In April 2020, the Reserve Bank of India published a study on the impact of weather on the economy. The report explained how GDP growth is related to temperature and humidity.
The RBI report had also said that rain has a bigger impact on the economy compared to temperature changes. When the country gets warmer or rains more than expected, manufacturing and service sectors tend to slow down. The RBI study came about five years after an overwhelming majority of countries adopted the Paris Agreement in December 2015. The pact had called for efforts to be continued to limit global temperature rise to 1.5 degrees Celsius.
Human-caused warming has already reached 1.1 degrees Celsius above pre-industrial levels. Each of the last four decades has been hotter than any decade since 1850.
Changing weather patterns and an increase in average global temperature are becoming a key risk to the macroeconomic outlook for both developed and emerging markets.
India has also experienced significant changes in climate patterns. Last year’s monsoon had managed to provide statistically normal rain, although its temporal and spatial distribution was very irregular. Brief but intense downpours interspersed with prolonged dry spells were the defining feature of this monsoon.
India’s growth and inflation prospects continue to be influenced by the Southwest Monsoon Season (SWM) precipitation totals between June and September and their distribution. The country receives about 75% of its annual rainfall during these four months, which is crucial for the agricultural sector as 65% of the gross acreage in India still remains unirrigated.
In addition to precipitation, temperature and its variability are other key indicators of changing climatic conditions.
In the last two decades, the mean annual temperature in India has risen sharply. So far, 2016 has been the warmest year on record for India, according to the India Meteorological Department.
While the gradually increasing average temperature is a long-term feature of changing climatic conditions around the world, extreme/volatile weather events such as changing precipitation patterns, their skewed distribution, increasing frequency and intensity of floods, unusual precipitation, heat waves and droughts pose a serious threat Macroeconomic Risks.
Over the past two decades, the major extreme weather events have been floods, followed by hurricanes, unusual rainfall and heat waves.
India is also experiencing rising sea levels and melting glaciers, which is a result of global warming.
A previous IPCC report had indicated that if mercury levels rose by 1.5 degrees Celsius, heat events would increase 4.1 times in a decade; Heavy precipitation events would increase by a factor of 1.5 and the likelihood of agricultural ecological droughts would double.
A 2018 International Monetary Fund working paper found that temperature increases have uneven macroeconomic impacts, with adverse impacts concentrated in hot-climate countries, like most low-income countries.
In these countries, rising temperatures lower output per capita in both the short and medium term through a variety of channels, including reduced agricultural production, suppressed productivity of workers exposed to heat, slower investment, and poorer health.
In an unmitigated climate change scenario and under very conservative assumptions, model simulations suggested that the projected temperature increase would mean a production loss of about 9% for a representative low-income country by 2100.
The negative effects can also be seen throughout retail. An increase in temperature causes the demand for electricity to increase as the need for air conditioners, chillers and refrigerators tends to increase.
Tractor sales are positively influenced by the rainfall. Also, an increase in rainfall tends to accelerate car sales. Rainfall also affects the amount of irrigated land available, which in turn affects agricultural yield.
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