Foreign companies operating in India have long grappled with complex regulations and confusing tax laws.

In the northwestern state of Rajasthan, some of the world’s biggest beverage firms face the additional challenge of securing and managing dwindling water supplies while navigating strict government rules and grievances of some local people who only get the resource piped-in once a week.

Nearly two-thirds of Rajasthan is covered by the Thar Desert, and its groundwater extraction ranks among the highest in India, adding to the economic pressures for the state in balancing the needs of its 85 million people, booming tourism business, industry and its big agricultural sector.

Laws in India, the world’s most populous nation, bar the movement of liquor across state borders without a special permit, effectively forcing companies to set up production in every state they want to sell in, despite the water scarcity.

So global giants like Diageo, Carlsberg and Heineken have to maintain factories in Rajasthan if they want to distribute their products in the state.

“[Water stress] is a growing issue in India,” said Sonia Thimmiah, senior director of global sustainability at Heineken, the market leader, adding that a few years ago, water demand in some cities had come close to exceeding supply.

Heineken, Carlsberg and Diageo said that they are increasing water efficiency in Rajasthan and other water-stressed regions, have worked to improve communities’ access to water and aimed to replenish 100 per cent of the water their factories use back to its source.

The challenges for the brewers in Rajasthan mirror a wider crisis across India, which holds 17pc of the world‘s population but just 4pc of its freshwater. As the world’s fastest-growing major economy, India’s thirst for growth means more production and more strain on its scarce water resources.

The strain is evident in Rajasthan’s industrial town of Alwar, about 150 km southwest of Delhi, where most of the beverage companies are centred. The wider Alwar district’s groundwater extraction, driven mainly by irrigation, runs at nearly twice the rate its aquifers can recharge, government data shows.

Industry users consume just about 2pc of Rajasthan’s water, but under Indian law, all industrial and commercial entities seeking groundwater extraction have to install on-site rainwater harvesting and aquifer recharge systems.

In areas such as Alwar that the government classifies as “over-exploited” for groundwater, industries are further required to adopt the “latest water efficient technologies so as to reduce dependence on groundwater resources”, a government order said in 2020, without specifying details.

“The water tables are declining, and rains are variable,” Diageo’s Alwar head Sumit Walia told Reuters.

“We have a vision to reduce water consumption by 40pc and to ensure that whatever water is withdrawn from the ground, 100pc replenishment is there. We are recycling 100pc of the wastewater and installing advanced technologies which consume less water”, like using air to rinse bottles instead of water, he said.

Tensions with villagers

Federal authorities have permitted brewers in Alwar to draw up to about 4.6m litres of groundwater daily under 2025 permits seen by Reuters, based on applications from the companies. The global firms account for around 65pc of that, with Heineken topping the list at 1.2m litres.

A typical Indian household uses 500-600 litres a day, but even getting that is difficult in Salpur village, next to the Alwar industrial cluster, where water is a luxury.

“The situation is very bad,” said Imran Khan, head of the village of nearly 4,500 residents, who grows wheat and onion on his ancestral land. “We have to give several days of notice to the borewell owner to pump water for us - there’s a queue.” He says he had to spend about 150,000 Indian rupees ($1,700) to lay a 3-km pipeline from the borewell to his fields, and needs to pay 150 Indian rupees for every hour of water supplied by its owner, a resident of another village.

Some locals blame the scarcity on the brewers.

“They are making alcohol there, but locals do not have enough water to drink”, said Alwar resident Haider Ali, who took several global and local alcohol companies to India’s environmental court last year, alleging they were extracting water without permission.

A court-appointed inspection team later found that all factories complied with regulations. But the same court directed authorities in March to actively monitor groundwater abstraction and strictly enforce a 2020 government order prohibiting the issuance of new water permits to large industries in over-exploited areas.

Heineken and Carlsberg said there was no sign of community tension in Alwar beyond this court case, in part thanks to their work with locals on water. Diageo’s Walia said he was not aware of the court case, but industries making paper, automobiles and other products consumed more water than the liquor companies.

The water problems are not limited to Rajasthan.

Reuters has reported how, in the past decade, India has lost several days of coal-power supply because water shortages forced plants to suspend generation.

In Coca-Cola’s water security plan for 2023, reviewed by Reuters, the company says it operates nine factories in India in areas of “high or extremely high-water stress” and estimates that its annual costs of procuring water could rise by $180,000 to $2.7m.

The company, which shut a factory in 2005 in the southern state of Kerala after protests over groundwater depletion, declined to comment.

Always scope for more

Drinks makers say they are a small part of the problem in Rajasthan, and their water initiatives have significant positive impact.

Carlsberg Vice President for Sustainability Simon Boas Hoffmeyer said its goals, including replenishing all water used, go beyond regulatory requirements. “If everybody did that, the industry’s share of the issue would be very, very small, he said.

Diageo Global Head of Environment Michael Alexander said that in Salpur, the company has built small dams and planted 10,000 trees, while across Alwar it has desilted ponds, installed rooftop rainwater harvesting and funded boreholes and pipelines for communities.

Similar projects by Heineken had a positive impact in Rajasthan, said Subhransu Kumar Bebarta, partnerships lead at S M Sehgal Foundation, a non-profit that implements the company’s water projects.

But big companies can go further, he said, adding that larger infrastructure projects are needed in a state where some people struggle to find water to drink.

“They have improved the groundwater table. But still, there is always scope for more.”