Climate Change and Household Debt in Rural India

Climate change and indebtedness have been repeatedly highlighted as major causes of distress for rural households in India. However, despite the close connection between climate conditions and rural livelihoods, there has been little attempt to systematically examine the association between the two. To address this gap, we combine national-level longitudinal data from IHDS, MERRA-2, and the Indian Ministry of Agriculture to study the impact of climate anomalies on household indebtedness across rural India. Using a longitudinal approach that accounts for potential confounders at household, village, and district levels, we find pervasive effects of season-specific, five-year climate anomalies on multiple dimensions of household debt, particularly in arid and semi-arid areas. Most notably, temperature anomalies in the winter cropping season in arid and semi-arid areas are associated with increasing household indebtedness. We further find that climate change interacts with existing socioeconomic differences-caste and landholding in particular-to deepen both the size and the depth of indebtedness for rural households.