India’s increasingly severe summer heatwaves are becoming a structural threat to economic growth, raising costs for businesses, reducing worker productivity and slowing growth in an economy that remains heavily dependent on physical labour.

The challenge is becoming more acute as climate change drives temperatures higher. The IPCC admits that the target 1.5°C increase of temperatures over the pre-industrial baseline has already been missed and the world is on track for a 2.3°C to 3.1°C increase, with catastrophic consequences. During parts of May, the vast majority of the world’s 50 hottest cities were located in India, and temperatures in some industrial centres reached 46C.

The economic impact of unbearably hot weather is already being felt. A 2020 study by the McKinsey Global Institute estimated that rising heat and humidity could put between 2.5% and 4.5% of India’s gross domestic product at risk by 2030 through lost labour capacity and lower productivity, Bloomberg reports.

A University of Chicago study published in 2021 found that factory output in India declines by about 2% for every 1°C increase in temperature, reflecting both lower worker productivity and higher absenteeism.

The effects are particularly significant in sectors such as construction, manufacturing, agriculture and logistics, where millions of workers spend long hours outdoors or in facilities with limited cooling. Businesses across the country are increasingly adjusting work schedules to avoid the hottest parts of the day, adding hydration breaks and investing in cooling measures.

Heat-related disruptions are also affecting labour availability. Companies report higher absenteeism during periods of extreme heat, while some workers reduce hours or return to this villages during peak summer conditions.

The broader macroeconomic implications extend beyond productivity. Rising temperatures are increasing electricity demand as households and businesses rely more heavily on cooling systems. As IntelliNews reported, in a few decades time air condition will not just be a luxury, it will become existential as temperatures rise above what a human being can tolerate. Extreme heat will kill disproportionally more people in poor countries than the rich as access and affordably of power will play an increasingly important role. High heat will also undermine food security and drive food inflation through its impact on agricultural production and supply chains.

The Lancet Countdown on Health and Climate Change estimated that India lost 247bn potential labour hours because of heat exposure in 2024, a 124% increase compared with the annual average during 1990-99, Bloomberg reports.

India’s vulnerability is amplified by the size of its informal economy, which accounts for about 45% of GDP and employs large numbers of workers without access to climate-controlled workplaces or formal protections. Many workers remain exposed to high temperatures because taking time off work is not financially viable.

The government has begun responding to the challenge. In April, authorities issued a heat advisory urging businesses to alter working hours, provide hydration breaks and rest areas, and reduce work intensity during periods of extreme heat. Several states also adjusted school schedules or brought forward summer holidays.

Scientists warn that the problem is likely to intensify. Research published by the University of Oxford this year found that almost half of the world’s population could be exposed to extreme heat by 2050 if global temperatures rise 2°C above pre-industrial levels. India is expected to have the world’s largest affected population.

“We know the impacts will be severe, and they are here already,” says Radhika Khosla, an associate professor at the University of Oxford and co-author of the study.

For policymakers, the challenge increasingly extends beyond emergency responses to questions of long-term economic planning. Rapid urbanisation, dense cities, inadequate cooling infrastructure and continued migration into heat-exposed occupations risk amplifying the economic consequences of future heatwaves.

“All you need is for a turn of the climate knob, and suddenly you get a massive one-in-a-hundred-year heat wave, and all of these structural factors are going to intersect,” says Pillai. “We’re right now at the edge, at the precipice of an extremely, extremely bad situation.”