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A 1°C increase in annual temperature could reduce India’s economic growth by 3.89 per cent, nearly twice the losses reported by earlier studies. The findings add to growing evidence that climate change is not only an environmental crisis but also a major threat to long-term economic development, a study recently published in Economic Modelling has found.
The research, conducted by Naveen Kumar and Dibyendu Maiti of Delhi School of Economics, analysed economic and temperature data from 29 Indian states between 1980 and 2019. In the report, it was found that there is a “statistically significant and negative impact of annual temperature increase on economic growth across Indian states”.
India has recorded steady economic growth over the past three decades, despite some major global market crisis such as the 2008 financial crisis and the COVID-19 pandemic. But if the benefits of growth are observed, it has not been evenly distributed across states and sectors. The study warned that climate change could deepen these existing inequalities.
According to the report, rising temperatures affect economic growth through three main channels: labour productivity, capital productivity and ecosystem services. Heat stress reduces workers’ efficiency and working capacity, affects the productivity of physical infrastructure and disrupts ecological systems that support economic activity. These impacts together point at lower productivity and weaken long-term growth prospects.
Earlier studies suggested that a 1°C rise in temperature would reduce output by less than 2 per cent. The new analysis found significantly larger losses after accounting for long-term temperature trends, spillover effects across states and differences in regional vulnerability.
The impacts are also unevenly distributed. Hotter and southern states are expected to experience greater economic losses than cooler regions. The effect is not limited to one sector but directly affects agriculture, industry, construction and services show signs of vulnerability to rising temperatures, highlighting how climate risks are increasingly affecting the wider economy.
One major finding concerns seasonal impacts. Economic losses associated with temperature increases were often found to be greater during winter months than in summer, suggesting that climate-related disruptions cannot be understood solely through the lens of heat waves.
The report also highlighted the role of what it calls “state capacity” - the ability of governments to mobilise financial and institutional resources to respond to climate risks.
States with stronger governance systems and greater fiscal capacity are likely to adapt more effectively to rising temperatures. In contrast, states with weaker institutions and limited resources may find it difficult to protect livelihoods, infrastructure and economic activity from climate-related shocks.
“Climate exposure alone does not determine economic outcomes,” the report notes. States facing similar climatic conditions may experience very different impacts depending on their capacity to invest in adaptation, strengthen institutions and support climate-resilient development.
The study also observed warming trends across all states between 1980 and 2019, with states such as Manipur, Mizoram, Sikkim and Himachal Pradesh surprisingly having recorded some of the fastest increases in average annual temperatures.
India has committed to achieving net-zero emissions by 2070 and has expanded its climate action plans in recent years. However, the study suggests that national targets alone may not be sufficient. Adaptation and mitigation measures will also need to be integrated into state-level development planning, particularly in regions that face higher climate risks.
