However, a key advisor to Prime Minister Narendra Modi has said recently that the economy can withstand any potential weather shock. Even if heat waves strike again and crops get affected, overall growth should not suffer, according to Poonam Gupta, head of the National Council of Applied Economic Research. “At 17%, agriculture and allied activities account for a rather small part of our GDP,” said Gupta.
Concern over rising temperature can’t be brushed aside, Direct impact of heat waves on food inflation jeopardises macroeconomic stability, a must for the RBI to not raise interest rates further. The impact on overall productivity and rural demand can add up to dent the GDP growth. The World Bank has said India’s GDP growth might slip to 6.3 per cent in 2023-24 as against its earlier estimate of 6.6 per cent. Heat waves can pull it further down.
India reported the warmest February this year since 1877, according to the India Meteorological Department (IMD). This was not a random event. There is a pattern in the unusual rise in temperature. The average number of heat wave days rose to the highest in a decade in 2022, data released recently by the Ministry of Statistics and Programme Implementation showed. India reported 190 heat wave days in 2022 — over six times higher than the previous year. The IMD said 2022 was the fifth warmest year since 1901,
2023 too will be unusually hot. The IMD says most parts of India are likely to see above-normal maximum temperatures from April to June.
How heat melts the food economy
India’s food economy stands to suffer due to heat waves as shortage of commodities would lead to rising inflation and force the for-now-paused hand of the RBI to hike interest rates again which won’t be an encouraging scenario for India’s GDP growth.
Heat waves can cause wilting, stunting or early ripening of crops which can lower production and hike prices. Heat waves increase water demand for irrigation, which can strain water resources in affected areas. Reduced crop yields, droughts, increased pest and disease pressure and soil degradation are some common effects. Heat waves also lower production of animal fodder as well as reducing animal productivity which leads to a rise in milk prices. Similarly, poultry and fishery are also affected by the rising temperature. There will be a loss of 10% to 30% of fruit and vegetable crops in different regions this year due to the sudden increase in temperatures, SK Singh, director of Indian Institute of Horticulture Research (IIHR), Bengaluru, told ET recently. Also, vegetable supply may become irregular with early maturing likely leading to some periods of excess supplies and some shortages, increasing worries about food inflation.
In absence of adequate cold-chain infrastructure, heat waves can cause major damage to fresh produce. Already, with only 4 percent of fresh produce in India covered by cold chain facilities, annual estimated food losses total $13 billion, as per a World Bank report released in December last year.
Since agriculture employs a significant section of India’s population, low production translates to less buying power, causing a demand depression. This becomes a challenge for FMCG companies that produce food products as well as those whose products have a large rural exposure. Overall negative impact on the rural demand also hits prospects of companies that sell their products such as tractors and motorcycles largely in rural areas.
Strain on the power sector
Heat waves can strain India’s already burdened power sector. Sudden spikes in power consumption can push electricity grids to the limit. As per a CRISIL report released last month, demand for power in India was set to close last fiscal with a growth of 9.5-10% on-year, compared with 8.2% in the previous fiscal. That would mark a decadal high rate of growth and almost double the 20-year average of 5.2%. “A hotter-than-usual summer, with a high probability of multiple heat waves, is expected to keep power demand growing even next fiscal [2023-24] at 5.5-6%, despite two straight years of robust growth. The first half should see even higher growth given summer,” said Hetal Gandhi, Director – Research, CRISIL Market Intelligence & Analytics.
Rising temperatures mean more use of appliances such as ACs and motors to pump out groundwater which makes electricity scarce which, in turn, hits the working of industry too which needs power to operate. Amid rising temperatures, there are fears that India might once again face shortages. The country faced coal supply disruptions last year as record-high temperatures and a deadly heat wave boosted power consumption.
To ensure smooth availability of power supply, the Centre has ordered India’s coal-fired power plants to run at full power for the second straight year. Analysts say it will dramatically increase India’s already sky-high greenhouse gas emissions. India relies on coal to generate 70% of its electricity. Coal India’s preparations follow a power crunch last summer when several parts of the country witnessed blackouts. Electricity demand soared due to record-breaking high temperatures and a rebound in industrial output after the pandemic. Russia’s war in Ukraine added to the problems, pushing seaborne coal prices to an all-time high and forcing Indian consumers to compete for already stretched domestic supplies.
Stockpiles of coal at power stations were expected to touch 32 million tons by the end of March, TOI reported, well short of the government’s target of 45 million tons.
Productivity losses
A less visible impact of extreme heat is on labour productivity. And it’s not just construction labour that has to work in the open. Nearly 75 per cent of India’s workforce depends on heat-exposed labour, at times working in potentially life-threatening temperatures, says a World Bank report released in December last year. That means a big dip in labour productivity across various sectors of the economy. India may account for 34 million of the projected 80 million global job losses from heat-stress-associated productivity decline by 2030, the report says.
“Up to 75 percent of India’s workforce, or 380 million people, depend on heat-exposed labor, at times working in potentially life-threatening temperatures. …By 2030, India may account for 34 million of the projected 80 million global job losses from heat-stress-associated productivity decline,” the report says. India showed the largest heat exposure impacts on heavy labor among South Asian countries, with more than 101 billion hours lost a year.
Long-term impacts of heat waves on public health, which is a vital capital asset for the economy, manifest in major economic losses and missed opportunities due to increased morbidity and mortality.
Extreme heat is responsible for huge loss of daylight working hours in India. As heat is projected to increase in future, it can slice off a big portion of India’s GDP by bringing down productivity. Due to extreme heat, the average number of lost daylight working hours in India could increase to the point where between 2.5 and 4.5 percent of GDP could be at risk annually, shows an analysis from last year by McKinsey & Company.
GDP growth risks
If you add to the loss of economic productivity, the strain on various sectors of the economy, the rise in inflation and the consequent deterioration of India’s macroeconomic conditions, heat waves can pose a major challenge to India’s GDP growth and derail India’s dream of emerging as an advanced economy which requires a consistently good GDP growth.
The analysis by McKinsey & Company shows that lost labour from rising heat and humidity alone could put up to 4.5 per cent of India’s GDP at risk by the end of this decade. About 50% of India’s GDP is already dependent on heat-exposed work mainly due to vulnerable sectors such as agriculture, mining, construction and, to a considerable extent, manufacturing. Even a small dip in GDP growth due to extreme heat in the current fiscal year, just when the Indian economy is trying to emerge from various domestic and global challenges, will mean a serious setback.