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Winter is my favorite season. It comes a little late, mid-November and climate change is to be blamed here. However, the winter season in Delhi is something very specific, something you wouldn’t find outside of the NCR. The onset of winter here is the beginning of the festive season and thick layers of dust and pollution covering the city. It is the sweet aroma of fall that sadly can’t reach anyone because everyone is masked up. It’s the chilly winds but don’t think of stepping out to experience that because you’d only end up in coughing fits inhaling the venomous air of the city.
As you might have guessed by now, this week I am talking about pollution and the severely poor AQI of India which costs the country over 3% of its GDP.
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The Economic Cost of Air Pollution
I hope you had a good Diwali and a safe month with masks on and air purifiers running all day. Every year, rather every October, I start dreading the pollution that is to come very soon. I am sure that you’d be well aware and tired of the AQI numbers. So, I won’t trouble you with that but I will talk about the massive hit that our economy has to take because of the AQI numbers.
Spoiler: Air pollution costs Indian businesses and the economy 95-150 billion dollars every year.
Here’s a quick visual that shows the extent of PM 2.5 concentration in India.
India is the fastest developing economy. We all know and accept that pollution is a direct consequence of industrialization and economic growth. However, research has been going on to understand the consequences of pollution on the economy and after having understood the cost, let me warn you – it’s scary.
We’ve got direct costs like health expenditure and indirect costs like public health in the long term. Some are opportunity costs while others may be consequential costs. Let me talk about the former first.
As polluted air hovers over our cities, schools, and workplaces are shut down, workers with illness either take leaves or a sink in productivity is seen. This is the Productivity Cost. This is an opportunity cost because much higher productivity would be seen if the AQI levels were good, both in the short and long run. In all, reduced labor productivity costs the country USD30 bn. Have a quick look at these numbers for some context:
- In 2022, over 67% of annual hours in Delhi were spent at the highest AQI levels. That’s about 275 days of poor air.
- Owing to absenteeism, employers lose 1.3 billion working days. Monetarily, this means a loss of 6 billion dollars every year.
- Productivity at work too, sinks by 8-10% costing us 24 billion dollars.
Sectoral Analysis – Information Technology
Let’s talk about the productivity costs w.r.t. the IT sector. IT incurs losses owing to both absenteeism and presenteeism. A surprising element here is that 80% of these losses are driven because of presenteeism. It’s quite simple – most workers don’t have the liberty to take leaves and when they work on sick days, the productivity is obviously decreased substantially.
All this put together meant a loss of USD 1.3 billion to the industry in 2019 and it is only higher now.
Subdued Consumer Footfall
Shrinking the consumer footfall by over 1%, air pollution costs businesses USD 22 billion in revenue. Yet another massive opportunity cost. During high pollution days, we barely step out and when we do, it’s essential errands like medicine shopping and doctor visits. Despite the big Indian festive season, footfall is significantly impacted. This affects local businesses the most as consumers resort to online shopping. This in turn impacts gig workers and their health once again leading to decreased productivity. It’s a huge loop. Mumbai’s Linking Road for example saw a decrease of 5% in consumer footfall! The domestic travel industry too takes a hit of around 0.7% as travellers either look at foreign destinations or skip travel altogether during the last quarter.
Dive into data: The visual below shows the relationship between the increase in pollution levels and the increased drop in consumer footfall. When pollution levels increase, footfall decreases.
Solar Panels are losing to pollution?
We never really think of the impact of renewable energy when we talk about pollution, however, here is an interesting but sad fact. Air pollution reduces the efficiency of solar panels by multiple times. Every 100-unit increase in the concentration of PM 2.5 leads to a 13% decrease in the efficiency of solar panels.
If pollution was to be reduced in India, our solar panel production would go up by 6-28 terawatt-hours of electrical energy. That’s USD325 million to USD845 million into the economy every year.
Health Expenditure and Increased Mortality
As we talk about the innumerable impacts of severe pollution on health, many of us reach for the mountains to get away and those without this option resort to their homes. However, unless you reside in one of the rare Indian cities without pollution, you will end up experiencing short or long-run health consequences from respiratory to cardiac issues. As per National Health Accounts data, USD 12 billion was spent on air pollution-related diseases. This is 12% of the total health expenditure as of 2019.
Forget about costs and health expenditures, let’s talk about direct the human element – air pollution leads to increased mortality rates. Can you imagine that millions of people, people vulnerable to diseases like infants and senior citizens die because of pollution? The heart-wrenching truth is that about 20% of deaths in India are a result of air pollution.
Dive into data: Look at this visual below. It shows the death toll caused due to air pollution for some major Indian cities. Horrifying, right?
Impact on GDP
I won’t say much here because, given the complexity and variety of costs involved, it is difficult to ascertain the exact amount by which GDP is impacted. However, I have some good estimates for the previous years. Have a look at these pointers:
- New Delhi lost 6% of its GDP to air pollution in 2019 and Kolkata lost 4%.
- For 2019, losses attributed to poor air were USD 95 billion.
- In 2021, air pollution cost India USD 150 billion.
Dive into data: The chart below shows that if PM2.5 concentration was lesser, India’s GDP would’ve been higher.
Severe air pollution and AQI levels crossing 400 have become almost normal for many of us Indians, but there are innumerable costs – both human and economic that we have to pay. While smog may have blurred many things out, it has one thing crystal clear – the need for action to combat pollution.
- 2022 World Air Quality Report by IQ Air
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Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use.