"Grandmother drinks water."
Translation:नानी पानी पीती हैं।
It is not grammatically incorrect but would be seen as incredibly rude to refer to someone who is considerably older than yourself in the singular.
It does depend on context though. For example, if it's your grandfather telling you that (तुम्हारी) नानी पानी पी रही है, he would use है instead of हैं because he doesn't need to use the honorific for his own wife.
Also, some people do use the तुम forms in second person and singular in the third person for their close female relatives as a show of endearment. It is usually not done for male relatives though.