Melting wallets: The economic toll of climate change in India

Mon, 27/03/2023 - 12:07

Climate change is a global phenomenon that is affecting every aspect of our lives. As we bear witness to its unprecedented and devastating impacts day in and day out, we must also grapple with the reality that our global economy is not immune to its effects. Inflation, the persistent increase in prices of goods and services over time, is an economic phenomenon that has long been studied and debated by economists and policymakers alike. However, with the growing urgency of addressing climate change, it has become increasingly clear that the two issues are intricately entwined in the fabric of any economic landscape. The repercussions of climate change, such as extreme weather events, supply chain disruptions, and resource scarcity, have the potential to alter the global economy and exacerbate inflationary pressures drastically. 

In India, marginalized communities, including the rural, low-income, and indigenous populations, bear the brunt of the consequences of our rapidly changing climate. These communities, often facing systemic barriers and limited access to resources, are especially vulnerable to the detrimental effects of rising temperatures, increased frequency of natural disasters, and diminishing access to food and water. The added burden of increasing prices is further pushing them to poverty. Hence there is no denying the fact that these impacts are leading to various economic and social consequences, making life more expensive for most Indians.

Rising food prices: One of the most significant impacts of climate change on the Indian economy is the rising cost of food. Agriculture is the backbone of India's economy and a crucial source of livelihood for a significant portion of its population. As this sector is heavily dependent on rainfall and temperature, unpredictable weather patterns affect crop yields and quality. As yields decrease and production costs increase, the price of food is likely to rise. This is a major concern for India, where rice and wheat are staples for a large portion of the population, and many are already struggling to afford basic necessities. To substantiate this, India's Wholesale Price Index-based food inflation for June 2022 touched 7.3%, higher than 6.3% in May. The Financial Express reported that food inflation rose sharply to 8.6% in September 2022 pushing the overall inflation measured by the consumer price index (CPI) to 7.4% in 2022. This increase was primarily driven by a rise in food prices, particularly fruits, vegetables and pulses, which saw an inflation rate of 13.2% in 2022. Furthermore, a report by the World Bank predicts that climate change is likely to reduce agricultural productivity by 15% to 18% in India by 2050. This could lead to a decline in food security and an increase in food prices, making life even more expensive for many Indians.

Scarcity of water: India boasts 18% of the world's population, but only 4% of its water resources, making it among the most water-stressed nations in the world. As per, 91 million people in India, which is 6% of the population, lack access to safe water and 746 million people (54%) lack access to safely managed household sanitation facilities. According to a report by Niti Aayog, around 600 million people in India face extreme water stress, which is likely to worsen with climate change.  Moreover,  around 74% of the land used for growing wheat and 65% of the land used for cultivating rice in India will experience significant water scarcity levels by the year 2030. Apart from the scarcity of water affecting agricultural yield, this could lead to higher costs for water supply and sanitation services. The reduced availability of water can further lead to a decline in production, profits, and exports, as well as power shortages and disruptions. 

Health crisis: Frequent extreme climatic events have dire consequences on people's health, making them more susceptible to various illnesses and diseases. According to WHO, climate change is posing a global threat to fundamental necessities such as clean air, safe drinking water, nutritious food supply, and secure shelter. Ambient particulate matter pollution is on the rise, which has led to an increase in respiratory diseases such as asthma, chronic obstructive pulmonary disease (COPD), and lung cancer. The spread of vector-borne diseases, such as dengue, malaria, and chikungunya, in India, is also spreading at a rapid pace. In addition, the changing climate disrupts food-producing ecosystems, leading to a reduction in the availability of nutritious food, and causing malnutrition and other health problems. Climate change also has significant impacts on mental health. Natural disasters and climate-related events can cause traumatic experiences, leading to mental health problems such as anxiety, depression, and post-traumatic stress disorder (PTSD).  

Healthcare costs are rising rapidly, and the poor and vulnerable sections of society bear the brunt of these costs. This further impacts the country's economy by leading to lost productivity due to illness and premature deaths. A recent study conducted by Duke University researchers revealed that India suffered a loss of approximately 259 billion hours of labour each year from 2001 to 2020 due to the effects of global warming. This loss of productivity resulted in a cost of $624 billion (equivalent to Rs. 46 thousand lakh crore) to the Indian economy. All these impacts of climate change on public health have enormous financial implications. 

Infrastructure damages: According to a recent report by the Cross Dependency Initiative (XDI), which specialises in physical climate risk analysis, India is among the leading countries in terms of the exposure of its infrastructure to the vulnerabilities of climate change. As temperatures rise, extreme weather events such as floods, droughts, and heat waves are becoming more frequent, which is causing damage to roads, bridges, buildings, and other critical infrastructure. In addition, the rise in sea levels is leading to the erosion of coastlines and damage to port facilities. Another crucial area of infrastructure that is being impacted by climate change in India is transportation. Extreme weather events such as floods and landslides can cause significant damage to roads and railways, leading to disruptions in transportation services. These disruptions can cause delays, lost productivity, and increased costs for businesses and individuals. For instance, the economic impact of floods in India has been significant, with damages totalling approximately 0.5% of the country's GDP and amounting to a cost of US$26.3 billion (equivalent to Rs. Rs. 2.11 lakh crores). Further studies have highlighted the severe economic and social consequences of climate-related damages in India resulting from a lack of action, which could add up to a staggering US$35 trillion  (equivalent to Rs. 2864 lakh crores)over the next five decades

Energy costs: High energy prices are an ongoing challenge for the Indian economy, with a direct impact on inflation, production costs, and service sector development. According to a report by the International Energy Agency, India is likely to face significant challenges in meeting its growing energy demand while reducing greenhouse gas emissions. This could lead to higher costs for households and businesses. In July 2022, diesel and petrol prices in India experienced a sharp hike of Rs 25 per litre, exacerbating the situation. This inflation, combined with soaring energy prices, has severe implications on India's balance of payments, with crude oil accounting for approximately 20% of India's total imports in 2021. The inelastic nature of energy demand and difficulties in coal imports mean that any further increases in coal and oil prices will result in even higher import bills, worsening the current account deficit. Additionally, higher natural gas import volumes will push up fertiliser subsidies, resulting in an increase of approximately US$1.3 billion per year(equivalent to  Rs.106.49 lakh crores).

Migration complexities: India is already one of the most densely populated in the world, with over 1.3 billion people living in an area of just over 3 million square kilometres. Climate change is exacerbating the challenges of this dense population, leading to increased migration within the country. As per 'State of India's Environment-2022’, India is the fourth worst-hit when it comes to climate change-induced migration, with more than three million people forced to leave their homes in 2020-2021. According to the Groundswell report by the World Bank, climate change, an increasingly potent driver of migration, could force 216 million people across six regions to move within their countries by 2050. Overall, the impact of climate change on migration in India is significant, with a growing number of people being forced to relocate. The cost of resettlement and rehabilitation can be high, particularly in densely populated urban areas, leading to additional economic and social challenges for the country.

To conclude, climate change has imposed a heavy toll on various sectors of the Indian economy and society, leaving a trail of destruction in its wake. The ramifications of this phenomenon are far-reaching, causing water scarcity, food insecurity, health hazards, displacement, loss of livelihoods, and property damage, among other disruptions. It is therefore imperative to underscore the urgency of addressing climate change and inflation as intertwined challenges that necessitate urgent and coordinated action on an individual, national and global level.

In this regard, it is crucial to formulate policy measures aimed at tackling climate change and building resilience to mitigate the impact of inflation. Investing in renewable energy, promoting energy efficiency, and adopting sustainable agricultural practices can go a long way in reducing the impact of climate change on inflation. In addition, addressing the root cause of climate change is essential to fostering resilience to supply-side shocks and lessening the impact of inflation on the Indian economy and society. It is high time we embrace a sustainable and equitable approach to tackling climate change, which recognizes the interconnection between environmental, social, and economic factors. With concerted efforts and a shared commitment, we can chart a path towards a brighter and more sustainable future for India and the world at large.

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