Explained: How the climate change is affecting India's economy

Climate change effect on India's economy: Climate change stands as one of the most significant challenges of the 21st century, presenting a multifaceted threat to the environment, human health, food security, and economic development. India, being the seventh most affected country according to the Global Climate Risk Index 2021, grapples with the adverse repercussions of climate change across various sectors of its economy.

In the RBI’s report on Currency and Finance 2022-23, the RBI governor has also expressed his concerns about the impacts of Climate change on India’s economy. In the preface of the report, Shaktikanta Das said, “Climate change-induced risks to the macro-financial prospects of the country and the range of policy options available to mitigate climate risks require dedicated research. Such research becomes even more critical in the context of the complexity and non-linearity of the ways in which climate, economy, financial systems and related policies operate.”

Here are the sectors in which climate change has a direct and visible effect despite the authorities’ increasing focus on dealing with these challenges. 

Impact on agriculture

Agriculture, a critical sector in India's economy, faces severe disruption due to climate change. Altered temperature and precipitation patterns, increased pest infestations, soil erosion, and extreme weather events like floods and droughts significantly impact crop cycles and yield. 

According to India’s Centre for Science and Environment (CSE), the country experienced extreme weather events on 314 of 365 days in 2022, which claimed 3,026 lives, affected 1.96 million hectares of crop area and 4,23,249 houses, and killed more than 69,899 animals. 

The RBI’s report also highlights the extreme weather conditions stating the fact that in 2022, India recorded its seventh wettest January since 1901, the hottest February in 2023 since record-keeping began in 1901, and March was the third driest and warmest ever in 121 years. 

Considering that agriculture is a major source of livelihood in India, extreme weather conditions can lead to reduced agricultural output leading to inflation in urban areas.

Challenges in fisheries

Climate change causes disruptions in the distribution and behaviour of fish species due to rising sea surface temperatures. According to the United States Environmental Protection Agency, the Sea surface temperature has been consistently higher during the past three decades than at any other time since reliable observations began in 1880. 

The constantly rising sea surface temperature is leading to fishermen facing challenges as fish move to different waters or alter their migratory patterns. This affects the availability and composition of fish catch, impacting the livelihoods of those dependent on the fisheries sector.

According to NABARD’s Growth and Trade Performance of Indian Fisheries report, India contributes about 7.73 per cent of the global fish production and 4 per cent of the global fish trade. In 2019-20 alone, fish and fish products merged as the largest chunk of agricultural imports from India with a total revenue of Rs 47,618. According to the Ministry of Fisheries, fisheries provide income and employment to more than 28 million people in the country.

Health and well-being costs

According to Standford Earth Matters Magazine, as the globe warms, mosquitoes will roam beyond their current habitats, shifting the burden of diseases like malaria, dengue fever, chikungunya and West Nile virus.

The incidence and severity of diseases such as malaria, dengue, cholera, and heat-related illnesses increase due to climate change. Vulnerable groups like children, women, the elderly, and the poor are particularly at risk. 

According to the Mosquito Magnet, the cost of health care for only West Nile Virus patients in the United States was about $200 million dollars. While the costs of Dengue Fever in just eight countries — Brazil, El Salvador, Guatemala, Panama, Venezuela, Cambodia, Malaysia and Thailand — amount to $1.8 billion each year. According to a Science Direct report, the overall cost of dengue in 2016 was about $ 5.71 billion with 14.3 per cent due to fatal cases and 85.7 per cent to non-fatal cases in India.

The impact of these diseases not only burdens public health services but also reduces labour productivity and disposable income, affecting the overall economy.

Infrastructure damage

Physical infrastructure such as roads, railways, ports, and power plants face significant damage from extreme weather events caused by climate change. A report by the Coalition for Disaster Resilient Infrastructure stated that about 30 per cent of the annual infrastructure losses due to extreme climate events and disasters - around $280 billion - are borne by low and middle-income nations, putting stress on their economies.

Sea level rise, coastal erosion, storms, floods, and heat waves can disrupt economic activity, trade, and connectivity, resulting in increased maintenance and replacement costs.

Energy demand and crisis

With India's primary energy demand expected to double by 2030, climate change exacerbates the energy crisis for the nation. Rising temperatures necessitate more energy use to mitigate heat effects, putting immense pressure on the energy sector.

Climate change is also leading to more frequent and severe droughts, impacting India's hydroelectric power generation, which accounts for about 12 per cent of India's electricity generation capacity.

Financial services impact

The Network for Greening the Financial System (NGFS), a group of 95 central banks and supervisors, estimates that climate change could cause global GDP to fall by up to 7 per cent by the end of the century. This would have a significant impact on borrowers' ability to repay their loans. A 2020 study by the Swiss Re Institute found that climate change could lead to an increase in global credit losses of up to $25 trillion by 2050

The Munich Reinsurance Company have also estimated that climate change could increase global insured losses from natural catastrophes by up to 30 per cent by 2050. 

The travel and hospitality industry is particularly vulnerable to climate change, as extreme weather events can disrupt travel and damage tourist infrastructure. A 2019 study by the World Travel & Tourism Council found that climate change could cost the global travel and tourism industry up to $1.7 trillion in lost revenue by 2050.

The way forward

Amid these increasing climate change concerns, India has set ambitious goals to combat climate change, including reaching 500 GW of non-fossil energy capacity and achieving 50 per cent of its energy requirements from renewable sources by 2030. Additionally, reducing carbon emissions and intensities and striving for net-zero emissions by 2070 are crucial steps in the right direction.

Enhancing carbon sequestration through afforestation and adopting low-carbon farming practices can also offset emissions and provide numerous co-benefits. Building climate resilience by improving disaster management and investing in climate-proof infrastructure is equally vital. 

Encouraging sustainable farming practices through technology-driven solutions can optimise resource utilisation and enhance crop productivity, bolstering India's climate resilience and ensuring a sustainable future.