Impact of Climate Change on the Indian Economy and how India stands to benefit with an Actionable Plan

India is already facing the heat from climate change - literally and figuratively. The consequences of climate change such as soaring temperatures, water scarcity and floods may have already cost India 3% of its gross domestic product (GDP), in addition to the loss of human life.[1] Failure to act now may have grave impacts on human life and the economy.

Over the last 100 years, the average temperature across India rose by 0.62 degrees Celsius.[2] While the rate of increase in temperature is slower than the global average, the impact of the rise in temperature is evident each year. As a result of more frequent heatwaves, the higher air and ocean temperatures lead to heavy rainfall. This in turn leads to an increase in snowmelt and floods which kill thousands of people and cause immense destruction to infrastructure.[3] Increases in average temperatures also lead to rising sea levels, putting coastal communities at a greater risk. The direct impacts of climate change such as extreme weather, water shortages and food scarcity also drive resource competition, political fragility, economic weakness and large-scale migration.[4]

A report by independent, global think tank ODI suggests that India’s GDP would have currently been 25% higher were it not for the current effects of climate change.[5] If temperatures continue to rise, the report predicts that an increase in temperature by three degrees would lead to GDP being 90% lower in 2100 than it would without the effects of global warming. The impact and severity of climate-related events is linked to the levels of global warming. Holding the average temperature increase at 1.5 degrees Celsius will understandably be less severe than a world which is 3 degrees hotter. India’s action and response to the climate crisis could see it lose US$35 trillion in economic potential or gain US$11 trillion in the next 50 years, determined by the path it follows.[6]

Cost of inertia

A lack of action at the global and national level will see average global temperatures rise by about three degrees Celsius by 2070. This rise in temperature will lead to lower labour productivity, an increase in sea levels leading to a loss of productive coastal land, and diminished health and well-being.[7] Investment will need to focus on repairing and maintaining existing structures instead of contributing to productive capital. Even with adaptation to agricultural methods, rising temperatures will lead to significant deterioration in the agricultural sector's output, a key sector of the Indian economy accounting for about 16% of GDP.[8] A report by Deloitte lists five sectors, representing 80% of India’s current economic output, which would be most impacted by climate inaction: Services, Retail and Tourism, Manufacturing, Construction, and Conventional energy. The report estimates that by 2070, these five industries alone would experience an annual average loss in the value added to GDP of more than US$1.5 trillion per year. Overall, if no action is taken, India will face a loss of economic potential equaling 12.5 percent of GDP in 2070 alone.[9]

A window of opportunity

Currently, India represents 17% of the world’s population and 5% of the carbon emissions, leading to a lower rate of per capita CO2 emissions. As a developing nation, millions of people still lack access to basic resources which demand attention and resources. The underlying principle of ‘common but differentiated responsibility’ in climate accords has influenced India’s position in global climate negotiations.[10] However, to avoid devastating human and economic costs due to the climate crisis, India will need to set a leading role on climate change. A climate-smart strategy will also lead to a range of benefits including increased creation of jobs, and improved food and water security.

The Deloitte report proposes an ambitious plan of accelerated decarbonisation over the next 10 years to alter the course of the climate crisis. Decarbonisation refers to the reduction in the amount of carbon emissions produced through the use of traditional fossil fuels. As a developing nation, India will have to balance the transition to a low emission economy with the need for economic development and subsequent rise in energy demand.[11] The bold strategy sees the Indian economy starting to decarbonise through increased investments in sustainable resources between now and 2030. Between 2030 and 2040 the consequences of bold climate-smart decisions in the past decade will see different industries and regions transforming at different paces. The report predicts 2040 to 2055 to be the turning point if the plan is followed. The world will start seeing lower levels of adverse climate impact as it would avoid locking in temperature increases of three degree Celsius or more. Beyond 2055, the report predicts India’s economy would be near net zero emissions. India’s potential to “export decarbonisation” to the rest of the world would keep global average warming to around 1.5°C by the end of the century. As a result, the report predicts India’s economic gains to gradually rise towards the end of the century, exceeding 8 percent by 2070.

“Panchamrita”

At the COP26 Summit in Glasgow, Prime Minister Narendra Modi declared India’s bold and ambitious commitment to achieve net zero emissions by 2070. As a low emitter of carbon, India’s commitment has set a challenge for the world. Modi revealed a five-step strategy called ‘Panchamrita’[12] which includes:

1. Increasing India’s non-fossil energy capacity to 500GW by 2030;
2. Generating 50% of India’s power by renewable energy by 2030;
3. Reducing India’s projected carbon emissions by 1bn tonnes between now and 2030;
4. Reducing the carbon intensity of India’s economy by 45% by 2030; and
5. Achieving net zero by 2070.

While the strategy may not seem as bold as the 2050 commitment made by the US and Europe, or the 2060 commitment made by China and Saudi Arabia, it would possibly be the most feasible to implement. Some predict that realistically this target may be pushed back to 2080.[13]

Bolder action to reduce emissions do not need to risk India’s development goals. Progressively reducing reliance on coal could support economic diversification in regions that heavily depend on coal for jobs and revenues. Further, investing in the generation of clean electricity and public transport infrastructure can lead to lower emissions while creating new employment opportunities and stimulating economic growth. Pursuing a climate-smart action plan could therefore result in faster and more resilient economic growth in India.

[1] ‘India May Have Lost 3% of Its GDP Due to Global Warming’ (Hindustan Times, 8 June 2021) <https://www.hindustantimes.com/business/india-may-have-lost-3-of-its-gdp-due-to-global-warming-101623097300338.html> accessed 20 August 2022

[2] Government of India (2021) ‘Statement on climate of India during 2020’. Press release,

4 January (https://reliefweb.int/sites/reliefweb.int/files/resources/Statement_of_Climate_of_India-2020.pdf).

[3] Picciariello, Angela, Sarah Colenbrander, Rathin Roy, and Amir Bazaz. ‘The Costs of Climate Change in India’. ODI, June 2021. (https://cdn.odi.org/media/documents/ODI-JR-CostClimateChangeIndia-final.pdf)

[4] ibid

[5] ibid

[6] ‘India’s Turning Point How Climate Action Can Drive Our Economic Future’ (Deloitte Economics Institute 2021)

[7] ibid

[8] ibid

[9] ibid

[10] The Costs of Climate Change in India (iii)

[11] India’s Turning Point How Climate Action Can Drive Our Economic Future’ [vi]

[12] Ellis-Petersen H, ‘Narendra Modi Pledges India Will Reach Net Zero Emissions by 2070’ The Guardian (1 November 2021) <https://www.theguardian.com/world/2021/nov/01/narendra-modi-pledges-india-will-reach-net-zero-emissions-by-2070> accessed 20 August 2022

[13] ibid