Exploring the Interwoven Pathways of Water Sustainability and Poverty: Insights From a 2SLS Analysis

ABSTRACT Water plays a critical role beyond basic survival, serving as a cornerstone for socioeconomic development and poverty alleviation. However, challenges such as climate change, rising global temperatures, population growth, urbanization, and increasing aspirations for better living standards threaten the sustainability of water resources and disrupt the water cycle. Water scarcity, arising from a complex interplay of physical, economic, institutional, and political factors, poses challenges to fulfilling the fundamental needs. The intricate relationship between water sustainability and poverty is particularly pronounced in rapidly developing nations, where a large portion of the population faces water scarcity and its cascading effects on health, livelihoods, and overall development. This study addresses these issues by constructing a Water Sustainability Index (WSI) and a Multidimensional Poverty Index (MPI) for Indian states and analyzing their interrelationship. The WSI is developed using five components, namely, resources, access, usage, capacity, and environment, through principal component analysis, whereas the MPI is constructed using the Alkire–Foster methodology. A bidirectional relationship between the two indices is examined using the two‐stage least squares (2SLS) method. The findings reveal an inverse relationship between WSI and MPI. Factors such as forest cover and water conservation structures significantly influence the WSI, whereas state GDP per capita and fertility rates impact the MPI. The study underscores the importance of integrating environmental and social dimensions into policy planning to promote sustainable development and enhance quality of life. These findings provide actionable insights for addressing water and poverty challenges, thereby contributing to a more sustainable and equitable future.