Analysis of the relationship between rainfall and economic growth in Indian states

Abstract

Abstract The relationship between rainfall variability and economic growth is complex, and tends to be significant in economies like India where agriculture plays a major role in economic output and food security. This paper seeks to provide insight into this relationship using Indian state-level economic and rainfall data from 1961 to 2012. We examine all 15 Indian states with populations exceeding 20m as of 2000, totalling 920m people, about 12% of the global population. Physical and human geography vary greatly between, and even within, these states, reflecting the global range of water security challenges and providing an analogue for a range of global economic development and environmental conditions. We identify three patterns of interdependence between rainfall variability and economic growth: i) Continuous Correlation of rainfall and economic growth rates, ii) Decayed Correlation from a significant to an insignificant relationship, and iii) Never Correlated i.e. no significant observable correlation between rainfall and growth. Sensitivity to rainfall variability is somewhat less in wetter states. Investment in irrigation infrastructure has helped states to reduce their economic sensitivity to rainfall variability, with three of the four states that have Decayed Correlation of growth with rainfall having the highest percentage expansion in irrigated areas of the 15 states. Greater use of groundwater supplies (rather than surface water) does not, however, appear to influence the sensitivity of economic growth to rainfall variability. The relationship between rainfall-growth correlation and long term income is complex; states which are correlated generally appear to be growing faster than states which are not correlated, but that growth is occurring from a lower per capita income level. Finally, confirming national trends for India, the paper does not find that economic diversification away from agriculture has reduced economic sensitivity to rainfall variability. The observation that growth in economically-diversified states can still be dependent on rainfall invites further research into the ways in which rainfall either directly, or through other hydro-climatic variables, influences the general economy.