Is Climate Change impacting the Indian Economy?

KAKALI DAS

One of the biggest threats to India’s economy is often underestimated – Climate Change. While the usual suspects like war, supply chain disruptions, and unemployment are commonly discussed, climate change poses a far greater risk.

Climate change is impacting nearly every sector in India. For example, automobile sales in August totalled around 1.9 million units, including cars, bikes, and trucks. This represents a 7% decrease compared to the previous month.

In July, over 2 million units were sold. So, what accounts for this decline? According to Indian auto dealers, excessive rainfall is to blame. They’ve released a report attributing the drop in sales to this factor. But does their reasoning hold up?

Is Climate Change impacting the Indian Economy? — Photo by Markus Spiske on Pexels.com

There was indeed 16% more rainfall in key business regions, which may have impacted foot traffic. However, the decline in sales during August wasn’t an anomaly.

In June, car sales dropped by over 7%, and in May, they fell nearly 9.5%. These declines were also attributed to the weather, not due to rain but because of heatwaves.

Most Indian cities experienced extremely high temperatures, leading to reduced foot traffic. As a result, unsold inventory is accumulating. Dealers now have stock for 70 to 75 days, totalling nearly 800,000 vehicles. This unsold inventory is valued at INR 77,000 crore, which is over $9 billion.

Another report indicates that heatwaves have become the primary driver of India’s food inflation. This wasn’t always the case. Historically, rainfall was the main factor—a good monsoon kept prices stable, while a poor one drove them up. Now, however, heat is playing a more significant role.

Consider India’s food inflation in June 2024—nearly 9.5%—which coincided with the peak of the heatwave. Climate change is clearly impacting the Indian economy, and several companies have acknowledged this. Hindustan Unilever, India’s largest consumer goods company, has cited weather as the single biggest business risk. Dabur faced similar challenges, with its beverage business taking a hit last quarter due to unseasonal rains in western India.

Another example is IDFC Bank, whose profits dropped by 11% in the last quarter. Do you know why? One reason was the floods in Tamil Nadu. IDFC offers collective loans in rural areas, where instead of a single borrower, a group of people take out the loan. This business is largely concentrated in Tamil Nadu, but the floods disrupted these loans.

The impact is evident: climate change is causing erratic weather events, such as intense heatwaves, heavier rains, and frequent flooding. As a result, Indian businesses are struggling. This year alone, we’ve seen floods in Kerala, Telangana, Andhra Pradesh, Assam, parts of Uttar Pradesh, Gujarat, and Himachal Pradesh—all within just 8 months. Such unpredictable events take a significant economic toll, whether through flash floods or heatwaves.

The Reserve Bank of India released a report last year indicating that 4.5% of India’s GDP could be at risk by 2030 due to heat and humidity. Excessive heat can make it difficult for people to work, and even when they do work, their productivity is likely to decrease.

The trend could reduce India’s GDP by 4.5%. However, the United Nations presents a grimmer outlook, projecting that climate change could cost India up to 35% of its GDP by the end of the century. Clearly, the economic toll from climate change is substantial.

The question is: Is there a solution? While the obvious long-term goals include reducing emissions, investing in green energy, and moving away from fossil fuels, short-term measures are also crucial. These might include flood-proofing our infrastructure and adopting climate-resilient farming practices.

To be fair, the government is addressing the issue. This year’s budget included special allocations for flood relief, particularly in vulnerable states such as Assam, Uttarakhand, Himachal Pradesh, and Bihar. Bihar alone received more than INR 11,000 crore.

While money is being invested, experts argue that progress is too slow. The foundations of the Indian economy are still developing, and now is the time to make them climate-resilient. Otherwise, we risk being held hostage by erratic weather.

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