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Why In News?
An analytical chapter from the World Economic Outlook of the International Monetary Fund (IMF), released recently highlights some of the damaging macroeconomic impacts of weather shocks, particularly for low-income countries.
FACTS (For Prelims)
International Monetary Fund (IMF)
International Monetary Fund (IMF) is an international organization comprising of 189 countries.
It works to
-foster global monetary cooperation
-secure financial stability
– facilitate international trade
– promote high employment and sustainable economic growth,
-and reduce poverty around the world.
It was Formed in 1944 at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system.
It now plays a central role in the management of balance of payments difficulties and international financial crises.
Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money.
The important reports published by IMF are
i)World Economic Outlook
ii)Global Financial Stability Report
iv)Regional economic Reports
NOTE 4 STUDENTS-The reports published by the various international organizations are highly important for the preliminary exam.
ANALYSIS (For Mains)
The weather can influence economic activity through various channels. The most obvious one is agricultural output, given that temperature and precipitation are direct inputs in crop production. However, studies show evidence of broader impacts, including on labor productivity, mortality, health, and conflict.
The report aims to trace the linkages between weather shocks and economic activity, the Highlights are as follows-
1.The rise in temperature over the past century has been broad-based .However the contribution of low-income developing countries (which tend to be situated in some of the hottest geographic areas on the planet), to atmospheric greenhouse gas concentrations is negligible, both in absolute terms and on a per capita basis.
2.The empirical analysis suggests that rising temperatures lower per capita output in countries with relatively high annual average temperature, such as most low-income countries. The IMF notes that for the median emerging market economy, growth goes down by 0.9 percentage point in the same year because of a 1-degree Celsius increase of temperature.
3.The temperature increase projected by 2100 under a scenario of unmitigated climate change implies significant economic losses for most low-income countries. Estimates suggest that the per capita GDP of a representative low-income country would be 9 percent lower in 2100 than it would have been in the absence of temperature increases.
4.Research shows that productivity starts declining strongly after peaking at an average annual temperature of about 13 degrees Celsius. Therefore, countries located in areas with higher temperature will face a disproportionate impact of global warming.
5.Loss of output and lower productivity also affects capital formation, which has a bearing on medium- to long-term growth prospects.
1.The farm sector in India is in distress and several state governments have responded with loan waivers, which could create a large fiscal deficit and also restrict their ability to push capital expenditure at a time when the Indian economy has slowed significantly.
2.India has had deficient rainfall for two consecutive years in 2014 and 2015. According to estimates, production of kharif crops in the current year is expected to decline by 2.8% because of an uneven monsoon. The possibility of such weather events is likely to increase in the future. This poses a serious challenge for a country like India where about 50% of the population directly or indirectly depends on agriculture for a livelihood.
According to the IMF -To some extent, sound policies and institutional frameworks, investment in infrastructure, and other adaptation strategies can reduce the damage from temperature shocks in hot countries.
Some of the steps that can be taken are-
1.Over the years, India has reduced its dependence on the monsoon, which is evident from the fact that two successive years of drought did not result in runaway inflation. However, there is much scope for development of irrigation facilities in the eastern part of the country, where large areas are still almost completely rain fed.
2.Financial losses can be reduced by higher penetration of insurance products.
3.India can work on programmes that will help improve the quality of land and reduce the risk of climate change.
e.g-In Ethiopia, for example, food and cash are provided to the poor who participate in local environmental programmes. This has resulted in a reduction in soil loss and has increased the availability of water.
India can use employment under the Mahatma Gandhi National Rural Employment Guarantee Act in a better way to enhance soil and water conservation.
4.India also needs to strengthen its overall capability by investing in and adopting technology as the impact of climate change is not limited to agriculture.
For instance, better use of technology can reduce energy consumption for air conditioning. A district cooling system is being constructed in Gujarat International Finance Tech-City.
5.At the global level, a consensus was attained under the Paris Agreement to contain the rise in global temperature to below 2 degrees Celsius from the pre-industrial levels. Advanced countries have also committed to providing financial assistance to developing countries to help cope with the impact of climate change.
Analyse the impact of weather shocks on economic activity.How can India cope with this challenge?
SOURCE-LiveMint (SEPT 29, 2017)