India is grappling with a severe air pollution crisis. In the last decade, it has become the world’s fifth most polluted country, with 21 of its cities ranking among the world’s 30 most polluted. Despite ambitious government initiatives like the National Clean Air Programme, aimed at reducing PM2.5 pollution by 20-30% by 2024, the global discourse on air pollution often focuses on its health impacts. The Air Quality Index (AQI), a measure of ambient air pollution, underscores the pervasive impact of pollutants like PM2.5 and PM10. These pollutants not only harm health but also impose significant economic burdens. By quantifying the toll of air pollution on India’s economy and proposing actionable policies, this blog highlights the urgent need to integrate environmental sustainability into economic policy.
Air Pollution: Health Expenditures and Human Capital
Air pollution exacerbates respiratory and cardiovascular diseases, increasing healthcare costs for both households and the government. A World Bank study estimates that air pollution costs India about 3% of its GDP annually through healthcare spending and lost labour productivity. Additionally, the University of Chicago reports that prolonged exposure to PM2.5 can reduce life expectancy by up to five years in heavily polluted regions, diminishing the workforce and human capital.
In India, it leads to significant economic losses due to absenteeism. In 2019, 1.3 billion working days were lost, costing the country USD 6 billion. This is primarily due to the health impacts of air pollution, forcing employees to miss work to care for themselves or their families. The northern and eastern regions of India, which frequently experience severe air pollution, bear the brunt of these losses. The actual cost is likely higher as many workers continue to work despite illness, highlighting the economic pressures faced by the workforce. Dr Soumya Swaminathan, former chief scientist at the World Health Organisation (WHO), emphasises that air pollution is also an economic crisis, as it elevates healthcare costs and reduces productivity (through lost work and school days).
Air pollution also negatively impacts employee productivity, even when they are present at work, referred to as presenteeism. Reduced physical and cognitive performance on high pollution days leads to an estimated 8-10% decrease in productivity, costing the Indian economy USD 24 billion in 2019. Employees often work overtime to compensate for lost productivity, leading to burnout, attrition, and increased recruitment challenges for HR. Industries that rely heavily on cognitive tasks, such as investment banking and software development, are particularly vulnerable to the negative impacts of air pollution on productivity.
Economic Losses: Spending, Tourism, and Infrastructure
Rising AQI adversely impacts India’s consumer economy by reducing spending by 1.3%, resulting in a loss of USD 22 billion in 2019. As air quality worsens, consumers are increasingly avoid outdoor activities and spending, mirroring behaviour during the COVID-19 pandemic. Mumbai’s Linking Road market area experienced a 5% decline in consumer footfall during the highly polluted winter months (November-January), with a 10-unit increase in PM2.5 levels correlating to a 1% decrease in consumer footfall.
New Delhi, a major economic hub, suffered a substantial economic loss of USD 5.6 billion (6% of its GDP) in 2019 due to air pollution. This impact is disproportionately higher than the national average of 3% and exceeds the combined economic loss of Mumbai, Bengaluru, and Chennai. This significant loss is primarily attributed to premature deaths and workdays lost due to pollution-related health issues.
A study by the Lancet Health Journal estimated that air pollution reduced India’s GDP by 1.36% in 2019 due to premature mortality and morbidity. While emergency measures like school closures and construction bans can temporarily improve air quality, they come at a significant economic cost.Air pollution leads to a 0.7% annual decline in tourist arrivals, resulting in an economic loss of USD 1.7 billion. Beyond causing short-term fluctuations in tourist demand, it also poses significant long-term reputational risks to destinations.
Also, it adversely impacts physical assets, reducing their lifespan and productivity. Solar panels generate less energy due to reduced sunlight penetration. Electronic devices degrade faster due to exposure to pollutants like sulphur dioxide. Agricultural yields decline as crops are stunted by pollutants like ground-level ozone. Infrastructure and historical monuments suffer from acid rain-induced corrosion. Reduced visibility caused by smog slows down transportation and logistics. These factors collectively lead to significant economic losses across various sectors.
Air pollution is a global issue that impacts nearly everyone on the planet. However, efforts to address this widespread problem remain insufficient at all levels—from local to global. Stronger and more coordinated action is needed not only to combat air pollution but also to unlock the numerous economic and social benefits of effective intervention. Below are some key economic policy recommendations to address these challenges:
Invest in Clean Energy Technologies
To accelerate the transition to renewable energy, it is essential to provide financial incentives such as subsidies and tax breaks for the research, development, and deployment of renewable energy sources like solar, wind, and hydro power. Additionally, green bonds can be introduced to attract investments in clean energy projects. Implementing carbon pricing mechanisms, such as carbon taxes or cap-and-trade systems, would internalise the environmental costs associated with carbon emissions, encouraging industries to adopt cleaner practices. Furthermore, expanding electric vehicle (EV) infrastructure and offering financial incentives for EV adoption would significantly reduce vehicular emissions, a major source of urban air pollution.
Promote Energy Efficiency
Establishing and enforcing stringent energy efficiency standards for buildings, appliances, and vehicles is essential to reducing overall energy consumption. Public awareness campaigns can further enhance this by educating citizens on the importance of energy conservation and providing practical tips on how they can reduce their energy use. Additionally, offering financial incentives such as subsidies or tax breaks for energy-efficient upgrades will motivate both individuals and businesses to invest in energy-saving solutions.
Strengthen Environmental Regulations
Stricter emission standards should be enforced across industries and transportation sectors to reduce harmful pollutants. Regular monitoring of air quality and pollution sources will help in identifying areas that need intervention and take necessary corrective actions. To ensure compliance with these standards, imposing hefty penalties for violations would serve as a strong deterrent and encourage industries to take their environmental responsibilities seriously.
Support Public Transportation and Non-Motorised Transport
Investing in public transportation infrastructure and improving services will make public transit a more viable and attractive option for commuters, reducing dependence on private vehicles. Developing safe and accessible cycling and walking paths will also promote non-motorised transport, encouraging more people to adopt these environmentally friendly modes of travel. Furthermore, policies like congestion charges or parking fees can disincentivise the use of private vehicles in urban areas, reducing traffic congestion and pollution.
Promote Sustainable Agriculture
Adopting organic farming practices can help reduce the use of harmful pesticides and chemical fertilisers, improving both the environment and public health. Promoting agroforestry can further enhance sustainability by improving soil health and preventing erosion, thus preserving natural resources. Moreover, the adoption of precision agriculture techniques, which use technology to optimise the use of fertilisers and water, can increase agricultural productivity while minimising environmental impact.
International Cooperation
To advance global efforts in addressing climate change, countries should collaborate on joint research initiatives focused on the development of clean technologies. Participation in global climate agreements would also ensure that nations contribute to worldwide efforts to reduce greenhouse gas emissions, driving collective action towards a more sustainable future.
In conclusion Addressing India’s air pollution crisis requires a multi-dimensional approach that balances economic growth with environmental sustainability. The economic toll of air pollution, from healthcare costs and reduced productivity to damage across industries and infrastructure, highlights the urgency for decisive action. While existing initiatives like the National Air Quality Monitoring Programme and Smart City Mission represent positive steps, their success hinges on robust implementation, public participation, and continuous monitoring. Policymakers, industries, and citizens must collaborate to adopt cleaner technologies, enforce stringent regulations, and prioritise sustainable practices. By treating air pollution not just as an environmental issue but as an economic and social imperative, India can safeguard its workforce, protect public health, and secure long-term economic resilience in an increasingly climate-conscious world.
Author’s bio: Anushka Sharma is a research intern at the Bharti Institute of Public Policy, Indian School of Business. She holds a Master’s in Political Science from University of Lucknow. She previously interned with Navbharat Times and Metaphor Lucknow as a content writer and editor. Her areas of interest include education, artificial intelligence, sustainability, art and literature.