Unprecedented heat wave conditions and early rising of temperatures in parts of India have taken not just farmers, but also economists off guard. A worry has mounted over extreme weather's impact on India's Gross domestic product (GDP) this year. As wheat, onion and potato farmers have already started facing problems in getting the right price for their crops, here's what economists say on whether markets should worry about the heat.
Experts said it was too early to predict if the heatwave would affect the GDP of India this year.
Pranjul Bhandari, Chief India Economist, HSBC said the next few weeks are very important, because we know what really happens to the winter wheat crop. "If the winter wheat crop is a bad crop, then this rural demand that has begun to rise is going to be a problem," she added. Bhandari went on to say that the next three weeks will give us a better sense on how the next couple of quarters growth will be done.
Meanwhile, Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India, opined that it's too early to take a call, "assuming that the Rabi crop is not as good as we are expecting".
The National Statistical Office (NSO) pegged the country's growth at 7 percent for 2022-23. "The growth in real GDP during 2022-23 is estimated at 7 percent compared to 9.1 percent in 2021-22," the government said in a press release.
As Skymet Weather has warned of heatwaves in India by the end of March, markets and economists have several reasons to worry about. Here are some factors about heatwave that might affect the stock markets.
Farmers' woes
The expert comments came in the backdrop of drastically falling prices of onion, potato and wheat — due to which farmers have been unable to get appropriate prices for their produce. And this is all because of the unusual rise in temperatures across North-West India in February.
High temperatures damage crops. The India Meteorological Department (IMD) says it can adversely affect wheat crop which is approaching the reproductive growth period — which is sensitive to temperature.
Skymet Weather Services president GP Sharma also warned that the "excess temperature for February, which will extend to March, will damage the grain filling...this will in turn affect the Rabi crops in general and wheat in particular."
This fear has prompted farmers to sell late Kharif crops along with the Kharif crops. This has led to a surplus and due to this high yield, the prices of both onions and potatoes have dropped to Rs 2-Rs 2.5 in some parts of the country, including Maharashtra.
El Nino's impact and drought alert
According to the National Geographic Education, El Niño is a climate pattern that describes the unusual warming of surface waters in the eastern tropical Pacific Ocean. Its opposite is La Niña.
Now, it has been warned that El Niño may trigger a drought-like situation in India this year. "El Niño is likely this year after 3 years of La Nina. There were cases of rainfall below 100. When the monsoon was below 90, the situation was like drought, earlier in 1952, 1965 and 1972. We are facing the same situation," Institute of Climate Change Studies Director DS Pai was quoted by Money Control as saying.
Droughts might lead to inflation. However, Soumya Kanti Ghosh noted that the food inflation has been actually lower when El Niño happened. He explained the co-relation between the El Niño phenomenon and a possible drought condition. "If we look into India's history since 1950... it doesn't guarantee that if there is an El Niño, there could be a drought."
But he argued that one has to wait for one or two months to predict the El Niño situation and its impact on the weather pattern. "Since 1950, nine monsoons were rainfall-deficient due to El Niño,” he said.
Power crisis possible
Every time temperature rises in the country, the demand for power also shoots up. And an energy crisis often sends inflation soaring and cost of power rises. This also leaves several energy-intensive industries lurching in a production problem. In the past, parts of India have witnessed significant rise in power demand and subsequent crisis.
To avoid any future crisis, the power ministry is ensuring swift implementation of the SHAKTI (Scheme for Harnessing and Allocating Koyala Transparently in India) policy among other measures. The government has issued two significant orders.
"For one, it asked all coal-based power generators to mandatorily blend 6 percent imported coal, and two, it invoked section 11 of the Electricity Act, 2003, again so that all thermal plants using imported coal generate at their full capacity," Money Control reported.
Lower productivity
NASDAQ quoted a study by European economists and climate experts in 2021, suggesting that heat waves in Europe had lowered the global annual gross domestic product by as much as half a percent in the past decade.
The report further cited the International Labour Organisation's prediction that by 2030, "the equivalent of more than 2 percent of total working hours worldwide (will) be lost every year, either because it is too hot to work or because workers have to work at a slower pace." This implies at a loss of 80 million full-time jobs, said Phys.org. In some regions, outdoor work may also become impossible.
Meanwhile, researchers also argue that even though investors are more protected from weather conditions than outdoor workers, extreme heat may still increase the tiredness, the bad mood and the distraction of these indoor workers, according to Science Direct. A study also revealed that market activity falls significantly when temperatures rise in a region.
'Heatwaves have cost global economy $16 trillion'
A study, published in the journal Science Advances, says that heatwaves have cost the global economy about $16 trillion since the 1990s, according to a study. The study analyses the financial impact of extreme heat on infrastructure, agriculture, productivity, human health and other areas.
Researchers said, "Extreme heat significantly decreases economic growth in warm regions, weakly affects growth in temperate regions, and increases growth in cold regions."
(Edited by : Pradeep John)
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