How India's GDP is at risk due to climate change
What's the story
A recent report by global consulting firm BCG has warned that India's export-oriented sectors such as aluminum, iron, and steel are increasingly exposed to climate inaction risks. These regulatory shocks could impact their profitability, operations, and long-term viability. The 'Climate Risk Index 2026' launched at COP30 ranks India among the top 10 countries most affected by extreme weather events.
Economic impact
Climate change could impact 4.5% of India's GDP by 2030
Sumit Gupta, BCG's Managing Director and Senior Partner, Asia Pacific Leader, Climate & Sustainability, emphasized the high cost of inaction for India. He cited data from the Reserve Bank of India (RBI) and World Economic Forum to say that climate-induced extreme events could put up to 4.5% of India's GDP at significant risk by 2030. By the end of this century, climate-related challenges might cost India between 6.4% and over 10% of its national income.
Business risks
Climate change impacts on businesses and infrastructure
Gupta said that businesses are bearing the brunt of these climate risks. He explained that extreme weather events can damage physical infrastructure, result in loss of labor hours, and lower productivity. These events can also cause indefinite project delays and reduce investment efficiency in high climate risk areas. Anirban Mukherjee, BCG's Managing Director and Partner India Lead Climate & Sustainability, echoed Gupta's concerns about the financial impact of climate change on Indian companies.
Export challenges
EU's carbon border adjustment mechanism to impact Indian exports
Mukherjee highlighted that the impact of climate change is more pronounced today for export-driven businesses in India, especially those dealing with aluminum, iron, and steel. These sectors are facing international regulatory shocks. The EU's carbon border adjustment mechanism (CBAM) is likely to affect some $7.7 billion or 10-11% of India's exports to the EU, he added.
Corporate response
Indian companies recognize climate change as a challenge
Despite the risks, Gupta and Mukherjee noted that Indian companies are aware of the magnitude of the climate challenge. Citing Corporate Sustainability Assessment data, Gupta said one-third of large Indian firms consider climate strategy among their top three material issues. These firms account for 85% of market capitalization in India. However, he noted that while about 40% perform physical risk assessments, a large part of corporate India still lags behind.
Supply chain risk
Climate shocks could impact MSME suppliers and exports
Mukherjee warned that MSMEs's inability to manage climate risks could directly affect Indian corporations' supply chains. He said most large companies in manufacturing, automotive, consumer goods, textiles, as well as construction source nearly 60-70% of their components/services from MSMEs. Notably, MSMEs are also a key player in India's export economy, accounting for some 45% of the country's total export value.