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The impact of air pollution on economic growth

  • Published
    4th Nov, 2023

As the increasing pollution level in both Delhi and Mumbai, studies have shown a direct and serious impact of air pollution on GDP growth and per capita income levels.

So, let us analyse the impacts.

  • Given that GDP growth rates and per capita income levels are generally seen as having a direct trade-off with emissions levels, conventional wisdom tends to dismiss air pollution as an unavoidable by-product of economic growth. And this tends to limit the urgency for formulating a policy response to the problem.
  • A slew of new research, however, points to exactly the opposite, that air pollution has a direct, and a particularly debilitating impact on GDP growth and per-capita income levels by way of reduced worker output, lower consumer footfall in consumption-led services, hampered asset productivity, and a surge in health expenses and welfare allocations, especially in the productive age groups.
  • This is particularly worrying for a country like India, where key economic hubs such as Delhi NCR are now prone to a recurrent annual cycle of high pollution with the onset of every winter, and Mumbai is struggling to cope with a polluting haze after the withdrawal of the southwest monsoon.

The Impact on economic output:

  • The Reserve Bank of India’s Department of Economic and Policy Research (DEPR) said in its latest report on Currency & Finance 2022-23 that up to 5% of India’s GDP could be at risk by 2030 due to lost labour hours from climate change issues, including extreme heat and humidity.
  • If the impact of recurrent annual cycles of pollution in key manufacturing and services hubs is added to that estimate, the drain on economic productivity is far higher.
  • A June 2023 World Bank paper authored by A Patrick Behrer, Rishabh Choudhary, and Dhruv Sharma pointed to clear evidence that the well-documented micro-level impacts of air pollution on health, productivity, labour supply, and other economically relevant outcomes aggregate to “macro level effects that can be observed in year-to-year changes in GDP”.
  • These results, based on data from about 550 districts in some 25 states and Union Territories (which contribute, the report said, to 90% of India’s real GDP), were consistent with well documented micro effects of heat generating aggregate-level effects.

Loss of GDP due to Air Pollution:

  • A 2021 paper in The Lancet Planetary Health, which studied the direct impacts of air pollution in India on mortality and morbidity, found large inter-state variations in economic loss as a proportion of the state GDP — from 0.67% to 2.15% — with the biggest losses in the low per-capita GDP states of Uttar Pradesh, Bihar, Rajasthan, Madhya Pradesh, and Chhattisgarh.
  • This is especially relevant since RBI data suggest that 50% of India’s GDP comes from sectors that are exposed to heat, which is a rough approximation for the share of GDP generated by outdoor work. In comparison, less than 25% of European GDP is generated by the same sectors, European Central Bank figures show.
  • A first-of-its-kind report from Dalberg Advisors, in partnership with Clean Air Fund, Blue Sky Analytics, and the Confederation of Indian Industry, had estimated that air pollution entailed costs of about $95 billion annually for Indian businesses, which is about 3% of India’s GDP.

Recent Data on Economic Loss due to Air Pollution:

  1. Footfall in Mumbai’s Linking Road shopping district dropped by 5% during the highly polluted period between November and January
  2. A rooftop solar company reported a 13% decrease in the productivity of its solar panels on high pollution days, thereby reducing economic viability for solar in India
  • Employees at Bengaluru’s tech hub, Whitefield Corporate Zone, reported an 8-10% reduction in productivity at work.

The cost of poor Air Quality:

The costs of poor air quality were manifested in six distinct ways:

  1. lower labour productivity
  2.  lower consumer footfall
  3.  lower asset productivity
  4.  increased health expenses
  5. welfare losses
  6. premature mortality

To calculate the impact of air pollution, the analysis used big data analytics, a primary survey, existing literature, and inputs from diverse stakeholders including academic experts in air pollution, along with cross-sectoral business heads and service providers.


The challenge for India

  • Air pollution is an urgent prerogative in India, as more than 20 of the world’s 30 cities with the worst air pollution are in the country.
  • Delhi has the poorest air quality among cities globally, with 5 concentration levels pegged at nearly 10 times the WHO target.
  • A paper in The Lancet had listed Delhi as the city with the highest level of per-capita economic loss due to pollution among major Indian cities.
  • With the air quality plummeting to the “severe plus” category, emergency measures has been taken, including a ban on trucks and all types of construction are set to be enforced in the National Capital Region.

Supporting Facts:

Greenpeace Southeast Asia and the Centre for Research on Energy and Clean Air;

  • A report by Greenpeace Southeast Asia and the Centre for Research on Energy and Clean Air said the costs of air pollution from fossil fuels, burning gas, coal, and oil results in three times as many deaths as road traffic accidents worldwide.
  • According to the study, air pollution has an economic cost of $2.9 trillion, about 3.3 per cent of the world’s GDP.

Impact on Service Sector:

  • The paper ‘The Effect of Pollution on Worker Productivity: Evidence from Call-Center Workers in China’ (NBER Working Paper 22328) by Tom Chang, Joshua Graff Zivin, Tal Gross, and Matthew Neidell, measured data on the daily productivity of 5,000 workers at the Shanghai and Nantong call centres of Ctrip, China’s largest travel agency in 2016, against the government-reported daily air pollution index (API) for each city.
  • The study found that for each 10-unit increase in the API, worker productivity, measured by the number of calls handled, fell by 0.35%. While the average duration of individual calls was not impacted by pollution levels, the time workers spent on break went up.

Way Forward:

  • To control vehicular pollution through policy mechanism.
  • Reducing Stubble burning and directing it to better use.
  • Use clean fuel for economic growth.
  • Adapt sustainable development principles in planning and urbanization.
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