Why in the News?
India’s Index of Industrial Production (IIP) recorded a 10-month low growth of 1.5% in June, primarily due to a sharp decline in mining (–8.7%) and electricity output (–2.6%).
What caused the IIP slowdown in June?
- Sharp contraction in mining and electricity output: Mining activity declined by –8.7%, and electricity generation fell by –2.6%, significantly dragging overall growth. These two sectors jointly account for 22.3% of the IIP weightage.
- Erratic monsoon and waterlogging in key mining belts: Early and uneven southwest monsoon caused flooding in mining areas of Odisha, Jharkhand, and West Bengal, disrupting production and logistics.
- Damage to infrastructure and supply chain disruptions: Waterlogging led to damage in power distribution infrastructure and interrupted supply chains, resulting in subdued industrial activity and power demand.
How did climate events contribute?
- Disruption of mining activities: Heavy rainfall and waterlogging in mineral-rich regions like Jharkhand, Odisha, and West Bengal hindered extraction and transportation of key minerals. Eg: Jharkhand received 504.8 mm rainfall (against a normal of 307 mm), affecting coal and iron ore production.
- Damage to power infrastructure: Flooding led to breakdowns in electricity distribution systems, especially in rural and semi-industrial belts. Eg: Widespread inundation disrupted power supply, lowering electricity output by –2.6% in June.
- Supply chain interruptions: Climate irregularities caused logistical delays and increased input costs, hampering industrial flow.
Why is India reluctant to link climate events with economic data like IIP or GDP?
- Institutional hesitation and narrative control: Key agencies like the Ministry of Statistics and RBI prefer attributing economic fluctuations to factors like high base effects, global demand shifts, or input cost variations, avoiding politically sensitive climate linkages.
- Complexity of climate attribution: Linking specific events (like heavy rain or drought) to climate change requires scientific modelling and probabilistic data, which are resource-intensive and not yet integrated into mainstream reporting.
- Fear of politicisation and accountability: Acknowledging climate-linked economic slowdowns could invite policy criticism and demand for corrective action, making policymakers cautious.
How do climate disruptions in mining and power affect industrial output?
- Halted Mining Operations: Extreme rainfall leads to waterlogging and flooding in mining belts, making extraction unsafe and unviable. Eg: In June, mining activity contracted by –8.7% due to excessive rainfall in Odisha, Jharkhand, and West Bengal.
- Damage to Power Infrastructure: Climate events like floods and storms disrupt power transmission lines and generation facilities, leading to reduced electricity output. Eg: Electricity production shrank by –2.6% in June, which lowered industrial productivity across sectors.
- Supply Chain Disruptions: Delays in the supply of raw materials (like coal) due to climate-induced transport and logistical breakdowns affect the manufacturing cycle. Eg: Sluggish industrial output growth of 3.9% in June, despite some sectoral growth, was partly due to such disruptions.
What can India learn from global practices in integrating climate risk into economic reporting?
- Mainstream Climate Risk in Macroeconomic Analysis: Institutions like the European Central Bank (ECB) and Bank of England incorporate climate risk assessments into their economic forecasts and financial stability reports. Eg: The ECB uses climate stress tests to estimate the impact of extreme weather on GDP and inflation projections, helping shape responsive monetary and fiscal policies.
- Develop Probabilistic Climate Attribution Models: Global agencies invest in scientific and data-driven models to link specific climate events to broader economic outcomes. Eg: The UK Met Office partners with economic bodies to assess how floods or heatwaves influence sectoral output and employment, ensuring better policy alignment and risk preparedness.
Why is climate attribution important for informed economic policymaking?
- Enables Targeted Risk Mitigation and Resource Allocation: Understanding the economic impact of specific climate events helps policymakers design sector-specific interventions, such as improved infrastructure in flood-prone mining regions or energy grid resilience plans.
- Strengthens Long-term Economic Planning and Resilience: Integrating climate attribution allows for accurate forecasting and budgeting, ensuring that climate-linked disruptions (e.g., to power or mining) are factored into growth strategies, insurance frameworks, and industrial policies.
Way forward:
- Integrate Climate Risk Frameworks into Economic Reporting: Agencies like the Ministry of Statistics and RBI should formally include climate-related variables in metrics like IIP and GDP, using probabilistic models and event attribution tools to capture the economic impact of extreme weather events.
- Build Institutional Capacity for Climate-Economic Analysis: Establish a dedicated national climate-economic observatory or task force to monitor, assess, and publish regular reports on how climate disruptions affect different sectors, drawing inspiration from institutions like the European Central Bank.
Mains PYQ:
[UPSC 2021] Investment in infrastructure is essential for more rapid and inclusive economic growth.”Discuss in the light of India’s experience.
Linkage: This question is highly relevant as it directly addresses the crucial role of “investment in infrastructure” for “economic growth.” The article explicitly states that “the robust growth in capital (3.5%), intermediate (5.5%) and infrastructure (7.2%) goods output, indicates that much of industrial growth continues to hinge on the government’s infrastructure spends”.
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