Heatwave poses risks to not just climate, but India's credit scores too: Moody

Risks from extreme climate events are hitting an economy that’s already been facing setbacks to its post-pandemic recovery from accelerating inflation and the central bank’s shift to a hawkish stance.

A heatwave that’s made parts of India the hottest in 122 years may be a warning that heightened climate risks could drag on economic growth and worsen the nation’s credit scores. 

A Moody's sign is displayed on 7 World Trade Center, the company's corporate headquarters in New York.(REUTERS)

Sweltering temperatures across northwestern India may have added to inflationary pressures in the world’s second-most populous nation and weighed on growth, wrote Moody’s Investors Service analysts including Christian de Guzman in a report dated Monday. 

Soaring demand for air conditioning at a time when power plants are facing acute coal shortages has resulted in outages and a surge in electricity prices, the ratings firm said. The heat wave will also curb output of wheat for the second-biggest producer in the world.

Risks from extreme climate events are hitting an economy that’s already been facing setbacks to its post-pandemic recovery from accelerating inflation and the central bank’s shift to a hawkish stance. The International Monetary Fund last month cut its forecast for India’s economic growth in the year started April 1 to 8.2% from 9%, saying the nation needs to generate more jobs and credit. 

India’s longer-term credit exposure to physical climate risks “means its economic growth will likely become more volatile as it faces increasing, and more extreme, incidences of climate-related shocks,” according to Moody’s. The rating firm, which has an Baa3 rating on India, one level above junk grade, said the heat waves are “credit negative” for the nation.