Explained: How heatwaves impact the Indian economy

The Met department, on its website, defines a heatwave as a condition of air temperature that becomes fatal to humans with prolonged exposure.

The India Meteorological Department (IMD) has predicted extreme heat from April to June with the central and western peninsular parts expected to bear the brunt. In the age of climate change and with heatwaves becoming the new normal, how debilitating can it be for the Indian economy? Keep in mind that the toll is particularly heavy on India’s informal economy, which generates a disproportionately large number of jobs.

As the country braces for a hot, hot summer, the inevitable challenge facing policymakers is to mitigate the effects on an Indian economy where 45.76 percent of the workforce is engaged in agriculture and allied sectors and the unorganised sector accounts for a whopping 83 percent of the labour force, according to the IMF. In fact, the International Monetary Fund pegs it higher, stating that 92.4 percent of workers are in the informal sector.

There are multiple ramifications above-normal temperatures can have. The first and perhaps most important is the health factor, given that a very large majority of the work that these people undertake is out in the open.

Moreover, spells of extreme heat impact water reservoir levels that are currently down to already about 35 percent of their capacity, impact crop yields, can be inflationary, impact rural incomes, reduce productivity, affect construction activity, and so on.

WHAT THE IMD SAID

The Met department, on its website, defines a heatwave as a condition of air temperature that becomes fatal to humans with prolonged exposure. In the plains, a heatwave is declared if the maximum temperature reaches at least 40 degrees Celsius or more and for hill districts, at least 30 degrees.

More generally, a heatwave is declared when the temperature is 4.5-6 degrees Celsius higher than would normally prevail at that time of the year.

HOW HEATWAVES HURT THE ECONOMY

Heatwaves, besides the sheer physical discomfort and impact on health, have a spillover impact across different aspects of the economy. Water levels at India’s 150 major reservoirs are down to 35 percent of live storage capacity; according to the data from the Central Water Commission, the available water as of the first week of April was 61.801 billion cubic metres, 17 percent lower than the corresponding period last year.

The situation is more dire in the south, with the 42 reservoirs in the zone at 23 percent of capacity.

The depleting water levels have been attributed to lower rainfall across the country with 18 states having witnessed deficient or no rainfall since March.

Madan Sabnavis, chief economist, Bank of Baroda, explained the bigger economic picture: “Lower water reservoir levels impact access to drinking water, access for farming activity. Heatwaves impact fodder cultivation, horticulture, vegetable prices. This could also be inflationary with ramifications for the monetary policy.”

Importantly, food inflation had been flagged by the Reserve Bank of India at its monetary policy committee meeting earlier this month as a concern.  Vivek Kumar of independent research firm QuantEco is expecting vegetable prices to go up within a month.

While economists are not revising growth or inflation forecasts for the year yet, rural economic demand is likely to take a hit.

Beyond the short-term pain, Chandrabhushan of not-for-profit organization International Forum for Environment, Sustainability and Technology said that repeated uneven monsoons had changed the soil character, affecting agriculture. What’s helping India is its size and geographical diversity. But in certain regions, where the impact of extreme weather is more severe, farmers are falling into the poverty trap, Chandrabhushan explained.

Moreover, searing temperatures mean construction activity has to be halted during peak heat hours. Chandrabhushan cited a change in occupational structures as a fallout of a heatwave.

Policy Interventions

The IMD heatwave forecast reiterates the importance of better water management practices. A well-crafted policy on water, and water rationing at the state and panchayat levels is crucial. The recent and ongoing crisis in Bengaluru highlighted what excessive construction and poor water management practices have wrought. The combination of rising temperatures and decreasing or inconsistent rainfall has significantly contributed to the water crisis and should come as a wake-up call for urban planners. To begin with, India needs a good heat action plan. But there is always a dichotomy between what’s planned and what gets implemented at the ground level—this too is something that has to be addressed.

Catch the full discussion on impact of heatwaves on Indian economy here: