India may be heading for a 50-degree-Celsius economy. Is it ready?

But is India’s economy ready to cope with 50 degree Celsius? 

Some of the ways in which the disruptions would come are visible already. Delhi has announced rationing of drinking water supplies. Hospitals have earmarked beds for cases of heat strokes. There is bound to be an impact on human health.

People’s productivity may reduce, depressing their incomes and the output of labour-intensive sectors. The sectors especially vulnerable are agriculture, forestry, fisheries, tourism, and the vast swathes of the unorganised industries—such as furnace-based units in metals, glass, plastics, chemicals, apparel, bakeries, eateries, etc., that cannot afford air-conditioning.

Labour-intensive construction may no longer be possible in the summer months. Cities may have to find alternatives for traffic policing. Despite abundant labour supply, a hastened shift to artificial intelligence and machine-dependence may be pressed in. All of which suggests shifts can be expected in the labour markets.

Higher temperatures also threaten India’s food security. Spells of heatwave have already started affecting wheat output and prices. Increased heat and drought will likely reduce crop yields. Maintaining food security will need our agriculture scientists to quickly develop heat-resistant seeds for a variety of crops. 

Crops may also get affected by increased pests and weeds and the risk of fires in the fields and forests. This could lead to shortages and inflation, triggering adjustments also in macroeconomic policies. Climate change is already threatening agriculture in other countries that have been reporting reduced output of grapes good enough for producing wine and cocoa for making chocolate. 

Since farmers can’t be expected to toil in the farms in such high temperatures, agriculture will have to become less labour-intensive. Switching to machines will require an increase in farm credit disbursement—on terms and costs affordable for small and vulnerable farmers.

Unless agriculture becomes remunerative, bad loans could rise. To safeguard against that, a complete overhaul of the food policies will have to be undertaken. 

For instance, the present approach to controlling food inflation cushions consumer prices by suppressing farmer incomes. The new approach may not have space for as many restrictions on agriculture exports and other high-earning opportunities for farmers.

The challenge of boosting incomes and earnings may be an especially tough one as NREGA, the workhorse of the welfare paradigm, that requires hard manual labour, can no longer be a social safety net in scorching weather conditions. 

The world of corporate and finance isn’t going to be immune. Cooling costs would rise for everyone, especially for data centres. Air-conditioners and refrigerators can then no longer be categorised as luxury consumption products and may have to be taxed concessionally, especially the environment-friendly variety. Mass-production may need to be incentivised. 

Also, architects will have to rely less on glass and steel, and return to traditional heat-repelling building and construction materials. 

Changing consumption patterns will alter the demand composition in the economy, triggering changes on the supply side, of course, but also requiring adjustments in policies, taxation, and other regulations.

If the economy restructures away from some sectors, favouring others, then a churn in the financial markets may follow. Certain assets and buildings may suddenly become hazardous or obsolete, and may have to be recorded as losses, leading to defaults on dues or borrowings. Equity markets may reassess share prices along these new developments. Insurance costs may surge. Risk may be repriced. 

For the economy to adjust to this new reality, quick policy responses are required—the agenda on the table for the new government to join office after the elections has been scripted by the weather.