The economics of climate change in India

Source: The post is based on the article “The economics of climate change in India” published in The Indian Express on 23^rd May 2023.

Syllabus: GS 3 – Climate Change

Relevance: Impact of climate change on the Indian economy

News: Reserve Bank of India (RBI) has released a report titled “Report on Currency and Finance: Towards a Greener Cleaner India”. The report highlights the impact of climate change on India’s economy and measures needed to address them.

How has climate change affected India?

There has been change in temperature and precipitation pattern in India.

As per the RBI report, the annual average temperature in India has been increasing gradually.

The south west monsoon has also become unpredictable. The annual average rainfall in India has gradually declined while intense wet spells as well as dry spells have increased in India.

India is relatively more exposed to floods and storms than droughts and heatwaves. Such incidences pose significant risks to agricultural production and food price volatility.

How vulnerable is India to climate change?

India’s diverse topography exposes it to varying temperature and precipitation patterns, which in turn makes the country susceptible to extreme weather events. These events have implications for the Indian economy. (Chart 1)

At present, major economic activity happens in the services sector as against the agriculture and allied sectors in India.

This has significant implications for carbon emissions because services are globally considered to be emission-light with relatively lower energy intensity of output.

Whereas, metal industries, electricity and transports are the highest emission-intensive sectors, together accounted for around 9 percent of India’s total GVA in 2018-19. (Chart 2)

Therefore, fossil fuels have a large share in India’s primary energy consumption and this needs to change. (Chart 3)

                                                                                                             (Chart1)                                                    (Chart 3)

                                                                      (Chart 2)

Source: All Images from The Indian Express

What is the macroeconomic impact of climate change on India?

Climate change can adversely impact both the supply side as well as the demand side. It can stroke inflation, reduce economic output, trigger uncertainty and change consumer behaviour.

Some of the findings of impact of climate change on India are:

• According to Niti Aayog in 2019, around 600 million of India’s population are facing severe water stress, with 8 million children below 14 years in urban India at risk due to poor water supply.
• The World Bank in 2020 said that India could account for 34 million of the projected 80 million global job losses from heat stress associated with productivity decline by 2030.
• The IPCC Working Group in 2022 stated that India is one of the most vulnerable countries globally in terms of the population that would be affected by the sea level rise.

Further, if the shift towards becoming a low-carbon economy is too rapid, it could also damage a country’s financial stability.

Are policies effective in providing some solutions?

Impact on GDP: Policy actions will have a negative impact on India’s GDP. Global scenarios of “current policies” and “nationally determined contributions (NDCs)” have the highest negative impact on output, whereas rapidly moving towards Net Zero by 2050 will hit GDP.

Impact on Inflation: Moving towards net zero by 2050 will spike inflation far more in the immediate future than continuing on current policies.

Therefore, these trade-offs will become sharper as India tries to achieve the twin goals of achieving net zero emissions by 2070 and becoming an advanced economy by 2047.