Air pollution costs India up to 9.5% of GDP annually, FICCI-EY report flags productivity losses

India could be losing as much as 9.5% of its gross domestic product (GDP) annually to air pollution, with declining worker productivity, rising healthcare expenditure and premature deaths emerging as significant economic costs, according to a joint report by the Federation of Indian Chambers of Commerce and Industry (FICCI) and EY India.

The report, titled Clean Air, Healthy India, estimates that air pollution-related economic losses could range between 9% and 9.5% of GDP, based on estimates for 2022. It also states annual business losses of around $95 billion, or nearly 3% of GDP, because of lower worker productivity, absenteeism, and operational inefficiencies.

The productivity impact is particularly vital on days with high pollution levels, when worker efficiency can decline by 8% to 10% while India loses an estimated 1.3 billion working days annually because of pollution-related health problems. The report also cites a World Bank study that found a median annual increase in PM2.5 concentrations reduces year-on-year GDP growth by 0.56 percentage points.

The FICCI-EY paper argues that clean-air investments should be treated as productive economic infrastructure rather than merely an environmental expenditure, given their potential to improve workforce health, business resilience, and India's long-term competitiveness.

Clean-air spending can also unlock economic opportunities

The report identifies air pollution as a constraint on India's economic growth, particularly as urbanisation, industrial activity, transport demand, and energy consumption increase. It estimates that more than 660 million people live in areas where annual fine particulate matter (PM2.5) concentrations exceed the national standard. Air pollution was responsible for more than two million deaths in India in 2023, while reducing average life expectancy by an estimated 3.5 years.

The economic burden is also reflected in healthcare costs, including hospitalisation, emergency treatment and long-term medication for respiratory and cardiovascular illnesses. The report points out that pollution-related absenteeism affects not just businesses but also education and skill development, weakening the country's human-capital base.

To address the challenge, FICCI and EY have proposed a series of practical interventions, including cleaner industrial technologies, electric mobility, improved construction practices, modernisation of brick kilns and alternatives to diesel generator sets.

Among the recommendations is the creation of financing mechanisms that pool several small clean-air projects into larger investment opportunities. The report argues that individual projects, such as replacing diesel generators in hospitals or upgrading brick kilns, may struggle to attract bank financing. However, combining similar projects into a common financing package could make them more attractive to banks and non-banking financial companies (NBFCs).

It suggests using government support to cover part of the initial risk and linking financial assistance to independently verified outcomes, such as diesel savings, crop residue processing, waste recycling and reductions in industrial emissions. The report cites the PM-eBus Sewa programme, which pools electric-bus demand across cities, as an example of how aggregated procurement and financing can help scale clean infrastructure.

Delhi is not the only pollution hotspot

The report also highlights the geographical spread of India's pollution problem, pointing out that several smaller industrial and satellite towns have recorded higher annual PM2.5 concentrations than major metropolitan centres.

According to its assessment of 2025 annual readings, Loni in Uttar Pradesh topped the list with 112.5 micrograms per cubic metre, followed by Byrnihat on the Meghalaya-Assam border at 101.1 micrograms. Delhi ranked third at 99.6 micrograms. West Bengal also features prominently, with Ula (Birnagar) recording 86.8 micrograms per cubic metre and Madhyamgram 83.3 micrograms. Both readings were more than twice the national annual PM2.5 standard of 40 micrograms per cubic metre.

The report argues that pollution cannot be tackled through isolated city-level interventions because emissions travel across municipal and state boundaries. In Delhi, local sources accounted for only 36% of PM2.5 during winter and 26% during summer in one source-apportionment assessment. It has called for an airshed-based approach, with coordinated action across neighbouring cities and states, stronger industrial monitoring and outcome-linked funding.

While acknowledging progress under the National Clean Air Programme (NCAP), Graded Response Action Plan (GRAP), Bharat Stage VI emission norms and Pradhan Mantri Ujjwala Yojana, the report says implementation remains uneven.

Under NCAP, 103 of 130 cities recorded reductions in PM10 between 2017-18 and FY25, with 64 achieving reductions of more than 20%. However, the report recommends expanding performance assessment beyond PM10 to include PM2.5 reductions, pollution exposure and health outcomes.