A new study has found that India’s gross domestic product (GDP) could shrink by three per cent a year if climate change leads to rise in temperature by one degree Celsius.

The study was conducted by the Advancing Earth and Space Science, an international nonprofit scientific association. According to the climate change vulnerability index, Jharkhand is the most vulnerable and Maharashtra the least vulnerable state in India when it comes to the impact of climate change on the economy, as reported by India Today. A low ranking on the index does not mean that Maharashtra is not vulnerable to climate change in an absolute sense. In fact, all states in India are vulnerable to this global phenomenon of climate change, which has unleashed extreme weather events across the world.

Meanwhile, India Ratings and Research (Ind-Ra) warned that climate change and its adverse impact on life, livelihood and economy was no longer an issue of the future. Reduced agricultural productivity, heightened water insecurity, extreme weather events, stressed ecosystems and elevated health risks are some of the manifestations of this climate change.

“It has already become a reality…Reduced agricultural productivity, heightened water insecurity, extreme weather events, stressed ecosystems, and elevated health risks are some of the manifestations of this climate change,” credit rating agency India Ratings and Research (Ind-Ra) said in a recent report.

While the country’s gross domestic product (GDP) could shrink by 3% annually with every one-degree centigrade rise in temperature, the state-level impact could vary, Ind-Ra said citing the Advancing Earth and Space Science study.

Every state’s individual fiscal capacities will help states tackle the crisis. Those with lower spending on the environment are highly vulnerable. Following this logic, it is Jharkhand that has the most to worry about and Maharashtra the least, according to the climate change vulnerability index.

“A low climate change vulnerability index value does not mean that Maharashtra is not vulnerable to climate change in an absolute sense. In fact, all states in India are vulnerable to climate change/risks,” Ind-Ra said.

The agency has used the states’ debt-to-GDP ratio as a criterion to determine its financial vulnerability when faced with climate change. The climate change vulnerability index, on the other hand, shows how susceptible it is in general to the crisis. Ind-Ra suggested that the way forward should be “adopting the climate-responsive budgeting or climate tagging of the state government budget to build a climate-resilient economy”.

Of the six states namely Assam, Bihar, Chhattisgarh, Jharkhand, Odisha and West Bengal – that are highly vulnerable to climate change, Bihar and West Bengal are also fiscally highly vulnerable. While Jharkhand, Odisha and Chhattisgarh fall in the fiscally medium vulnerability category, Assam falls in the fiscally low vulnerability category.

States falling in the high vulnerability category both for climate change and fiscal capacity may find it difficult to provide public funding towards climate change mitigating activities or cover the higher relief expenditure if needed in case of natural disasters.

The other category is of states with high fiscal vulnerability but they fall in the medium category of climate change vulnerability. These states are Andhra Pradesh, Rajasthan and Uttar Pradesh. Although Himachal Pradesh, Kerala and Punjab also fall in the fiscally highly vulnerable category, their vulnerability with respect to climate change is low. Only two states Maharashtra and Telangana enjoy the status of low climate change vulnerability and low fiscal vulnerability.

Financing for adaptive actions for climate change in India primarily comes from the Union government’s budget. The impact of a changing climate on the economy and society has to find a reflection in a state government’s plans and budget as well.

There has been some traction and action with respect to mainstreaming the climate change agenda into public expenditure at the state level over the last two decades. However, deciphering the climate change-related public expenditure from a state budget is difficult as there is no climate tagging of budgetary allocation with the exception of Odisha. “Adopting the climate-responsive budgeting or climate tagging of the state government budget is the way forward to build a climate-resilient economy,” Ind-Ra said.

A peep into these budgetary heads indicates that states are responding to the threat of climate change through budgetary provision. For example, expenditure intensity — defined as expenditure in a year divided by expenditure in the previous year — of all states combined under the budgetary head of forestry and wild life shows a rising trend first but declines later.