Even as India moves to build out a domestic semiconductor manufacturing ecosystem to reduce its reliance on imports, the country’s ambition could be headed for troubled waters – it faces an overall doubling in the risk from flooding, as a consequence of climate change, in the next three decades or so.
According to Moody’s risk management solutions, by 2050, the costs of flooding are expected to rise by around 30 per cent, from water stress by 35 per cent, sea level rise by 60 per cent, and heat stress by 150 per cent by 2050 under a moderate climate change scenario.
“With India also starting to initiate policies favouring greater self-sufficiency in semiconductors, it also faces an overall doubling in the risk from flooding by mid-century,” Moody’s said in a blog.
Erratic Weather Patterns
The year so far has been erratic in terms of weather patterns in India. If February was the warmest in over a century, March was unusually rainy, 26 per cent more rainfall than long-period average (LPA); August has been the driest since 1901, receiving 36 per cent less rainfall than its LPA.
Semiconductors are arguably among the most important commodities in the global market right now, with use in a myriad of sectors – from computers to cars, and airplanes to railways. Any break in supply will result in other production lines, such as cars and computers, grinding to a halt.
As the West tries to distance itself from China owing to evolving geopolitical tensions, India has pitched itself as a “trusted” alternative for electronics manufacturing. New Delhi has identified chip manufacturing as a key driver for future economic growth, and has sanctioned a $2.75 billion packaging plant currently being developed by Micron Technology.
Taiwan, which is home to over 90 per cent of the most advanced – below 10 nanometers semiconductor manufacturing capacity – could see chip plants’ costs related to climate risks rise substantially over the next 20-30 years, Moody’s said.
Impact on India Inc
The Indian Express recently reported that a number of Indian businesses – a majority of which depend on rural demand for growth – have identified climate change as perhaps the biggest risk to their business going forward.
It’s not just Hindustan Unilever Ltd, the country’s largest FMCG company, for which weather is the “single biggest business risk” today. From carmaker Hyundai to skincare company Emami and PepsiCo bottling firm Varun Beverages, unseasonal showers in summers, irregular weather patterns, and diverse rainfall patterns – or climate change, in general – have started impacting the bottom line of India Inc.
While offering HUL’s near-term outlook, CFO Ritesh Tiwari said the situation on the weather front remains “erratic”. In terms of rural demand, the company said that it will have to watch out for the impact of monsoon and weather-related risk. “El Nino has come earlier, and we know that when it comes early in the season, it grows more,” Tiwari said during a call with investors in July.
Suresh Narayanan, Chairman and Managing Director, Nestlé India, recently pointed out that the current — almost 30 per cent — monsoon deficit and the El Nino effect could influence rural demand. “Although it may sound speculative, the rural sector’s substantial impact could lead to a corresponding decline in rural demand,” he said.
While Nestle’s rural sales are around 20-25 per cent of its total sales in the country, HUL’s much higher at around 40 per cent from rural areas.
India’s top car makers have already faced a negative impact on account of erratic rain distribution, and have vouched for the impact it can have on sales in certain states.
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While Maharashtra continues to lead the automobile sales in the country, Kerala has lost its sheen in the past over a couple of years due to recurring floods, a decline in rubber prices, and a slowdown in the Gulf. Kerala has traditionally been one of the top three markets, especially for diesel cars.
“Kerala used to be in the top two or three markets in the country – today it is not even in the top nine. Kerala volumes have gone down due to floods in the recent years, decline in rubber prices globally reducing Kerala’s income, and third and the most important reason was decline in remittances from Gulf since a lot of people lost their jobs. Kerala has been replaced by Maharashtra in the top three, alongside the Delhi-NCR market,” Tarun Garg, Director (sales) at Hyundai Motor India Ltd. had told The Indian Express in an earlier interaction.
Executives at Maruti Suzuki India, the country’s largest carmaker, agreed that floods are among the key reasons impacting consumption trends.
