Air pollution cuts Indian GDP growth by 0.56 percentage points year-on-year

Rising air pollution reduces the year-on-year growth of India’s gross domestic product (GDP) by 0.56 percentage points, according to a World Bank report.

Air Pollution Reduces Economic Activity: Evidence from India, the research working paper looks at how exposure to fine particulate matter (PM2.5) has affected economic growth in districts across the country. The paper, produced by A. Patrick Behrer, Rishabh Choudhary and Dhruv Sharma, uses annual GDP changes for districts to investigate the impact of changes in ambient PM2.5 level on GDP at the district level over the period 1998-2020.

The document collects data from approximately 550 districts, spanning about 25 states and Union Territories (UTs), each with an average of 15 observations. According to the report, these states and territories contribute 90% to India’s real GDP.

“Exposure to PM2.5 in India has also increased significantly over time. During our sampling period, the average exposures have increased by more than 50%, from approximately 35µg/m3 to more than 55µg/m3. The impact of the COVID-19 closures on contamination is manifested in a notable decrease in average contamination levels at the end of our sampling period,” the report states.

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Average PM2.5 exposure levels in India exceed 50µg/m3 and in some districts also 100µg/m3. This is about 20 times the levels recommended by the World Health Organization (WHO) and more than double the Indian standards themselves. The maximum exposure in Delhi can exceed 500µg/m3, the report underlines.

He cites another report from the National Bureau of Economic Research to state that “actual growth rates in India have been an average of 50 basis points lower than reported rates since 2005 due to the negative consequences of pollution.”

The adverse impact of air pollution on economic growth stems from the fact that it reduces worker productivity at work, increases sickness absenteeism and directly impairs agricultural productivity, the report says.

The document collects data from approximately 550 districts, spanning about 25 states and Union Territories (UTs), each with an average of 15 observations. According to the report, these states and territories contribute 90% to India’s real GDP.

“In the long term, reductions in human capital formation and emigration out of the most economically productive areas due to exposure to pollution loom over us,” he adds, stressing that air pollution has various negative effects on workers and economic sectors.

The report also notes that reducing air pollution also has significant costs and may require structural changes in the Indian economy. “These structural changes are likely to have direct effects on growth rates that may be larger, and of a different sign, than the effects of reducing air pollution. Despite this, reducing air pollution is likely to bring important long-term benefits,” he adds.

With the help of the following two charts, the report calculates that India’s GDP would have been 4.51% higher at the end of the period if pollution had grown by 50% less each year.

“The micro-level effects of air pollution on health, productivity, labor supply, and other economically relevant outcomes are added to the macro-level effects that can be seen in year-on-year changes in GDP,” he adds.

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