ExplainSpeaking: The economics of climate change in India

Explain Speaking: The economics of climate change in India

Context- Over the past few weeks and months there have been several stories about how extreme weather events (such as unexpected rainfall or unusually high temperatures) have disrupted normal life in India. There is also a constant reminder that more of the same can be expected with each passing year. To be sure, the Global Climate Risk Index 2021 had ranked India seventh in the list of most affected countries in terms of exposure and vulnerability to climate risk events.

Some obvious and associated questions include: What is the economic cost of climate change? How vulnerable is India’s economy to such climate change?

What is the evidence of climate change?

  • The most obvious signs of climate change are the anomalies in temperature and precipitation (rain, hail, snow etc.)
  • Look at Chart 1 for the average annual temperature in India. While annual average temperature in India has been increasing gradually, the rise has been significantly sharper during the last vicennial (twenty years).

(Credits- Indian Express)

  • Similarly, the south west monsoon, too, has been becoming more erratic. Notably, while the average annual rainfall at the all-India level during the last vicennial (2000-2020) saw a rise over that during 1960-1999, over a longer time horizon since 1901, annual average rainfall in India has gradually declined.
  • Research about natural disasters since 1975 has shown that India is relatively more exposed to floods and storms (i.e., cyclones and hailstorms) than droughts and heatwaves. Such incidences pose significant risks to agricultural production and food price volatility.

How vulnerable is India to climate change?

  • There are two ways to analyse this. One by looking at India’s geographical attributes and the other by looking at the structure of India’s economy.
  • As Chart 2 brings out, India’s diverse topography is not only exposed to different temperature and precipitation patterns, but also makes it vulnerable to extreme weather events posing wide-ranging spatial and temporal implications for the economy.

(Credits- Indian Express)

  • India’s economic structure has undergone a considerable change since Independence. As such, bulk of the economic activity now happens in the services sector as against the agriculture and allied sectors.
  • This has significant implications for carbon emissions (look at Chart 3) because services are “globally considered to be emission-light with relatively lower energy intensity of output”.

(Credits- Indian Express)

  • In other words, the sectoral composition of the Indian economy helps reduce its carbon emissions. However, notwithstanding this, fossil fuels have an overwhelmingly large share in India’s primary energy consumption and this fact needs to change

What is the macroeconomic impact of climate change on India?

  • Climate change can adversely impact both the supply side (read the productive potential) as well as the demand side. It can stroke inflation, reduce economic output, trigger uncertainty and change consumer behaviour.
  • Over the years, there have been several predictions and assessments made about the impact of climate change on India’s economy. Some are listed below:
    1. 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.
    2. 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 productivity decline by 2030.
    3. 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. By the middle of the present century, around 35 million people in India could face annual coastal flooding, with 45-50 million at risk by the end of the century.

Conclusion- Overall, 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 (which implies higher emissions) by 2047.

Syllabus- GS-3; Economics and Climate

Source- Indian Express