need fuel and water to generate electricity.

Dipping summer lake levels imperil the Maharashtra State Power Generation’s power capacity each year, spokesperson Mahesh Aphale said. It produces electricity for the western state of Maharashtra, home to the financial capital Mumbai.

Mangalore Refinery and Petrochemicals, a unit of India’s biggest oil explorer, said it monitors usage daily for most of the year to avoid a repeat of a plant shutdown in 2012 caused by a lack of water.

Investors such as PGGM and Norges Bank Investment Management are increasingly asking businesses about water.

Norges, manager of Norway’s $900-billion sovereign wealth fund, divested from 35 companies in 2013 and 2014 over water risks. For some businesses, scarcity in India is an opportunity in industries such as wastewater recycling.

Veolia Environnement, Europe’s biggest water company, is looking to sell more treatment plants to Indian energy and mining businesses. The next largest, Suez Environnement, is considering purchases of local operators to expand.

Modi has unveiled some steps to avert a crisis. The agenda includes reviving a 30-year-old plan to link Himalayan and peninsular rivers to channel supplies to deficient basins. He also wants to curb toxic discharges into the Ganges River.

For now, patchy metering, theft and below-cost supplies are stoking overexploitation in India. A lack of water regulators remains an obstacle too.

Water is the biggest challenge to Modi’s drive to scale up manufacturing in India, said Damandeep Singh, the head of the India chapter of London-based researcher CDP.

Science Minister Vardhan’s forecast was for June-September rainfall at 88 per cent of a 50-year average. He spoke a few hours after India’s central bank said further interest-rate cuts would hinge on the monsoon.

The market capitalisation of India’s benchmark S&P BSE Sensex equity index fell Rs1.5 trillion to Rs44.6 trillion by the end of the next trading day. The monsoon so far is 11 per cent above average, though it’s still early in the season.

“Water risk is only recently appreciated as a systemic and material investment risk,” said Piet Klop, senior adviser at Netherlands-based PGGM, which manages about €200 billion ($225 billion) in pension funds. “We do expect that the importance of water in investment decisions and the quality of the data will increase.”

— Washington Post