How climate change is affecting Indian Economy?

Updated: Nov 11, 2021

If no action is taken to fight climate change, then India risks losing 3 to 10 percent of its GDP by the end of the century. But, if it chooses to act now, it could potentially gain as much as $11 trillion in economic value by 2070.


According to a report by the London think tank Overseas Development Institute (ODI), India risks losing anywhere between 3 to 10 percent of its GDP by 2100 due to climate change. Research shows that rising temperatures could widen the wealth inequality in the country even further by pushing the poverty rate up by 3.5 percent in 2040.

The country’s GDP would be about 25 percent higher, if it weren’t for the economic toll of global warming, says an Oxford Economics report authored by James Nixon. The study noted that India’s GDP is likely to be 90 percent lower than what it is now in 2100, which suggests that a further warming of 4°C may absorb all of the country’s future growth in income per capita.

Image credit: Markus Spiske, Pexels

Economists had for a long time dismissed climate change as a problem of the future, Nixon told Mint. His paper notes “putting a number on the economic impact of global warming is extremely difficult."

“We’re producing long-term forecasts for countries like India which are likely to be adversely affected by climate change,” he adds.

Feeling the impact

India is already suffering the consequences of 1°C of global warming. Extreme heat waves, catastrophic storms, severe flooding, heavy rainfall, and rising sea levels are damaging lives and livelihoods across the nation.

If it continues to follow this trajectory, both the human and economic costs of climate change are only bound to increase. Rising sea levels are also worrying climate scientists and economists since a third of India’s population live along the coast.

Flooding in India over the last decade has caused about $3 billion of economic damage, which in turn accounted for around 10 percent of global economic losses. Cyclone Amphan in 2020 affected 13 million people and led to a damage of over $13 billion after it made a landfall in West Bengal.

Existential threat

As the earth continues to get warmer, the impact of climate change is likely to take an even more serious turn. The frequency and severity of these risks is directly dependent on the level of global warming. A world that is 3°C hotter will be way more dangerous than the one in which countries work together to hold the average temperature increase to 1.5°C.

The climate model studied in the research suggests that rainfall is expected to continue declining and the country will suffer from two more heatwaves in the next one year. Snowfall and glaciers too are likely to diminish further in the Hindu-Kush Himalayas.

Retreating glaciers is a cause for alarm as it can cause a change in the water cycle, precipitation patterns and increased floods. Image credit: Guillaume Falco, Pexels.

“Glaciers and snow cover are retreating rapidly across the Greater Himalayan region. When they either disappear or find new equilibria, Indians who are dependent on rivers such as the Indus and Brahmaputra will face severe water shortages,” the ODI working paper states.

Only about 9 percent of the world’s land arable. And, agriculture in India feeds about 17.2 percent of the global population. Over 56 percent of the country’s total agricultural area is rainfed, according to a report. This shows that India’s food security and livelihoods of those in the agriculture sector heavily depend on the monsoons, which makes it particularly vulnerable to climate change.

India’s current climate policies

The risk of losses in future imposed by climate change underscores the urgency of pursuing a just, low-carbon transition. Delays in mitigation and decline in adaptation to greener technology will only increase the cost of climate change and undermine the prospects of poverty eradication for the third largest carbon emitter in the world.

Ever since the pandemic struck, the Government of India has allocated about $35.37 billion to clean energy, including renewables and energy efficiency.

Although not consistent with the Paris Agreement’s target of holding global temperatures to well below 2°C, India’s climate commitment in 2030 is considered to represent a fair share of global effort. According to the Climate Action Tracker, India’s Nationally Determined Contributions (NDCS) outperforms any other G20 country.

Coal remains a significant source of jobs and public revenues in many parts of the country. However, continued support for coal represents a missed opportunity to help these regions pursue a cleaner transition that is especially urgent in the wake of a devastating pandemic.

Significant gains

If India succeeds in achieving decarbonisation, then in 2070, this would equate to GDP growth of 8.5 percent and a gain of $11 trillion in economic output, according to a research report by Deloitte.

“No one is immune to the impact of climate change, but for India, this is a window of opportunity to lead the way and show how climate action is not a narrative of cost, but one of sustainable economic growth,” Atul Dhawan, Chairperson at Deloitte India told BusinessToday.In.

Ultimately, the severity of the climate-related risks that India is facing will depend on the choices it makes with regard to mitigation policies and reforms.


Edited by Roshni Shroff


Some resources to help you understand the impact of climate change on the economy:

By acting on climate change, India can gain $11 trillion in economic value by 2070

How Climate Change Impacts the Economy