The RBI study reveals a direct causality between temperature and per capita GDP.
Adverse climatic conditions are weighing heavily on India’s economy. Humidity and temperature play a crucial role in the overall health of the economy and over the years, their patterns have changed. Weather conditions have a significant impact on some of the key indicators of economic activity like PMI, IIP, demand for electricity, trade, tourist arrivals, and tractor and automobile sales, RBI said in its study. The study also revealed a causality relation between temperature and per capita GDP. With an increase in population and economic activity, the cumulative level of greenhouse gas emissions has increased causing the average temperature to rise over time.
Adding to it, the rainfall pattern, especially the southwest monsoon that provides around 75 per cent of the annual rainfall, has undergone significant changes. Also, rainfall affects the amount of available irrigated area, which in turn affects agricultural yield, it added. Weather conditions, especially rainfall, have a strong influence on the food inflation trajectory and the impact was found to last for a couple of months, RBI said. Within food, vegetables prices are found to be the most vulnerable to rainfall shocks.
What has been worrisome is that extreme weather events such as floods or unseasonal rainfall, heatwaves and cyclones have been witnessed at an increased rate during the past two decades. This has increased the average temperature levels and led to a more volatile precipitation pattern relative to the long period average.
Meanwhile, it is suggested to the RBI to provide support to activities and initiatives targeting green finance and including climate risks in the analytical models used in policy formulation and research. It has also been advised to bridge gaps in data related to various environmental aspects of finance and to invest in green assets rather than
in brown assets like carbon-intensive assets.