scorecardresearchIntense heatwave in India is costing your pocket dear, Moody's says

Intense heatwave in India is costing your pocket dear, Moody's says

Updated: 23 May 2022, 10:34 AM IST
TL;DR.
  • Drawdowns in coal inventory could lead to prolonged power outages in industrial and agricultural production, leading to significant cuts to output and weighing further on India’s economic growth – particularly if the heatwaves continue beyond June.
Bikaner, Mar 30 (ANI): A mother covers her child's head with a cloth on a hot summer day, in Bikaner on Wednesday. (ANI Photo)

Bikaner, Mar 30 (ANI): A mother covers her child's head with a cloth on a hot summer day, in Bikaner on Wednesday. (ANI Photo)

The intense heatwave that covered large parts of India – including New Delhi – is going to cost you more than your health.

Global ratings agency Moody's Investors Service, in a note on May 23, 2022 said, “The prolonged high temperatures, which are affecting much of the northwest of the country, will curb wheat production and could lead to extended power outages, exacerbating already high inflation and hurting growth.”

On May 15, 2022, Delhi recorded a maximum temperature of 49 degrees celsius.

Climate change is a very real shadow on economies as agriculture is directly impacting by changing weather patterns. Moreover, India's over-dependence on the monsoons doesn't help matters much.

Already, he Indian government has revised down its estimates for wheat production by 5.4% to 105 million tonnes for the crop year ending June 2022, given lower yields amid higher temperatures. This also led to India banning wheat exports last week.

The report said, “The ban comes at a time when India – the world’s second-largest wheat producer – could have been capitalizing on the global output gap from wheat following the Russia-Ukraine military conflict. Global wheat prices have jumped 47% since the conflict began in late February.”

In the past as well, good or bad monsoons have severely hampered India's grain production.

Moody's said, “Over the longer term, India’s highly negative credit exposure to physical climate risks –which contributes to the country's highly negative environmental risk issuer profile score and credit impact score – means its economic growth will likely become more volatile as it faces increasing, and more extreme, incidences of climate-related shocks.”

Climate Change and Inflation

Lower wheat production due to the intense heatwave is likely to increase wheat prices locally causing inflation, many say.

Elevated power demand amid the heatwave and an uptick in economic activity– resulting in higher domestic power prices – prompted India’s Central Electricity Regulatory Commission (CERC) to cap power prices at 12 ($0.1580) per kilowatt-hour in the electricity exchanges, the report said.

Moody's said, “As a result of the ban, India's export partners will likely face a further surge in wheat prices. They include Bangladesh, which absorbed 56.8% of India’s wheat exports in fiscal 2021, Sri Lanka, UAE and Indonesia.”

The report further said, inflation will be partially alleviated by keeping wheat production for domestic consumption and the cap in power prices in exchanges, as well as the Reserve Bank of India's 40-basis-point policy rate rise in early May. However, given the prominence of cereals and food more generally in India's consumption, elevated food prices could add to social risks if they persist.

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First Published: 23 May 2022, 10:34 AM IST