Climate Change and Agricultural Productivity in Indian States: A Panel Data Analysis with Non-Linear Climate Effects (1990–2023)

Abstract

Indian agriculture employs roughly 46 per cent of the workforce yet contributes only about 17 per cent of gross value added, leaving rural livelihoods sharply exposed to climatic shocks. According to the Intergovernmental Panel on Climate Change (IPCC, 2022), South Asia has already warmed by approximately 0.7°C since 1950 and is projected to warm by a further 1.5–4.5°C by the end of the twenty-first century. Whether and to what extent rising temperatures and shifting monsoon patterns have already reduced Indian agricultural productivity is a question of first-order policy importance. Drawing on an unbalanced panel of twenty major Indian states over 1990–2023, this paper estimates the effect of temperature and precipitation on agricultural value added per hectare using a fixed-effects framework that includes a quadratic specification in climate variables, state fixed effects, year fixed effects, and a battery of agronomic and policy controls. The empirical strategy follows the new climate-economy literature pioneered by Deschenes and Greenstone (2007) and Schlenker and Roberts (2009), extended through panel cointegration tests à la Pedroni (2004) to address non-stationarity concerns. Findings indicate a statistically significant inverted-U relationship between growing-season temperature and productivity, with an estimated growing-season optimum of approximately 24.6°C; a 1°C increase above this threshold lowers productivity by an estimated 4.7 per cent. Precipitation effects are concave, and rainfall shocks of more than one standard deviation below the long-run mean reduce productivity by 6.3 per cent. Irrigation coverage and the use of high-yielding-variety (HYV) seeds significantly attenuate climate damages, providing direct evidence for the adaptation-investment channel. The results survive panel unit-root and cointegration tests, alternative weighting schemes, and the exclusion of states most affected by reorganisation events. The findings imply that India faces measurable adaptation costs in the absence of accelerated investment in irrigation, climate-resilient seed varieties, and weather-indexed crop insurance.