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Published on: June 27, 2024, 11 a.m.
Climate Change: Real and happening
  • It is estimated that every degree of rise in temperature above 27 degrees Celsius lowers labour productivity by 2-4 per cent

By Rakesh Joshi. Executive Editor, Business India

That climate change is real and happening is not a cliché anymore. The intensity and sweep of climate change in India manifest in the current spell of heat waves scorching the land, is assuming frightening dimensions. Economists have been warning that the impact of climate-related crisis like extremely high temperature, scanty monsoon, floods and rising sea levels, on overall macro and social environment could shave off as much as 4.5 per cent of India’s GDP by 2030, due to lost labour hours from extreme heat and humidity, unless mitigation measures are put in place.

In its Monetary Policy Report, April 2024, the RBI has warned that climate change has increased the frequency and ferocity of weather shocks and is posing challenges for monetary policy and growth. The warnings have mostly fallen on deaf years.

The RBI has now sounded yet another warning to policymakers in Modi 3.0. In the June edition of its bulletin, Shaktikanta Das, governor, RBI, apprehends that the summer crop of vegetables and fruit crops will be impacted by the ‘exceptionally’ hot summer season and low reservoir levels. The impact of the severe heatwave could hamper the last mile of disinflationary process under which the central bank seeks to bring retail inflation to its target of 4 per cent. 

“India is particularly vulnerable to losing labour productivity due to heatwaves, as a large section of its workforce is engaged in outdoor work …,” RBI notes in its State of the Economy article. “It is estimated that every degree of rise in temperature above 27 degrees Celsius lowers labour productivity by 2-4 per cent.”

Das is taking a short-term view and merely living up to his brief. It is not heatwaves alone. To escape climate change, we end up doing the opposite of what we want. It is a larger problem. The warming of cooler regions leads to increased use of air-conditioning, which in turn contributes to global warming while the intensification of winter in turn necessitates heating equipment, creating a vicious cycle in the long run. 

Fastest growing, but…

India’s stakes are higher because our economy could be at an inflexion point. At 8.2 per cent, India’s real GDP growth in 2023-24 was the highest since 2016-17, if one were to ignore the post-Covid rebound in 2021-22. According to the RBI, “There is increasing evidence that, in the post-pandemic years, a trend upshift is taking shape, which is shifting India’s growth trajectory from the 2003-19 average of 7 per cent to the 2021-24 average of 8 per cent or even more, powered by domestic drivers.” Private consumption is resuming its role as the main driver of demand in India and is getting broad-based to include rural consumers.

So, the next 10 years will be an important turning point in our economic lifecycle. India is already the fifth largest economy in the world. Sustaining this growth trajectory will mean that the Indian economy, both private and public sector, needs to be addressing consumer demands and also moving towards a Net Zero world. However, as the industry (along with construction and mining activity), as well as agriculture, is particularly vulnerable to labour productivity losses caused by heat-related stresses, can they rise to the occasion? Indian companies say they are gearing up to face climate risks but most of them are clearly not there yet (see box: Are Indian companies ready?).

  • Yadav: his role will increasingly come under focus

India’s image of a climate change warrior also runs the risk of being dented. Our mitigation strategy now stands exposed by the cruel irony of the situation: we are using more coal for generating electricity this year than in almost a decade to cope with surging electricity demand to feed our air-conditioners and fans. Coal is still generating about three-quarters of our electricity, and the government sees it remaining the mainstay fuel for at least another decade. India plans to add close to 90 gigawatts of coal-fired capacity by 2032, lifting a forecast from just months before by more than half. The country has 28.5 gigawatts of coal power currently being built and more than 50 gigawatts that are planned to be awarded for construction over the next three years.

In practical terms, this reverses the process and vitiates the logic of adding more than 100 gigawatts of renewable energy capacity over the past decade (outpacing thermal power growth). These assets remain idle as insufficient battery storage is holding the renewable energy option back. Other low-carbon options, such as large dams and nuclear plants are also moving at a slow pace.

 Focus on Yadav

This should be a matter of concern for the new government as it sets out the agenda for the next five years. With Bhupender Yadav taking charge of the Environment, Forest & Climate Change Ministry again, his role will increasingly come under focus. It should not be limited to merely reintroducing cheetahs in India and adding more wetlands to Ramsar sites (the inter-governmental treaty adopted in the Iranian port city of Ramsar). Nor should he be content by sustaining the renewable energy overdrive or preparing the ground for the international climate talks (COP33) that India proposes to host in 2028.

Yadav, otherwise an astute political backroom manager of the BJP, needs to understand how climate change is changing our lives, if not challenging our very existence. For that, he will have to engage with other ministries on a war-footing to evolve a rapid response strategy aimed at mitigation. 

The Modi dispensation’s environmental report card over the past decade has been described as a patchwork of ambition and oversight. Some initiatives like the National Adaptation Fund for Climate Change, which has seeded nearly 40 climate resilience projects, and its leadership in launching the International Solar Alliance and the Coalition for Disaster Resilient Infrastructure, have won praise. The plan to generate 50 per cent of all its power using cleaner fuels by 2030, from 44 per cent at present and attain net-zero emissions by 2070, is a work in progress.

 Red flags

But environmentalists have raised red flags over amendments to the Forest Conservation Act, 1980, ostensibly to fast-track strategic projects, and the subsequent loss of dense forests. Urbanisation is causing havoc. Even though wildlife numbers are increasing, their habitats are shrinking.

Nothing exemplifies the challenge India is facing on the climate change front that the intense heatwaves, with temperatures rising beyond usual levels, whipping our cities, particularly in northern India. Most of these cities have become ‘heat islands’ with their unbalanced growth devouring water bodies and increasing greenhouse emissions. 

“Climate change is playing an important role,” says Krishna S. Vatsa, member, National Disaster Management Authority (NDMA), explaining the unusual rise in summer temperatures. “Unbalanced urban growth, which has reduced wetlands and water bodies, is another factor. The emission of greenhouse gases has gone up. And the permeable spaces have gone down considerably.”

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    In Delhi, the daily maximum temperature has hovered around 45 degrees Celsius almost for a fortnight, while night temperature touched 35 degrees, making this summer the hottest in at least a decade

In Delhi, the daily maximum temperature has hovered around 45 degrees Celsius almost for a fortnight, while night temperature touched 35 degrees, making this summer the hottest in at least a decade. The heatwave has claimed an indeterminate number of lives. On top of that, an acute water shortage has gripped the capital. There have been reports of the poor and migrant labour, unable to withstand the heat, fleeing back to their villages in a development reminiscent of the Covid lockdown in 2020. 

According to a study by the Centre for Science and Environment (CSE), surface temperatures in the summers of 2001 to 2010 in cities such as Delhi, Hyderabad, Kolkata and Mumbai used to drop by up to 13.2 degrees during the night from their day-time peak. Between 2014 and 2023, they were only cooling off by up to 11.5 degrees. It could be worse this year.

No long-term strategy

This time, the nights have become hotter. “Hot nights are as dangerous as mid-day peak temperatures,” says the Centre’s report. “People get little chance to recover from day-time heat, if temperatures remain high overnight.” 

Most of our cities have become ‘heat islands’ which typically are metropolitan areas that are warmer than rural regions surrounding it, points out Rajneesh Sareen, who leads the Sustainable Habitat Programme at CSE. The contributing factors to this include rapid construction, high population density and vehicular emissions. In Delhi, for instance, “Construction is going up and the green area is reducing. The construction of high-rises is also affecting wind movement,” adds Sareen.

In fact, Delhi’s plummeting air quality is also connected to how high-rises are blocking wind movement, causing pollutants to get trapped over the city. On whether there is any way out of the problem, Sareen feels that long-term policy measures are needed to tackle this issue. “There is no exit for the warm air because concrete structures are everywhere. There is a heat dome over Delhi and other cities. We have to reduce the use of concrete.” 

Indeed, while some states may go through the motions of implementing heat action plans that include provisioning drinking water and better medical facilities, as well as rescheduling outdoor work and school vacations, there is no clear mandate to implement long-term strategies. Delhi’s long-term plan on paper includes increasing heat insulation of buildings, developing shelters for urban poor and slum dwellers, and investing in cooling water bodies, informs Anumita Roychowdhury, CSE’s executive director. But such plans need to be backed financially, which is not happening.

“Cities are struggling with their own finance and they don’t have additional budget to implement actions for heat,” adds Vishwas Chitale of the Council on Energy, Environment & Water, a Delhi think-tank. Can Bhupender Yadav rise above politics and step into this void?

He needs to look at the Gujarat example. In 2013, following a spate of heat wave deaths, Dileep Mavalankar, former director, Indian Institute of Public Health, Ahmedabad, was tasked to formulate what became India’s first heat action plan (HAP). It had four major components: early warning and inter-agency co-ordination, public awareness and community mobilisation, medical and para medical systems and reducing exposure and long-term actions. After HAP was introduced, mortality at peak time reduced by 40 per cent.

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    Cities are struggling with their own finance and they don’t have additional budget to implement actions for heat

    Vishwas Chitale, Senior Programme Lead, Council on Energy, Environment & Water

Farm fallout

While these scorching conditions pose serious health risks, the temperatures could also significantly impact agricultural output, potentially leading to higher inflation. Radhika Rao, executive director & senior economist, DBS Group Research, points out that the vulnerability of perishable food items, particularly vegetables, which have consistently played a role in inflation dynamics this fiscal year. “The impact of the heatwave will be most apparent in perishable food varieties, especially vegetables, which are among the most volatile parts of the inflation basket and have consistently punched above its weight in 2023-24.”

She feels that the inflationary impact could range from 30-50 basis points, depending on the pace of sequential price increases, which is expected to be notably higher during this period. Food prices are expected to remain on the higher side till a normal monsoon cools the temperatures.

Already, the prolonged heatwave across north and north western states has impacted the production of seasonal vegetables, leading to a rise in prices. The supply of vegetables is said to be down by 20 per cent in major wholesale markets. The crops of kitchen staples like, tomato, onion and potato and summer vegetables like bottle gourd, capsicum, ladies’ finger and cucumber are getting ruined due to lack of rainfall, poor water availability and, of course, high temperature. “The prevailing heatwave will adversely affect rural farm income, food inflation, and general health conditions,” sums up Rajani Sinha, chief economist, CareEdge.

 Power demand

Last fortnight, there were apprehensions that the sweltering heatwave and an expected surge in agricultural load by end-June could have a cascading impact on the country’s grid, and lead to an unmanageable power situation. Over the last one month, the northern region has been witnessing a record demand for power. On 18 June, it touched the highest-ever peak demand of 89 giga watt (1 GW is 1,000 megawatts), which was successfully met. But such high demand has led to power supply cuts and even impacted passenger services in Delhi international airport after a significant voltage spike in the grid, reportedly due to the tripping of a 765 kV line.

 Food inflation

Food inflation has remained high at 8.5 per cent, mainly due to a significant increase in vegetable prices, even though in May, consumer inflation dropped to its lowest in 12 months at 4.75 per cent. Vegetable inflation has stayed in double digits for five consecutive months. Data from the Department of Consumer Affairs Price Monitoring Division show that, as on 14 June, the all-India average retail price of tomato, onion and potato were 21 per cent, 14 per cent and 8 per cent higher, respectively, month-on-month, and a significantly steeper 35 per cent, 58 per cent and 44 er cent costlier, respectively, when compared with their year-earlier prices. At the wholesale level, sequential inflation in tomato, onion and potato was disconcertingly faster at 28 per cent, 18 per cent and 9 per cent, respectively, underlining the challenges policymakers face in containing prices through trade measures.

Experts predict vegetable prices will likely to average around 28 per cent this quarter. Additionally, experts anticipate a rise in fruit prices as well. “This phenomenon will keep the prices of perishables like vegetables and fruits high, impacting their yield and shelf life and thereby leading to lower supply,” says Sinha. Fruits and vegetables account for 8.9 per cent of the total weight in the inflation basket. Logistical challenges, especially during extreme weather events, could add to volatility.

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    The impact of the heatwave will be most apparent in perishable food varieties, especially vegetables, which are among the most volatile parts of the inflation basket and have consistently punched above its weight in 2023-24

    Radhika Rao, Executive director & senior economist, DBS Group Research

While fuel and power inflation remained subdued at 1.35 per cent, manufactured product inflation was higher at 0.78 per cent against -0.42 per cent in April. Analysts attributed this uptick to rising global metal prices driven by supply chain disruptions and a potential demand pick-up from China.

Suman Chowdhury, chief economist at Acuité Ratings, also expects a continued upward trend in WPI throughout the year, potentially impacting retail inflation in the coming quarters. Aditi Gupta, an economist at Bank of Baroda, also warns against the potential for further pressure from global commodity prices and severe heatwaves impacting domestic production. 

As part of an overall strategy to tame climate change-induced price rise, heat resistant crops will have to be promoted. Pearl millet, for one, is known to be resistant to high temperatures. Fortunately, there are several heat-resistant vegetables to grow during scorching summers. Standard summer crops like tomatoes, cucumbers, squash, peppers and egg plants all hold up great in the heat. But the tardy irrigation infrastructure could be the spoiler here.

Whither monsoon?

The real challenge for the government will be if monsoon rainfall is below average, leading to further declines in reservoir levels. This could impact the kharif sowing season. The combined impact of soaring temperatures on agriculture, particularly perishable crops, coupled with potential supply chain disruptions, thus poses significant challenges to the farm economy, food prices and inflation dynamics in the months ahead.

A question now being asked is: where is the monsoon? The southwest monsoon arrived in Kerala on time and progressed well till 10 June, but is has been dry and hot over the southern peninsula thereafter. The Bay of Bengal branch of the monsoon too has not progressed. Summer rains from June to September are critical for farmers to plant crops such as rice, cotton, soybeans, and sugarcane. Rainfall data from the India Meteorological Department as on 14 June that show a 12 per cent deficit since 1 June is also a cause for mild concern, an ‘above normal’ monsoon forecast notwithstanding. 

Naturally, the government and the food ministry in particular are keeping their fingers crossed that the monsoon will revive by June-end. Well-distributed rainfall would be crucial to support the timely onset of summer crop sowing across the states, apart from cooling the temperatures. But there is a big ‘if’.

 Political ramifications

This time, the heat waves have come with political ramifications as well. This should also worry the Modi government and the BJP as assembly elections to Maharashtra, Haryana and Jharkhand are due later this year. The BJP fared poorly in Maharashtra and Haryana, two states, which have a large farmer population, in the recent Lok Sabha election. The rejuvenated Opposition can make rising prices a big elections issue in the coming months. To allay farm distress, the government recently hiked the minimum support price (MSP) of 14 kharif crops. But farmer unions are saying that the hikes are meagre; and are reiterating their demand for a legal cover for MSP. Farmers have to pay for fertilisers and diesel which are not factored in by the MSP, they say.

Of course, food inflation could decline if forecasts of a normal monsoon play out. With food inflation particularly hitting hardest the poorer sections, policymakers in Modi 3.0 can ill-afford to drop their guard.

FMCG bills rise

What should worry the BJP is that, over the past 2-3 months, monthly household shopping bills have risen with price hikes in the range of 2-17 per cent on certain brands and categories of foods and personal care products. This is due to recent decisions taken by fast moving consumer goods (FMCG) companies, which have been seeing subdued growth in the last few months. The FMCG majors blame rising input costs for their decision

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While there has been a decline in crude and palm oil prices, prices of other categories of commodities such as milk, sugar, coffee, copra and barley have been on a rising trend. Management commentaries from most companies during their earnings calls have pointed to pricing growth in 2024-25, with inflationary trend seen in some commodities. “Overall pricing growth needle is likely to point between neutral and low-single-digits for 2024-25,” commented ICICI Securities last week in a note on the sector. While the rising input costs are not at all climate change-induced, it adds to the larger problem of social unrest due to inflation. 

Prices have been raised in the range of 2-9 per cent on soaps and body washes, 8-11 per cent on hair oils and 3-17 per cent on select food items by companies, according to trade data and analysts. The hike in prices comes after close to a year of declining price trends with moderating commodity prices. After raising prices in 2022 and early 2023 in order to maintain margins due to high input costs, FMCG companies held off on price hikes for most of 2023-24, but now have to protect their margins. So, prices have been rising again.

Begin at home

The nature of disasters that the country faces has changed drastically in the last 20 years. Disasters, especially those that are a result of extreme weather events, have become more frequent and intense. Climate change has been playing an important role in exacerbating the impacts. The most worrying development has been the rise in what are known as multi-hazard disasters, one event triggering another, or a series of other disasters, the cascading impacts of which result in a destruction that is much higher in magnitude. Heavy rainfall, for instance, leads to breach of glacial lakes and landslides in hilly areas which results in flash floods downstream. Or, extreme heatwave triggers largescale forest fires. 

Two decades after the NDMA was formed, prompted by the 1999 Odisha super cyclone and the 2004 tsunami, we need a fresh look at the idea. Bottom of Form Disaster management agencies must be empowered to play a more pro-active role in dealing with these events, making more resources and capacity-building flow in. There is little that can be done to prevent natural events, like extreme rainfall or cyclones or heatwaves. But man-made influences can certainly be minimised.

India is in the process of building infrastructure for its future. Resilience to disasters needs to be built into each of these. Old infrastructure also needs to be retrofitted. India has created an international organisation – the Coalition for Disaster Resilient Infrastructure – specifically to promote disaster resilient infrastructure worldwide. It would be helpful to create the right templates at home first.

  • Cyclone Remal wreaking havoc

    Cyclone Remal wreaking havoc

Are Indian companies ready?

On 27 May, Cyclone Remal tore through the Bay of Bengal killing 50 people and forcing the evacuation of a million others across southern Bangladesh and eastern India. This was the Bay of Bengal’s first tropical cyclone of the year and, according to news reports, it was so severe that flood protection embankments washed away, and millions were left without power after the network infrastructure experienced severe damage. As a result of the storm’s 135 kmph winds, Kolkata airport closed and shipping was halted at Chittagong seaport. Several small and medium businesses in the region suffered though there are no known estimates.

Indeed, rising sea levels and storms can disrupt operations, damage infrastructure and create significant logistical challenges. The Cyclone Remal experience and the earlier Chennai floods have highlighted the need to diversify and decentralise operations to better manage risks and adapt infrastructure to withstand extreme weather. Another avenue is exploring enhanced early warning systems to support timely evacuation and asset protection. 

To face the rising tide of climate threats, alignment of business continuity plans to environmental, social, and governance (ESG) propositions and provision of adequate back-up systems for power and communications are necessary safeguards. As demonstrated by Cyclone Remal, climate-related events are increasing in ferocity and frequency, and, without any associated legislative regulations to enforce organisational action, ensuring climate risk should be a top management agenda.

However, according to Deloitte’s India’s environmental social corporate governance (ESG) preparedness survey in 2023, merely 27 per cent of Indian organisations feel adequately equipped to meet their ESG strategy and compliance requirements. This reveals a significant gap in preparedness and action.

The survey conducted by Deloitte Touche Tohmatsu India LLP (Deloitte India) was rolled out to 150 organisations (with over 70 per cent of them listed in Indian stock exchange) to assess their readiness for ESG requirements (policies, regulations, disclosures and compliances) and evaluate their ESG strategies and efforts. 

“Organisations are grappling with evolving expectations on ESG compliance and disclosure from investors, boards, governments, and consumers. They need to account for emerging global regulations on sustainable finance, climate disclosures, biodiversity, and social and governance dimensions, including gender diversity and living wages, within a couple of years,” says Viral Thakker, partner & sustainability leader, Deloitte India.

From a sector-specific perspective, consumer industry was found to lag, with only 7 per cent organisations indicating robust preparedness for ESG requirements. Nearly 80 per cent organisations in the energy, resources, and industrials (ER&I), financial services, and life sciences and health care industries (LSHC) were categorised as either well-prepared or moderately prepared to meet ESG requirements.

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