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 finding comes from new research published in the journal Economic Modelling, and it adds to growing evidence that climate change is a direct threat to long-term economic development, not just an environmental problem.
Naveen Kumar and Dibyendu Maiti of the Delhi School of Economics analysed temperature and economic data from 29 Indian states between 1980 and 2019. They found a clear, statistically significant relationship: as temperatures rise, economic growth falls.
Earlier estimates put the damage at less than 2 per cent of output per degree of warming. The new study found losses nearly double that, after accounting for long-term temperature trends, spillover effects between states, and differences in how vulnerable each region is.
How Heat Hurts the Economy
Rising temperatures affect growth through three channels. Heat stress reduces workers’ efficiency and capacity. It degrades physical infrastructure and capital equipment. And it disrupts the ecological systems — water, soil, forests — that underpin economic activity. Together, these drag down total factor productivity and weaken long-run growth.
The damage is not spread evenly. Hotter regions and southern states face larger economic losses than cooler ones. Agriculture, industry, construction, and services all show signs of stress — meaning climate risk is no longer confined to farms and fields.
One of the study’s more surprising findings concerns the timing of damage. Economic losses tied to temperature increases were often greater in winter than in summer. That challenges the common assumption that heat waves are the primary economic threat from climate change.
Poorer States Are More Exposed
The study pays close attention to what it calls “state capacity” — a government’s ability to mobilise money and institutions to respond to climate stress. States with stronger governance and deeper fiscal resources are better placed to adapt. States with weaker institutions and tight budgets are not.
“Climate exposure alone does not determine economic outcomes,” the study notes. States facing similar temperatures can experience very different impacts depending on their capacity to invest in adaptation and support climate-resilient development.
India has recorded consistent economic growth over three decades, surviving the 2008 financial crisis and the COVID-19 pandemic. But that growth has not reached all states and sectors equally. The study warns that climate change could widen those gaps further.
All 29 states in the dataset recorded warming between 1980 and 2019. Some of the fastest temperature increases were recorded in states not typically associated with extreme heat — including Manipur, Mizoram, Sikkim, and Himachal Pradesh.
India has committed to reaching net-zero emissions by 2070. But the study argues that national targets alone will not be enough. States need their own adaptation and mitigation plans, built into development budgets — especially those that already face higher climate exposure and weaker fiscal capacity.
Without that, the economic cost of warming will keep falling hardest on the places least able to absorb it.
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