Economic Impact of Climate Change

Why in news?

In an analytical chapter released ahead of the World Economic Outlook, IMF has highlighted the damaging macroeconomic impact of weather shocks.

What are the highlights?

• It emphasizes that adverse weather events are particularly very impactful for the low-income countries.
• 1 °C increase from a temperature of 22degree Celsius reduces the growth of median emerging market economy by 0.9% in a year.
• Its impact on the median low-income developing country is even higher.
• The growth doesn’t recover quickly after a weather shock and takes evens decade to fully recover.
• Countries located in areas with higher temperature are highly vulnerable to the impact of global warming.
• The resultant loss of output and lower productivity also affects capital formation.
• The overall impact is a considerable bearing on the medium- to long-term growth prospects of the country.

What makes India more vulnerable?

• India, being a tropical country, is more susceptible to changes in temperature.
• Also, in India, about 50% of the population directly or indirectly depends on agriculture for a livelihood.
• The existent distress in the farm sector and the state governments' response with loan waivers have already strained their fiscal condition.
• Furthermore, the production of kharif crops is expected to decline.
• The possibility of adverse weather events is likely to increase in the future posing a greater challenge.
• The impact of climate change in agriculture is thus expected to reverberate in other sectors of the economy and affect the overall growth prospects.

What should be done?

• India- India, which is considerably better, still has to strengthen its macroeconomic stability to deal with temperature shocks.
• India has considerably reduced its dependence on the monsoon as evident from avoiding a runaway inflation even after two successive years of drought.
• However, more needs to be done to enhance productivity in the agriculture sector.
• India can work on programmes that will help improve the quality of land and reduce the risk of climate change. Ex: Use employment under the MGNREGA to enhance soil and water conservation.
• India also needs to strengthen its overall capability by investing in and adopting new technology.
• Global - Emerging market and low-income economies will have to build significant macroeconomic resilience so as to reduce the impact.
• Right policies and institutions in place may help attenuate the effects of temperature shocks, to some extent.
• In all, it is essential for the countries to realize that steps to minimize the impact of climate change will have to be taken both at individual country and global levels.

Source: Livemint