The economics of Climate Change in India

The economics of Climate Change in India

News: In its latest report of currency and finance, the RBI (India’s central bank) has a chapter dedicated on explaining the macroeconomic effects of climate change in India.

How has climate change impacted India?
 The most obvious signs of climate change are the anomalies in temperature and precipitation (rain, hail, snow etc.)
 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.
 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. Therefore, fossil fuels have a large share in India’s primary energy consumption and this needs to change.

What is the macroeconomic impact of climate change on India?
 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 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. 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.
 The potential transition risks which will come from economy wide changes arising from transition towards low-carbon economy. If the shift towards becoming a low-carbon economy is too rapid, it could materially damage a country’s financial stability.

Can policies provide some solutions?
 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.
 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.
Source – The Indian Express 

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