Elevated levels of pollution will hit long-term growth
What gets less attention is the connection between elevated levels of pollution and long-run economic growth
Budget season had us Indians talking economics — news and social media were awash with discussions on deficits, market indicators, taxes, and subsidies. With inflation for certain food items skyrocketing and the rupee rapidly losing value against the United States (US) dollar, there was, rightly, a lot of soul-searching concerning these matters.
However, there is a major concern that does not make headlines as being a threat to the economy but can single-handedly bring an end to India’s growth. I am referring to air pollution, largely over Delhi, but in considerable measure, over the entire stretch from Punjab to Assam.
A common worldwide standard is to treat an AQI of less than 50 as representing “good air”. By this criterion, Delhi’s situation is appalling. In 2024, Delhi did not have a single “good air” day. This had not happened in the previous six years. On December 16, Delhi’s air quality nosedived to hazardous levels, so much so that the authorities, notably the Commission of Air Quality Management, imposed Stage IV restrictions under the Graded Response Action Plan (GRAP), which requires the closure of schools and halt to construction activities, for Delhi and its adjoining areas.
The damage this kind of pollution is causing to health is well-documented. Many Indians suffer from various respiratory illnesses solely because of air pollution. A study in The Lancet (2019) analysed data from across states and showed that 12.5% of all deaths in the country in 2017 were caused by air pollution. A large part of this is because of particulate matter pollution. According to Chicago University research, this level of pollution erases 7.8 years from the average life expectancy.
Equally worrying is new research that shows how this kind of pollution can impact the human brain. An essay by Liam Drew in Nature (January 14, 2025) says such pollution raises the risk of dementia, depression, and anxiety/psychosis. The rich use air purifiers and leave for temporary stays in less polluted destinations at home and abroad when pollution peaks, but ordinary citizens have little choice.
These immediate harmful effects of pollution are well-documented and much talked about. What gets less attention is the connection between such elevated levels of pollution and long-run economic growth. This escapes attention because it is not picked up by short-run indicators. Unlike a high budget deficit that can cause inflation within months or an arbitrary raising of tariffs that can make a country lose its competitive edge by raising the cost of production, the effect of a deteriorating atmosphere may not have any immediate effect on growth. Its damage, in the initial stages, is beneath the surface. If the problem is left unchecked, it can take the economy over the tipping point.
This has happened before, including in the Indian subcontinent. There are many hypotheses about the fall of the Indus Valley, mainly connected to the Aryans. This explanation was never satisfactory because the Indus Valley people were more sophisticated and organised than the Aryans. The dominant view now is that it was environmental damage that caused the downfall. The rulers of the Indus Valley had a legitimate excuse for their failure. They had no idea about the science of climate and the environment. They were not aware of the damage they were doing. What is inexcusable today is that we can see what we are doing. Our government has access to enough expertise and science to be able to solve the problem. Sadly, there seems to be no commitment to doing this. We go to international meetings and conferences and make commitments about carbon emissions and long-term efforts to stall the climate crisis, but we ignore the environmental problem staring us in the face.
This is now beginning to create fissures in India’s economy. International tourism to northern India is in relative decline, and it is arguably adversely affecting investment flows to India. Actions like GRAP IV help temporarily, but they cause sudden disruptions in the lives of the middle class and are bound to impact the economy adversely.
Air pollution is not a natural disaster, like a volcano or earthquake, about which little can be done. Studies demonstrate that a range of factors, from the nature of fuel used by cars and buses to the location of polluting industries, the burning of stubble by farmers, and cooking practices in homes, contribute to this.
India needs a policy that keeps the welfare of ordinary citizens at the centre. We must not make this into an inter-state conflict — your stubble burning is darkening my skies, so it is your state’s responsibility. The cars and lorries in a particular state are emitting pollutants and it is that state’s responsibility. The pollution problem is a public bad. It must be taken up as a responsibility of the Union government. It needs to immediately allocate a budget, commission studies, and draft and implement a comprehensive action plan.
It is possible to turn things around, and quickly. We have seen this happen in China. This budget season, let me close with a word on fiscal policy. The kind of intervention I am advocating will cause an increase in government expenditure. This, left to itself, will raise the fiscal deficit. The way to manage this is to impose a special direct tax on the well-off for two or three years. India has an embarrassingly low tax-to-GDP ratio. Moreover, direct taxes account for less than 40% of India’s overall tax collection. Since indirect taxes fall disproportionately on the middle-class and the poor, and direct taxes fall mainly on the rich, India clearly has a regressive tax system. To impose a special direct tax for a few years to solve this problem is both possible and fair. It is embarrassing that India allowed the pollution problem to reach where it has. Let us not compound this by inaction.
Kaushik Basu is professor of economics and Carl Marks professor of international studies at Cornell University. The views expressed are personal
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