WHEN SMOG BECOMES SOLVENCY RISK: CLIMATE AT HEART OF BANKING FRAGILITY

Delhi’s pollution crisis shows why climate is also an economic problem

- RAHUL PRAKASH & NEETI SHIKHA

Every winter, Delhi wakes up to an unsettling orange-grey haze that slows traffic, shuts schools, and overwhelms hospitals. For years this has been treated primarily as a public-health emergency. Yet it is equally an economic one.

Air pollution now costs India nearly 1.3% of its GDP annually, driven by lost labour productivity, disrupted logistics, construction bans, and increased medical expenditure. A single smog episode can bring construction to a halt, cancel flights, and choke supply chains, costs that ultimately surface on the balance sheets of households, firms, and banks.

Delhi's crisis is therefore not an isolated urban problem. It is a microcosm of a deeper truth: climate and environmental degradation are already translating into measurable economic losses. As India pushes toward its ambition of becoming a $5-trillion economy, ignoring these linkages is no longer tenable.

Climate Impacts Are Becoming Systemic Financial Risks

India is one of the world’s most climate-vulnerable nations. The year 2022 saw more than 300 extreme weather disasters, causing losses of over Rs 1 lakh crore. In 2023, the India Meteorological Department recorded 34 heatwave days, the highest in decades. Erratic monsoons now trigger both destructive floods and extended dry spells, destabilising agriculture and rural incomes.

These events are fundamentally economic shocks. Banks and non-banking financial companies are particularly exposed because nearly 60% of India’s credit portfolio is tied to climate-sensitive sectors such as agriculture, real estate, infrastructure, and MSMEs.