What Economic Worries Does India Face as Unusually Hot Weather Threatens GDP Growth?

India faces economic concerns due to unusually hot weather as it strives to nurture its post-pandemic GDP growth and emerge as the world's third-largest economy.

Despite a key advisor to Prime Minister Narendra Modi stating that the economy can withstand potential weather shocks, experts warn about the direct impact of heat waves on food inflation and macroeconomic stability. 

The World Bank has also revised its GDP growth forecast for India. The rising temperature has far-reaching implications for agriculture, food supply, the power sector, and labor productivity.

Agriculture, Economy & Public Health

India is facing a severe challenge as unprecedented heatwaves are wreaking havoc on its agriculture, economy, and public health, just as the country is trying to nurture its post-pandemic GDP growth and emerge as the world's third-largest economy. A new study led by the University of Cambridge's Ramit Debnath reveals that extreme heat has caused more than 24,000 deaths since 1992, leading to increased air pollution and accelerated glacial melt in northern India.

Impact of Heatwaves on Food Economy & Inflation

India's food economy is particularly vulnerable to the impacts of heatwaves. The shortage of commodities due to crop failures caused by extreme heat can lead to rising inflation and force the Reserve Bank of India (RBI) to hike interest rates, further jeopardizing macroeconomic stability. Heatwaves can cause wilting, stunting, or early ripening of crops, resulting in lower production and higher prices. Increased water demand for irrigation during heatwaves can strain water resources, leading to reduced crop yields, droughts, increased pest and disease pressure, and soil degradation. Heatwaves also lower animal fodder production, reduce animal productivity, and increase milk, poultry, and fish prices.

India's agriculture sector, which accounts for 17% of its GDP, is vulnerable to the impact of heat waves. Heat waves can cause wilting, stunting, or early ripening of crops, resulting in lower production and higher prices. Increased water demand for irrigation during heat waves can strain water resources, leading to reduced crop yields, droughts, and soil degradation. Livestock and fisheries sectors are also affected by rising temperatures, leading to reduced animal productivity and increased prices of milk, poultry, and fishery products.

There will be a loss of 10% to 30% fruit and vegetable crops in different regions this year due to the sudden increase in temperatures, SK Singh, director of the Indian Institute of Horticulture Research (IIHR), Bengaluru, told ET recently. As estimated by experts, the loss of fruit and vegetable crops due to rising temperatures this year is expected to impact food inflation and disrupt vegetable supply chains, adding to concerns about the overall economic impact.

Strain on Power Sector and Industries

Heat waves also strain India's power sector. Increased power consumption during hot weather, driven by the use of appliances such as air conditioners and groundwater pumping motors, can push electricity grids to their limits. This impacts the working of industries that rely on electricity to operate, further adding to the economic challenges. Demand for power in India was set to close last fiscal year with a growth of 9.5-10% year-on-year, marking a decadal high rate of growth, according to a CRISIL report. However, a hotter-than-usual summer with multiple heatwaves expected in the current fiscal year is projected to keep power demand.

Despite robust growth in power demand, the risk of electricity shortages looms large, as witnessed in the previous year when several parts of the country faced blackouts due to increased electricity demand during record-breaking high temperatures. 

To ensure the smooth availability of power supply, India's coal-fired power plants have been ordered to run at full power for the second consecutive year, raising concerns about greenhouse gas emissions and reliance on coal for electricity generation.

Labor Productivity and Other Impacts

Nearly 75 percent of India's workforce depends on heat-exposed labor, at times working in potentially life-threatening temperatures, says a World Bank report released in December last year. That means a big dip in labor productivity across various sectors of the economy. The report says India may account for 34 million of the projected 80 million global job losses from heat-stress-associated productivity decline by 2030. 

"Up to 75 percent of India's workforce, or 380 million people, depend on heat-exposed labor, at times working in potentially life-threatening temperatures. By 2030, India may account for 34 million of the projected 80 million global job losses from heat-stress-associated productivity decline," the report says.

The lack of adequate cold-chain infrastructure in India, with only 4% of fresh produce covered by cold-chain facilities, results in significant food losses, estimated at $13 billion annually, impacting rural populations' livelihoods and buying power. This, in turn, affects the demand for fast-moving consumer goods (FMCG) and products such as tractors and motorcycles, which have a large rural exposure, further denting the overall rural demand and prospects for related industries.

Falling productivity caused by extremely high temperatures could already be costing India 5.4 percent of its GDP, according to the Climate Transparency Report published by environmental groups last year.

Climate Change Undermining India's Efforts to Reduce Poverty, Inequality

The study warns that climate change is undermining India's long-term efforts to reduce poverty, inequality, and illness. The country is now facing a collision of multiple, cumulative climate hazards, with extreme weather events happening almost every day from January to October in the previous year. The impact of extreme heat is placing 80 percent of India's population of 1.4 billion in danger, and the full extent of the damage is underestimated by the country's legislators and officials, according to the study.

Heatwaves Weakening India's Social Development Goals and GDP Growth

Researchers further highlight that heatwaves are weakening India's efforts to meet its Social Development Goals, a list of 17 United Nations objectives to cut poverty, hunger, inequality, and disease. The study projects that extreme heat could ultimately lead to a 15 percent decline in outdoor working capacity, reduce the quality of life for up to 480 million people, and cost 2.8 percent of gross domestic product (GDP) by 2050. Falling productivity caused by extremely high temperatures may already be costing India 5.4 percent of its GDP, according to the Climate Transparency Report published by environmental groups last year. This poses a significant risk to India's post-pandemic economic recovery and GDP growth.