NEW DELHI: India leads the world in unequal "virtual water" trade, even as the country grapples with significant freshwater stress, according to a latest study by the Asian Infrastructure Investment Bank.
The study advocates for increasing water tariffs to reduce virtual water trade and calls for investment in water infrastructure and technology.
The concept of virtual water trade (VWT) refers to the practice of exporting water-intensive goods, such as rice, cotton, sugar, and textiles.
Essentially, India is exporting substantial volumes of its freshwater resources through these products, which is termed "virtual water export."
Meanwhile, rich and industrialised countries benefit from these exports.
The report titled "Where the Water Flows: Infrastructure and Governance for a Sustainable Water Cycle" illustrates the global patterns of VWT, highlighting a distinct divide between exporters and importers.
The largest exporters include India at the top, followed by Indonesia, Thailand, and Vietnam—all emerging and developing economies with strong agricultural bases and a high dependence on water-intensive exports.
In contrast, major importers include high-income countries like the United States, Japan, Germany, and the United Kingdom, which outsource much of their water-intensive production.
Despite having a heavy agricultural base, China and Bangladesh are exceptions, acting as importers of virtual water due to their roles as manufacturing hubs in global value chains.
Over the past two decades, China has transitioned from a virtual water exporter to an importer. High-income countries remain net importers of virtual water while experiencing relatively low and declining water stress.
In contrast, middle- and lower-income countries consistently serve as net exporters. On average, lower-middle-income countries face the highest water stress while simultaneously being net exporters of virtual water to high-income countries.
This suggests that global VWT reflects production and trade specialisation rather than relative water availability. The study emphasises that VWT has exacerbated water stress, especially amid climate change and other environmental challenges.
It calls for the development of a global VWT system model that could more efficiently utilise water resources and allocate production.
Furthermore, the study highlights that appropriate water tariffs can significantly impact agricultural exports and water usage, as research indicates that agricultural exports tend to decline as water tariffs increase.