How Vulnerable is Indian Manufacturing to Climate Risks?

This is the first in a series of three blog posts that looks at three manufacturing sectors –pharmaceuticals, chemicals and automobiles – the climate risks that they face, and proactive measures that can help climate-proof these critical economic clusters.

Over the last decade, the Government of India has introduced a slew of initiatives such as the Make in India and Production-Linked Incentive (PLI) schemes, to promote indigenous manufacturing and spur economic growth.

State governments, too, have responded with supportive policy measures to boost industrial clusters and enable job creation. For instance, the government of Gujarat, in its 2021-22 budget, announced the setting up of two mega textile parks, a bulk drug industrial park, and a medical device park Similarly, the Government of Punjab has identified 15 clusters for development, which include the manufacturing of sewing machines, stationery, garments, and hi-tech metals.

However, India’s manufacturing sector remains exposed to many hazards, of which climate risk poses a formidable challenge. Climate risks manifest in two ways: physical risks that can directly damage assets and disrupt value chains, and risks to industries and employment arising from the shift to a low-carbon economy, technological advancements, and policies related to just transition, etc.

In 2023, the World Economic Forum ranked the failure of adaptation measures by firms, at number two among global risks with severe impact. As climate change imperatives reach a tipping point, these risks will have a disproportionate impact on sectors and industries with low adaptive capacities and are likely to pose a critical threat to India’s just transition. For example, production processes could become prone to disruptions, impacting the financial health of companies. Further exacerbating the problem, organizational supply chains will also be impacted as transport, housing and healthcare facilities face increased climate hazard risks.

According to the Annual Survey of Industries (2019-20), the pharmaceutical, chemical and automobile sectors together account for about 17% of employment and 26% of Gross Value Add. While the pharmaceutical and chemical industries have traditionally been globally competitive sectors, the automobile industry is once again set to become the sunrise industry for India’s growth in manufacturing, given the acceleration of electric mobility in India.

Climate Risk Assessment of India

Given the significance of these sectors, it is important to look at potential climate risks at the district and industrial cluster levels. India ranks seventh in climate vulnerability as per the Global Climate Risk Index 2021, which measures the impact of extreme weather events and global warming on countries and their populations.

India is also highly vulnerable to riverine and coastal flooding, has high exposure to cyclones and associated risks, and is prone to drought.

Spatial data analyzed by WRI India’s geo-analytics indicates that climate hazards can vary depending on geographical location. For instance, while coastal states are vulnerable to risks due to rising sea level, lightning and cyclones, hill states are prone to landslides and flash floods.

The analysis also indicates that many geographies are prone to multiple risks. For instance, many Indian states are vulnerable to water stress and its compounding impacts. Highly industrialized states, such as Maharashtra, Tamil Nadu, Karnataka, Gujarat, and Telangana, are vulnerable to extreme heat, drought, water stress and groundwater depletion.

Climate Vulnerability of the Pharmaceutical, Chemical and Automobile Sectors

To examine the state of the pharmaceutical, chemical and automobile sectors in India, we used the Annual Survey of Industries (ASI) frame data for 2019-20, which is the principal source of industrial data in India. This data and discussion are focused on formal sector jobs, which account for about 20% of the Indian economy, as per Reserve Bank of India (RBI) statistics.

The spatial concentration of the pharma industry has increased over the years. States with a strong pharma industry base have continued to attract new units into existing industrial parks, with Telangana, Maharashtra, Andhra Pradesh, and Gujarat sustaining dominance in terms of output, factories and employment.

In fact, more than 50% of pharma-associated output, factories and employment are located in these four states. Within these states, the districts of Ahmedabad, Pune, Bangalore, Visakhapatnam, Hyderabad and Rangareddy have a higher spatial concentration of pharma employment.

Similarly, the Surat, Mumbai-Raigad Haridwar and Virudhunagar clusters have significant concentrations of chemical sector establishments, while the automobile sector is clustered around Pune-Mumbai-Nashik, Aurangabad, Chennai, Kanchipuram, Gurgaon, and Faridabad.

The eastern clusters of the pharma, chemical and automobile sectors – Chennai, Kanchipuram, Visakhapatnam and East Singhbhum – are prone to extreme precipitation, water stress, lightning strikes, and heatwaves. The western clusters of Pune, Bharuch, and Raigad are prone to extreme precipitation, heat stress and meteorological drought, while the Haridwar cluster is prone to earthquakes, lightning strikes, heatwaves and water stress. The Solan cluster is prone to cold waves and landslides, as well as water stress and earthquakes. Air quality-related risks affect clusters across the sectors.

Given the increasing frequency and intensity of climate hazards, with varying degrees of impact on various locations, the spatial analysis of climate vulnerabilities can help devise localized measures to enhance industrial cluster resilience.

In the next blog of the series, we discuss the compounding impacts of different climate hazards on the pharmaceutical, chemical and automobile sectors in India.

All views expressed by the authors are personal.

Disclaimer: The maps in this blog are for illustrative purposes, and their use does not imply the expression of any opinion on the part of WRI India concerning the legal status of any country or territory, or concerning the delimitation of frontiers or boundaries. Sources: Author-generated maps, compiled by WRI India.