Prolonged high temperatures will curb wheat production and lead to extended power outages, exacerbating already high inflation and hurting growth, a credit negative for the country, Moody’s Investors Service said on Monday.
“Over the longer term, India’s highly negative credit exposure to physical climate risks – which contributes to the country’s highly negative environmental risk, issuer profile score and credit impact score – means its economic growth will likely become more volatile as it faces increasing, and more extreme, incidences of climate-related shocks,” it said.
Moody’s has the lowest investment-grade credit rating of Baa3 with a stable outlook for India. On May 15, New Delhi recorded a maximum temperature of 49 degrees Celsius, marking the fifth heatwave in the city since March. Although heatwaves are fairly common in India, they usually occur in May and June.
The government has revised down its estimates for wheat production by 5.4% to 105 million tonnes (MT) for the crop year ending June 2022, given lower yields amid higher temperatures. The lower production, and fears that a surge in exports to capitalise on high global wheat prices would add to inflationary pressures domestically, have prompted the government to ban the export of wheat and to divert it toward local consumption instead.
“Although the move will partially offset inflationary pressures, it will hurt exports and subsequently growth,” Moody’s said.
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