Mercury Rising

Executive Summary Extreme heat is becoming a macroeconomic risk, making early action critical.

Sectors central to India’s growth ambitions are already experiencing heat-related productivity losses and rising costs.

The expansion of AI data centres adds further pressure, raising local temperatures and compounding grid and water stress .

Practical adaptation measures for businesses and government action are needed to strengthen India’s heat resilience.

. This June, Delhi’s reported ‘feels like’ temperature – which takes humidity into account – peaked at a scarcely-believable 51.3°C. Scarily, this was not even close to the record of 55°C, set in 2024. In metros like Delhi, Bengaluru and Mumbai, rising temperatures are made worse by the urban heat-island effect, as dense construction, paved surfaces, limited vegetation and waste heat cause built-up areas to retain ever more heat. Accompanying rising AI deployment is an acceleration in demand for energy and water-intensive data centres. This worsens the heat crisis as cooling requirements and waste heat expulsion puts pressure on urban infrastructure, raising local temperatures.

The consequences of extreme heat are visible in reduced labour productivity, rising energy costs, logistics disruptions, strained water supplies and damage to temperature-sensitive equipment. Beyond just an environmental concern, heatwaves are now an active business risk. This paper examines the sectors most affected by extreme heat, the effects on business performance and the measures companies and policymakers will need to take as India prepares for an ever-hotter future.

. No Longer a Seasonal Problem The financial consequences of extreme heat are starting to show. This year’s European heatwave has damaged crops, disrupted transport networks, dried up rivers and renewed concerns over the effects on productivity and growth. According to the International Labour Organisation (ILO), India is particularly prone to heat-stress-driven productivity losses. The ILO estimates that by 2030, heat stress could cost India working hours equivalent to approximately 34 million full-time jobs. Meanwhile, a McKinsey study suggests that heat and humidity could place as much as 4.5% of the country’s GDP at risk by 2030.

As periods of extreme heat become more frequent and prolonged, the business costs will mount. Research from the University of Chicago finds that factory output falls by roughly 2% for every 1°C rise in annual temperature. Moreover, each additional 1°C in daily temperature adds over 7 GW to electricity demand. Cooling systems become less effective, with air-conditioning efficiency falling by as much as 30% when temperatures rise from 27°C to 45°C. Businesses that depend on outdoor labour, physical movement or poorly cooled facilities may require more workers or longer timelines to deliver the same output, on top of spending more on infrastructure maintenance.

. Construction: Shrinking the Working Day Some sectors are more vulnerable than others to the fallout from extreme heat, few more so than construction. Heat stress is a major risk for outdoor construction workers, who must engage in physically demanding tasks for hours at a stretch. As temperatures rise, workers require more frequent breaks, reducing the window of available productive hours. A study found that productivity in the sector declines by around 0.6% for every 1°C increase in the wet-bulb temperature (i.e., the lowest temperature that air can reach through the evaporation of water). Moreover, excessive heat can cause sensitive electronics, mechanical systems and industrial machinery to fail.

In 2024, Italian authorities prohibited outdoor work during peak hours on high-risk days, resulting in ~364 mn potential working hours lost nationwide, including 40% just in the construction sector. For India, this matters greatly, because much of the proposed urban and industrial infrastructure under the government’s ambitious Viksit Bharat 2047 plan is yet to be built. If extreme heat shortens the number of ‘safe’ working hours, it will drive up execution costs and cause massive delays. This will be particularly damaging for projects already operating on tight margins and fixed schedules.

Partly, the answer may lie in simple, and cost-effective solutions. Movable reflective canopies can reduce radiant heat, while shaded recovery zones, which can lower body temperatures during scheduled breaks, can increase the number of productive hours. At construction sites for the Qatar World Cup, workers were encouraged to self-pace and take hydration breaks, resulting in significantly fewer reported incidences of heat strain.

Heat can also be reduced in site offices, storage sheds and worker accommodation through reflective coatings and basic roof insulation. A study of commercial buildings in Hyderabad found that applying reflective coating to darker roofs reduced air conditioning use by 14-26%. Other small tweaks, such as rescheduling the more physically demanding tasks for early mornings and late evenings, can also help.

. Agriculture and Agribusiness: Heat Across the Value Chain Heat affects agribusinesses at several points in the value chain. Businesses that manage their own farms face direct losses when crops or livestock production declines. A joint report by the Food and Agriculture Organisation (FAO) and World Meteorological Organisation (WMO) found, for instance, that maize and wheat yields decline by 7.5% and 6%, respectively, for every 1°C of warming observed. This plays out equally in the livestock sector: in heatwave-struck 2022, milk yields from dairy cattle fell by up to 15% and monthly poultry mortality climbed from 0.5% to 3.5-4%. In years of low rainfall (which results in soil moisture stress), these effects are often compounded, shrinking overall agricultural output and spiking costs.

Often, the solutions are relatively simple: shifting irrigation timings to the cooler hours, using mulch to retain soil moisture and deploying shade nets, sprinklers or biostimulants where appropriate. Over time, farmers may also need to adjust planting windows and introduce crop varieties better suited to higher temperatures. Early-warning systems can make these measures more effective. In Cambodia, for example, many farmers now receive crop-specific heat alerts, giving them time to act before temperatures peak.

Intense heat can also impact productivity within processing facilities. A firm-level study from Italy found that heatwaves lowered total factor productivity in the food processing industry by between 3.2% and 7% among smaller firms. Additionally, since such businesses depend on a substantial energy use for food refrigeration, they see vastly higher energy costs during periods of extreme heat.

What is crucial is building resilience in both procurement and processing. Diversifying sourcing and improving visibility across supply chains can reduce exposure to crop failures in any one location. At the cold-chain and processing stages, smart energy systems, backup power, ensuring the availability of critical spare parts, and improving overall energy efficiency are all critical needs. In general, but especially where electricity is scare or expensive, accelerating the shift to renewables is also vital.

Given agriculture’s importance to employment and food security, heat adaptation cannot be left to individual farms and businesses alone. The government should establish a clear action plan for heat-related agricultural losses, strengthen crop-specific early-warning systems and offer subsidised loans and access to credit and recovery support for farms and small processors affected by extreme heat.

. Logistics: The Cost of Moving Goods Logistics is the bedrock upon which other sectors rest, and disruptions here trickle down to the rest of the economy. Unlike with natural disasters, which may be geographically contained, heatwaves degrade every node in the supply chain at once, including warehouses, vehicles, workers, roads and railways across hundreds of kilometres. For businesses relying on precise shipping schedules, temperature-controlled storage or smooth warehouse operations, this poses an imminent threat.

The most immediate effect is infrastructure degradation. Pavement buckling, warped rail tracks and vehicle breakdowns occur frequently at higher temperatures, slowing freight movement and increasing vehicle maintenance costs. With respect to cold chains, power interruptions during peak summer months can knock out refrigeration and increase the demand for energy required to keep perishables safe.

Heat fatigued workers, including drivers, loaders, warehouse staff can be more prone to risk of accidents. As workplace heat safety regulations tighten globally, companies may need to adjust working hours and bear the cost of additional staffing during peak summer months. Combined with higher maintenance costs and grid instability, the economics of moving goods across the most heat-stressed regions, such as North and Central India, especially over May and June looks worse each year.

Cold-chain operators should invest in technologies that either anticipate or detect equipment failure before the merchandise spoils. Real-time sensors can track the temperature, humidity and location of goods throughout storage and transit and alert operators as soon as conditions move outside safe limits. Automated warehouse systems and smart refrigerated containers can also adjust cooling conditions according to the requirements of individual products. Many cold-chain operators in the Gulf have already adopted such systems; they could serve as a blueprint for Indian logistics companies in the coming years.

. The Data Centre Paradox India is building AI data centres at scale, with Hyderabad, Bengaluru, Mumbai and Chennai positioned as the country's primary hyperscale destinations. The country is in active buildout mode, receiving huge investments from major tech companies. While this is vital to supporting India’s growth ambitions, the rapid growth of water- and energy-hungry infrastructure can have deep implications for the local environment and surrounding population. Serious concerns have been raised around the excess use of water for cooling data centres. Estimates suggest that water consumption by such centres will more than double, from 150 bn litres in 2025 to 358 bn litres by 2030. In regions where water supplies are already strained during the summer, these developments will intensify competition for scarce resources, create new environmental raise and raise operating costs across the wider industrial economy.

A recent working paper finds that after a data centre begins operations, the land surface temperatures in the surrounding areas rise by an average of 2°C, with the effect detectable up to 10 kms away. Researchers call this the ‘data heat island effect.’This is a potentially severe problem: Even without new data centres, major cities are seeing extreme heat due to the ‘urban island effect’, with night-time urban-rural temperature gaps of ~3-5°C being recorded in Delhi, Chennai, Surat and Lucknow.

. No easy answers… India’s growth ambitions hinge on some of the sectors most exposed to rising temperatures. Construction, agri-businesses and logistics are all being tested by shrinking productivity, rising operating costs and infrastructural strains. Data centres put further pressure on urban energy and water systems. As heat moves from being a seasonal disruptor to a macroeconomic risk, businesses will need to adapt early to tackle the issue.

Heat-resilience measures may increase costs in the short term but can deliver stronger returns over time by reducing overall downtime, spoilage, equipment failure and productivity losses. To support this shift, the government must develop sector-specific action plans for heat mitigation, establish enforceable worker protection standards and invest in more sustainable and resilient infrastructure.