The Economics of Floods

THESE ARE DAYS of nature’s fury in many parts of India. Intense rain, followed by floods, has ravaged many districts of Gujarat, Maharashtra, Karnataka and Kerala. Less known are similar stories from the southern districts of Chhattisgarh where life has been thrown into disarray. In Kerala, 88 persons have perished and another 48 in Karnataka. When the toll for Gujarat and Maharashtra is added, the number crosses 200. In Maharashtra alone, nearly half-a-million people have been dislocated within a span of a few weeks. This situation is in stark contrast to what prevailed in these states just two months earlier. In July, there were alarm bells ringing over a weak monsoon and the possibility of an impending drought.

This pattern of sudden swings between a drought (or a drought-like situation) and flooding due to heavy downpours is now a recurrent phenomenon. For example, last year, districts in central Kerala—particularly, Idukki and Palakkad—witnessed a huge deviation from the normal pattern of rainfall within a month. In Idukki, this deviation was 83 per cent from June to August. This was enough to cause the worst flood in the state in a century. A million people were dislocated and the damage to the state’s infrastructure was so extensive that help from the Union Government became essential for the state to get up on its feet again. Chief Minister Pinarayi Vijayan pegged the figure for losses at Rs 20,000 crore while one of his colleagues doubled that figure.

Traditionally, governments estimate losses from floods in terms of standing crops lost. Some other items are also added but the perspective is largely one of a state’s revenue authorities. But these kinds of losses began declining somewhere around the decade of 1970-80. Since then, the damage to public utilities and infrastructure has been on the rise. This is to be expected: as India develops and invests money in roads, bridges, railways and power plants in regions where it was inconceivable to have such facilities even a decade ago.

The results are obvious. In states where infrastructure has expanded in ecologically-sensitive regions and districts that were untouched in terms of these investments, the risks have grown much faster than in states located in the plains. In Northeastern states, which are considered to be India’s hydropower reserves, the loss in terms of economic output is much higher as compared to plains states.

Somewhere there is a calculation to be made between expanding the ‘development’ footprint in the hope of increasing economic output and the increase in risks due to climatic fluctuations. There are two ways to look at this. One, the increase in risks to the state where such ‘development’ takes place; and two, the spillover effects in the neighbouring states. This is perhaps most acute in Northeastern India. But these effects can no longer be ignored in other parts of India as well.

Extreme weather events are not unknown. But once they begin recurring, it is safe to say that a climatic shift is beginning. This is a subject of controversy among climate scientists but the anecdotal evidence in terms of shifts in rainfall over time and in space can no longer be ignored. Two examples are particularly vivid.
In Kerala, the floods this year have been most intense in the northern districts of Wayanad and Malappuram. Last year, the same event, albeit in much greater intensity, was witnessed in the central and southern districts. How does a Government, with many demands over the same resources, spread them to different districts when it is unknown where the deluge will strike? This is no longer an issue of being adequately prepared. One can always gear up the disaster relief machinery but that does not help limit the damage to infrastructure. India’s preparations in this respect are incomparably better than the 1970s or ’80s when the same fury would lead to higher losses of lives. The issue now is in terms of economic dislocation when much higher investments have been made in these areas.

In the Bastar division of Chhattisgarh, home to mineral riches and Maoists alike, curious things are happening these days. In the small mining towns like Kirandul and Bacheli of Dantewada district, the period from mid-June to September was one of widespread rainfall. This year, locals describe July to be a particularly dry time when all the mountain streams and rainfalls just dried up. In August, in contrast, there was plenty of rain. In the neighbouring district of Sukma, the downpour was unusual, particularly intense. For a week, the district had the appearance of a marooned piece of land with water on all sides. It did not help that in neighbouring Odisha the floodgates of dams built over nearby rivers had to be opened as the reservoirs were over the danger mark. Schools had to be closed and the main highway that links the district with Telangana was over-run with flood water. It is speculative to say that mining in the region has affected it adversely but the matter can no longer be ignored.

There is plenty to argue about the science behind climate change. But from the Western Ghats all the way to Arunachal Pradesh and from Bastar to Himachal Pradesh, it is clear that resource extraction has costs that cannot be ignored any longer. The trade-off is clear: an ever more resource-intensive economy versus rising risks posed by shifting weather patterns to economic activity. There are plenty of sophisticated models that marry climate change with economic activity. But virtually all of them break down at the level of empirical detail. The reasons are not hard to look for: the time-scales of how climate change unfolds and how an economy responds to these changes are very different. One can always build models that have lag effects built into them but that does not change much: there is no way of saying that a lag of x or y years (or any other unit of time) is a robust one that corresponds to what happens in the real world. The truth is that these lags are also glorified assumptions.
There is, however, much that can be done at the economic policymaking end. For starters, there is need to take a hard look at two issues: one, the indiscriminate opening up of forested areas for mining; two, the clearing of forests for construction of infrastructure and building residential areas replete with electricity and water availability. In the case of mining, projections for requirements of minerals, such as iron ore, bauxite and other ferrous and non-ferrous resources, have been made in the past. These can be updated and mining that is broadly in consonance with what India needs in the next 30 to 50 years ought to be ensured. Similarly, the reckless construction activity in ecologically fraught zones should be halted.

This is not a call for returning to a ‘commanding heights’ kind of economy that India had in the 1960s and ’70s. The trouble is that unless some perspective planning exercise is undertaken, even a free-market economy may get hit with ever-rising risks and unpredictable losses in assets and investments. One can always deepen the insurance markets to keep things even but that will be a jugglery of major proportions. Much simpler and efficacious remedies are available.

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