The impact of climate on Indian households’ living costs

We exploit the geographical variation in climate across India, along with the availability of district-level household expenditure data, to estimate the equilibrium impact of climate on Indian households’ living costs. Using a methodology more commonly employed to calculate demographic equivalence scales, we find that households’ cost of living decreases by about 0.3%-0.8% with 100mm increase in annual precipitation; for every 100 units increases in annual heating degree days and cooling degree days, Indian households would experience an increase by 0.3%-0.5% and 0.3%-1% in living costs, respectively, and an increase of 1% in annual humidity will raise households’ cost of living by 0.7%-2.4%. Based on these results, we calculate climate equivalence scales for households in major Indian cities.