Heatwave, Climate Risks May Affect India's Credit, Economic Growth: Moody's

Soaring temperatures have boosted the demand of air conditioners at a time when power plants are running out of coal and consequently, a surge in electricity prices has been recorded, said Moody's.

(Photo: PTI)

As India battles with the worst heatwave witnessed in the past 122 years, a report by Moody’s said on Monday, 23 May, that increasing climate risks are likely to hit the economic growth and worsen the nation’s credit scores.

The series of heatwaves and rising temperatures across northwestern India will weigh on inflationary pressures, wrote Moody's Investors Service analysts, including Christian de Guzman, in a report dated Monday.

Soaring temperatures have boosted the demand of air conditioners at a time when power plants are running out of coal and consequently, a surge in electricity prices has been recorded, said the ratings firm.

The heat will curb output of wheat in India, which is the second-biggest producer in the world.

India's Growth Forecast

Climate risk is adding pressure to already battered economy still reeling from the COVID-19 pandemic, accelerating inflation and the Reserve Bank of India’s shift to a hawkish stance.

Last month, the International Monetary Fund cut India’s growth forecast in the year started April 1 to 8.2 percent from 9 percent. The IMF had remarked that India needs to generate more jobs and credit.

Moody’s report said that India's long-term credit exposure to climate risks "means its economic growth will likely become more volatile as it faces increasing, and more extreme, incidences of climate-related shocks."

The rating firm has given Baa3 rating to India, one level above junk grade.