When The Toxic Trickles Down

No dictionary can do justice to the definition of the word ‘Smog’. For if the illustrious teams working on definitions had visited Delhi to experience it first hand, they would have found it tough to arrive at a suitable definition. The socio, political, economic, geographical impact on the citizens in and around the National Capital Region would perhaps compel any authority to redefine the word. Sample this: various parts of the city have an air quality index (AQI) ranging between 600 and (as high as) 1,500 for particulate matter (PM) 2.5. Anything above 300 is considered hazardous with 25 being the internationally recommended standard for PM 2.5 concentration. This means NCR experienced 60 times higher concentration of PM 2.5 than global standards. In simple words, PM consists of a complex mixture of solid and liquid particles of organic and inorganic substances suspended in the air. The most health-damaging particles are those with a diameter of 10 microns or less, (PM10), which can penetrate and lodge deep inside the lungs.

Losses Abound

It becomes important to assess the economic implications of the air pollution crisis in Delhi, which has repercussions on productivity, healthcare expenditure, construction revenue (due to the ban on any construction works from 9 to 14 November), insurance, welfare losses, labour output, the livelihood of farmers in the neighbouring states and even the GDP of India.

A 2013 World Bank report estimated that pollution costs India nearly $80 billion a year, or nearly 6 per cent of the GDP. In terms of welfare losses because of air pollution, India ranks second after China at $505.1 billion, or 7.69 per cent of its GDP in 2013. India reported the highest loss in labour output in 2013 owing to air pollution globally at $55.39 billion (2011 PPP-adjusted), or 0.84 per cent of its GDP. Adding welfare costs and costs of lost labour due to air pollution pegged India’s GDP loss at more than 8.5 per cent in 2013.

Let us now compute the present day losses. If we use the country’s current GDP figures ($2.264 trillion) and divide it by India’s population (1.324 billion) to get the GDP per capita, and multiply it by the population of NCR (46.07 million) gives a staggering $6.67 billion per year.

That means $18.35 million lost per day in NCR due to air pollution, if we include welfare losses and lost labour income due to ill-health. These numbers, in reality, could be much higher. Here’s why. The GDP of the NCR region in Delhi itself is $370 billion, and 8.5 per cent of that is $31.45 billion. That makes it a whopping $86.16 million lost per day in NCR due to air pollution.

However, this figure, too, is not accurate, given that we are assuming that only 8.5 per cent of the GDP is lost due to air-pollution as per a report in 2013. With the amount of air pollution in Delhi in November 2017 — which may have been unprecedented back in 2013 — the actual percentage of GDP lost due to air pollution might be higher. We also have to note that the 2013 figures were taken on a pan-India basis, using aggregated figures of pollution for the entire nation, while if we look at the pollutant concentration in just Delhi alone the actual loss in productivity, welfare and labour income might be much more just due to the sheer concentration of the high pollutant levels.

A 1998 World Bank study, for instance, reports, “When expressed in monetary values and as a share of the respective incomes (GDP/capita), health damages jump from 3 per cent for the sample average up to 9 per cent for India and 12 per cent for China. In other words, the costs to society, part of which is direct productivity loss, due to air pollution in largest India cities are as high as nearly one-tenth of the income generated in these cities from all economic activities. Notwithstanding all the uncertainties around such estimates, this analysis clearly shows that India suffers from a disproportionally heavy health burden of urban air pollution by international comparison.” This also includes the economic losses due to premature deaths in India due to exposure to particulate matter, which are alarmingly high in India.

Going by above estimates, at 9 per cent of GDP of NCR (at $370 billion and the population of NCR is 46.07 million), $722.81 is lost per person annually in the region (as GDP per capita of NCR is $8,031.25, 9 per cent of which is $722.81), which is $33.3 billion lost per year (9 per cent of the GDP of NCR, $370 billion is $33.3 billion), or $91.23 million of losses per day in NCR alone.

According to Anumita Roychowdhury, Executive Director, Research and Advocacy at Centre for Science and Environment, the estimated cost of pollution is a bit lower. She says, “The environmental costs associated with outdoor air pollution is 3 per cent of the GDP per annum. When you push the government, they say that it would be an expensive proposition for them. The actual investments to clean up the air is less than 1 per cent of the GDP. So if you invest less than 1 per cent, you can save 3 per cent costs in terms of health and environmental costs, of the overall GDP.” According  to Roychowdhury, the loss of GDP of NCR's $370 billion is $11.1 billion per year, or $30.41 million per day, requiring an investment of $3.7 billion per year to clean up the air.

The Other Casualties

Numbers aside, there are other angles to the economic impact, too, due to the air pollution and the policies instituted because of it. For instance, there is a loss in construction revenue, due to the ban on construction till 14 November, which cannot be quantified easily.

“Major impact will be on the daily labour earner who works on construction sites and will not find employment during the period of ban. This could also lead to delays in getting possession for home buyers in Delhi,” says Anuj Puri of Anarock Property Consultants. “The developer will have most economic loss as they can’t construct and hence can’t ask for further instalments from buyers whom they have sold under construction property,” adds Puri.

While the construction sector may suffer, there are other sectors that will benefit from the pollution. The sale of air purifiers and respiratory masks (N-95) has  increased manifold in 2017. “We are seeing a trend of increased usage of respiratory masks (especially N-95 masks) among people from all walks of life,” says Nandakumar, Senior General Manager of 3M India Personal Safety Division. “Consumers are increasingly becoming more aware about both the need for protection as well as the prescribed protective measures,” says Atul Mathur, Division Manager, Consumer Business Group at 3M India. Due to the pollution in the NCR region, companies such as 3M India are seeing a rise in the sales of AC filters and respirators.

Companies such as Xiaomi, Eureka Forbes, Blue Air, Panasonic India, Honeywell and Sharp who manufacture anti-pollution masks and air purifiers among other things say they have witnessed multi-fold jump in demand for air purifiers in just a matter of a few days. For instance, Mi Air Purifier 2 saw an 8x increase in sales in 24 hours, Blue Air mask sales per day have almost gone up 50 times to last week, Eureka Forbes saw an increase of almost 80 per cent in the past one month in  air-purifiers, and Honeywell Homes and Building Technologies recorded five fold spike in sale of air-purifiers.

However, the increase in sales of air-purifiers, insurance, respiratory masks and other temporary measures still do not offset the long-term economic impact due to the productivity losses, welfare losses and loss in labour income due to the detrimental health impacts of air pollution.

Even though it can be said that the healthcare sector has benefited due to the rise of number of respiratory diseases and cardiovascular problems, the gain is completely offset by the welfare losses and loss of labour income in the region, and the long-term health costs and expenditure borne by the citizens will be much more than the revenue to the healthcare sector as a result of this air-pollution.

According to Anmol Soin, Managing Editor at Initiative for Policy Research and Analysis, “There is enough to prove that the damages caused by just air pollution has cost India more than what would have been the cost of fighting air pollution.” He adds, “Nearly, 1 per cent of the GDP is lost simply due to the damage to its labour force. To put that in context, we spend about 2-3  per cent of our GDP on defence. Simply put, the damage by the rampant air pollution is worth 3-4 years’ worth of national security spend.”

“If we move beyond numbers, we are looking at 35 million-50 million people (NCR plus sections of Punjab, Haryana, UP), which  will be severely impacted by the current predicament. If this isn’t rectified quickly, we not only reduce labour efficiency of seven Denmarks (population estimates) but also create an environment where the next several generations will suffer from respiratory disorders. Just the health and benefit costs of those should be enough to motivate a multi-partisan push to try and fix this problem,” points out Soin. There will also be economic losses faced due to rerouting or suspension of airlines — case in point being the United Airlines, which suspended flights to Delhi due to the poor air quality.

Nipping It In The Bud

For the farmers in Punjab and Haryana, the cost of burning the stubble is much lower than transporting the stubble to nearby biorefineries, hence the economic viability of burning the crop stubble is more appealing than other alternatives. Unfortunately this creates a ‘tragedies of the commons’ type situation, for which the sufferers are the citizens of NCR and its immediate neighbours, not to mention the latent and explicit cost to the environment. On a long-term basis, farmers will too face an economic loss because of decrease in agricultural productivity due to environmental degradation, and the health costs, which will be borne by all. “The economic implications of air pollution arise from a shutting down of economic activities — power generation, factories, construction, etc., limiting access to mobility, as well as from the morbidity and mortality impacts of such high pollution levels. Unfortunately, despite decades of highlighting gaps, the quality of data and analysis are too poor to make any definitive assessments in the short term”, says  Leena Srivastava, Vice Chancellor, TERI University. 

anurit@businessworld.in

@AnuritKanti

Anurit Kanti

BW Reporters The author is correspondent at BW Businessworld, he has a keen interest in sustainability and environmental economics