By Dr. Uday Lal Pai
India is one of the biggest and most attractive water markets in the world. The boom time for Indian bottled water industry is to continue- more so because the economics are sound, the bottom line is fat and the Indian government hardly cares for what happens to the nation's water resources.
Most multi-national (MNC) companies view India as the next big market with a lot of potential and growth possibility. Several MNCs are waiting in the wings to expand a $ 287 billion global water market into India. There is a huge market being exploited by the packaged water industry, and it's growing at 40% per annum.
With over a thousand bottled water producers, the Indian bottled water industry is big by even international standards. There are more than 200 brands, nearly 80 per cent of which are local. Most of the small-scale producers sell non-branded products and serve small markets. In fact, making bottled water is today a cottage industry in the country. There are investment worthy mid-cap companies in this segment.
Despite the large number of small producers, this industry is dominated by the big players - Parle Bisleri, Coca-Cola, PepsiCo, Parle Agro, Mohan Meakins, SKN Breweries and so on. Parle was the first major Indian company to enter the bottled water market in the country when it introduced Bisleri in India 25 years ago.
The ground water realities
Industry sources estimate that the total Indian water market is worth more than $1 billion - consisting of approximately one-third for water provisioning, one-third for municipal water treatment and one-third for industrial water treatment. The overall water market is growing at 15-20 percent per annum.
In just 50 years a water-rich nation has been reduced to a water-insecure one. By 2025, the per capita availability of water is likely to slip below the critical mark of 1,000 cubic meters. And with 82% of our villages overdrawing groundwater to meet their needs and cities ferrying water from peri-urban areas, the country is close to exhausting its groundwater reserves.
India has 16 percent of the world's population, 2.5 percent of the land mass and 4 percent of the world's water resources. These limited water resources are depleting rapidly while the demands on them are increasing. Drinking water supplies in many parts of India are intermittent. Transmission and distribution networks for water are generally old and badly maintained, and as a result, are deteriorating.
Corporate control over water and water distribution in India is growing rapidly: the packaged water business is worth $250 million, and it's growing at a huge 40-50% annually. Around 1,200 bottling plants and 100 brands of packaged water across the country are battling over the market, overdrawing groundwater, and robbing local communities of their water resources and livelihoods.
Genie is out of the bottle.
India is the tenth largest bottled water consumer in the world. Today it is one of India's fastest growing industrial sectors. The rise of the Indian bottled water industry began with the economic liberalization process in 1991. The market was virtually stagnant until 1991, when the demand for bottled water was less than two million cases a year. However, since 1991-1992 it has not looked back, and the demand in 2004-05 was a staggering 82 million cases.
The per capita bottled water consumption in the country is still quite low - less than five liters a year as compared to the global average of 24 liters. However, the total annual bottled water consumption has risen rapidly in recent times - it has tripled between 1999 and 2004 - from about 1.5 billion liters to five billion liters. Between 1999 and 2004, the Indian bottled water market grew at a compound annual growth rate (CAGR) of 25 per cent - the highest in the world.
Indeed, the bottled water industry is one of the most thriving sectors in India. According to another section of market observers, the market is growing at a whopping rate of about 55 percent annually. Though exact figures are not available, the market is growing for sure. Even though it accounts for only 5 percent of the total beverage market in India, branded bottled water is the fastest growing industry in the beverage sector.
Bottled water is still not perceived as a product for masses though, the scene is changing slowly thanks to low pricing and aggressive marketing strategies adopted by new entrants. Some surveys show that truck drivers on highways form a major chunk of bottled water drinkers. Penetration in rural areas is another significant factor that is likely to play a key role in the development of the bottled water trade.
Bottled water is sold in a variety of packages: pouches and glasses, 330 ml bottles, 500 ml bottles, one-liter bottles and even 20- to 50-litre bulk water packs. The formal bottled water business in India can be divided broadly into three segments in terms of cost: premium natural mineral water, natural mineral water and packaged drinking water. Leave alone the metros, where a bottled-water manufacturer can be found even in a one-room shop, in every medium and small city and even some prosperous rural areas there are bottled water manufacturers.
Consumption of bottled water in India is linked to the level of prosperity in the different regions. The western region accounts for 40 per cent of the market and the eastern region just 10. However, the bottling plants are concentrated in the southern region - of the approximately 1,200 bottling water plants in India, 600 are in Tamil Nadu. This is a major problem because southern India, especially Tamil Nadu, is water starved.
The majority of the bottling plants - whether they produce bottled water or soft drinks - are dependent on groundwater. They create huge water stress in the areas where they operate because groundwater is also the main source - in most places the only source - of drinking water in India. This has created huge conflict between the community and the bottling plants.
The branded bottles
Packaged drinking water, which is nothing but treated water, is the biggest segment and includes brands such as Parle Bisleri, Coca-Cola's Kinley and PepsiCo's Aquafina. While the single largest share in the mineral water market might still belong to an Indian brand -- Parle's $52 million Bisleri brand has a 40 percent share -- multi-national corporations are not far behind. Nestle and Danone are vying to purchase Bisleri, and Pepsi's Aquafina and Coke's Kinley brands have been extremely successful in edging out many of the small and medium players to buy-outs and exclusive licensing deals.
Kinley and Aquafina are fast catching up, with Kinley holding 20-25 per cent of the market and Aquafina approximately 11 per cent. The rest, including the smaller players, have 20-25 per cent of the market share. News reports indicate that other MNCs like Unilever are also eying the market.
Currently, Kinley is being manufactured in 15 bottling plants across the country and according to Coca-Cola India President Alex von Behr, Coke had invested nearly $1 billion in India between entering the market in 1993 and December 2001. Behr says that Coke expects a significant portion of our turnover to be accounted by pure water business.
Almost all major national and international brands have taken a plunge. Parle's Bisleri that virtually monopolized the bottled water market is now vying with Nestle, Coca Cola, PepsiCo, Manikchand, UB and Britannia. According to a national-level study, there are close to 200 bottled water brands in India. Nearly 80 per cent of these are local brands.
Premium natural mineral water includes brands such as Evian, San Pelligrino and Perrier, which are imported and priced between $2 - 2.5 a litre. Natural mineral water, with brands such as Himalayan and Catch, is priced around 40 cents a liter.
The Indian bottled water market, which has more than 250 brands, is expected to undergo a major consolidation phase, and the need for standards and regulations is of great importance, according to Ita Thaher, Secretary General of the Asian Bottle Water Association (ABWA).
She said that the Indian bottled water market is valued at more than $250 million and is growing at a rate of 60 per cent.
The major growth in packaged water, however, was in the bulk water segment. According to estimates, bulk water packs of 20 liters, targeted at the institutional and home segments, grew at a rate of 30-40% in 2002 alone. Bisleri re-invented its 20-litre jumbo home pack, fitted with a spout, to acquire a more 'consumer-friendly' image.
According to industry estimates, the main consumers of packaged water are no longer restricted to the upper class but include middle class and lower-middle class families as well. The 'rural' market is currently dominated by tourists and travelers; packaged water is now beginning to be seen as an essential appendage to any form of travel.
The government apathy
In April 2002, the government of India announced a new water policy based on privatization. The social activists allege that this policy was shaped entirely by the World Bank recipes for the water sector.
In comparison to global standards India's bottled water segment is largely unregulated. Safe water is rated with a different yardstick in different countries. In India, the aspect has been overlooked for long. Indian consumers tend to believe that any bottled water is safe water. This may not be the case.
Several small players have entered the trade in India to capitalize on the craze, with no check on them. Some serious doubts have been raised about the safety of so-called bottled water available. There has hardly been an involvement of any statutory body in defining specific standards. The Bureau of Indian Standards (BIS) has just recently got involved in the process.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has proposed expediting setting up of Water Regulatory Authority, urging the Planning Commission to build a strong case for its creation to the government. The Chamber's proposal which will be submitted to the Deputy Chairman, Planning Commission, Dr. Montek Singh Ahluwalia by its President, Anil K. Agarwal, stresses that water is crucial and hardly any good job is being done in this area. As only a third of country is under irrigation with assured canal water or ground water supplies. Maintenance of irrigation system is poor which is partly because water tariff are very low and do not cover the costs of tariff and maintenance, said the Chamber proposal.
Turbulent future
India faces a turbulent water future. Unless water management practices are changed - and changed soon - India will face a severe water crisis within the next two decades and will have neither the cash to build new infrastructure nor the water needed by its growing economy and rising population.
World Bank draft report, `India's Water Economy: Bracing for a Turbulent Future,' says by 2020, India's demand for water will exceed all sources of supply unless the country's management practices are changed, and soon.
William Brennan, Portfolio Manager of the Praetor Global Water Equities Fund and Managing Director of Equities at Boenning and Scattergood. "India right now, especially with the technology centers that are being built, will have a real driving force in the global water business as far as infrastructure, water delivery, membrane filtration and chemical use. China, on the other hand, has really emerged as a significant player in the water market over the last two years. As China goes through its industrialization, they will become more and more dependent on fresh water and will become a significant consumer of water and related products and services."
Climate change projections show that India's water problems are only likely to worsen. With more rain expected to fall in fewer days and the rapid melting of glaciers - especially in the western Himalayas - India will need to gear up to tackle the increasing incidence of both droughts and floods.
India can still store only relatively small quantities of its fickle rainfall. Whereas arid rich countries (such as the United States and Australia) have built over 5,000 cubic meters of water storage per capita, and China can store about 1,000 cubic meters per capita, India's dams can store only 200 cubic meters per person. Moreover, India can store only about 30 days of rainfall, compared to 900 days in major river basins in arid areas of developed countries.
A water thirsty country
According to a document recently published by the Delhi office of the international NGO, WaterAid, even if this target is reached within a decade, as the UN seeks to do, "29% of the rural population, or 244 million people, and 23% of the urban population, or 90 million people, would still lack access to adequate safe, sustainable water".
Another estimate shows almost the same figure. The projected increase in population by the year 2025 indicates that the per capita availability of water is likely to slip below the critical mark of 1,000 cubic meters. Though projections vary, India's population by 2050 will in all probability balance between the low variant of 1,345 million people and the high variant of 1,581 million people.
The fact that most of this population growth will be accounted for by urban areas will add to the existing water crisis in the cities. By 2050, 48% to 61% of India's population will be living in urban areas.
Even if the middle variant of 55% is taken into consideration, 800 million out of the projected total population of 1,450 million, will be in urban areas, adding an unprecedented 500 million people to the present urban population of 309 million. While rural water demand is assessed on an allocation of 40 liters per capita per day (lpcd), the corresponding urban demand is against a norm of 135 lpcd. A population shift means additional demand on already shrinking urban water resources.
Massive investments needed
Estimates reveal that by 2020, India's demand for water will exceed all sources of supply. Notwithstanding the catastrophic consequences of indiscriminate pumping of groundwater, government actions - including the provision of free power - have exacerbated rather than addressed the problem.
In just 50 years a water-rich nation has been reduced to a water-insecure one. By 2025, the per capita availability of water is likely to slip below the critical mark of 1,000 cubic meters.
There is clearly an urgent need for action. First, India needs a lot more water infrastructure. Compared to other semi-arid countries, India can store relatively small quantities of its fickle rainfall. Whereas India's dams can store only 200 cu.m.of water per person, other middle-income countries like China, South Africa, and Mexico can store about 1000 cu.m. per capita. New infrastructure needs to be built especially in underserved areas such as the water-rich northeast of the country where investments can transform water from a curse to a blessing. The country needs to invest in water infrastructure at all levels - from large multipurpose water projects to small community watershed management and rainwater harvesting projects.
ASSOCHAM also points out that treating land is expensive as it costs around $178 to $223 per hectare as something of the order of 80 million hectares of land in India needs treatment which alone would require an investment of $1.8 billion.
The government is increasingly dependent on aid for water infrastructure projects from institutions like the World Bank. As liberalization and free markets are the guiding principles of these agencies, they are pushing full cost recovery and reduced public control. This is shifting the flashpoint for water conflicts from agrarian basins and rural areas to the cities, where the battle is on for the control and management of municipal water supplies.
MNC manufacturers of water and wastewater treatment equipment either have a presence in India or have ensured that their products are easily available in India now. Canadian companies are eyeing the Indian water market keenly. Canada's companies have expertise in disinfection, non-chemical treatment, membrane technology and clean environment technologies. They are also strong in lake water management and municipal water supply systems. The Netherlands has technical leadership in activated carbon treatment technology, membrane technology and wastewater treatment.
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