New Delhi: The toxic smog that has enveloped New Delhi, turning it into the most polluted city on the planet, may soon take its toll on the Indian capital’s economy.

Over the weekend, Delhi’s government announced unprecedented steps, closing schools for three days and putting a five-day ban on construction and demolition in the sprawling capital. The government also wants to temporarily shut down a nearby coal-fired power plant.

On Monday, the Associated Chambers of Commerce and Industry of India (Assocham) released a survey suggesting 5-10% of the national capital’s workforce had called in sick due to respiratory problems.

With public concern at an all-time high—and air purifiers and air-filtering face masks flying off shelves in the capital—there is a chance governments could enact harsher measures to deal with the hazardous pollution levels, which soared in the last week after millions of Indians set off firecrackers for the Hindu festival of Diwali.

As the capital of about 17 million people remained shrouded in a thick smog, analysts said the automobile, construction and real estate sectors could be the most at risk if the various levels of government are unable to overcome a lack of political coordination and act on air pollution. The World Bank said in 2013 that air pollution and other environmental degradation costs India $80 billion per year, about 5.7% of the country’s GDP.

“One has to see if the school closures morph into something else," said Tirthankar Patnaik, Mumbai-based India strategist for Mizuho Bank Ltd, noting his brother decided to relocate his family from the capital because of air pollution. “Unless things improve over the next week or so, we might see harsher measures."

Panic sets in

India’s Assocham said air pollution is preventing workers from doing their jobs efficiently, and could impact tourism.

“Air pollution related issues might hurt brand India," said Assocham director general D.S. Rawat, noting that sick days would take their toll on companies.

There’s multiple causes for the soaring pollution levels in Delhi. The rising number of vehicles, dust from construction sites and roads and farmers burning crop stubble in neighbouring states—fires so widespread they can be seen from space—all contribute to Delhi’s deadly haze. The colder winter temperatures in north India also keep pollution low to the ground.

Satellite imagery suggests the fires in Punjab decrease by the middle of November, according to NASA.

On Monday morning, the US embassy pollution monitor, which monitors the deadly particulate matter, known as PM 2.5, showed readings of 748 micrograms per cubic meter, many times higher than the World Health Organization (WHO) annual exposure guidelines of 10 micrograms.

Readings this past week have soared above 900, according to pollution monitoring site Air Visual, which on Monday showed New Delhi was—again—the worst city in the world for pollution, with more than three times the pollution of second-place Ulaanbaatar.

There is now unprecedented awareness about the levels of pollution in Delhi, said Barun Aggarwal, CEO of Breathe Easy Consultants Pvt Ltd, which sells air purifiers and outfits large buildings. “With Indians, it always used to be, ‘We grew up with this, it’s fine.’ But now, for the first time, I’m beginning to see panic," Aggarwal said. “People are talking about taking drastic measures, talking about leaving Delhi."

Economic impact

The World Bank has pegged the cost of air pollution globally at $5.11 trillion in welfare losses, a figure that has grown as developing countries rapidly urbanize. In South Asia, air pollution costs the equivalent of 7.4% of regional gross domestic product.

In India’s boisterous democracy, coordinated action on complex problems such as air pollution is difficult. The chief minister of New Delhi, Arvind Kejrwal, for example, is a rival of prime minister Narendra Modi.

On Monday, Indian environment minister Anil Madhav Dave called for state governments to implement pollution control steps.

The issues also crosses political jurisdictions, with much of the pollution coming from fires in the neighbouring states of Punjab and Haryana. Despite a Delhi High Court directive to top officials in other states to stop crop stubble burning, farmers—who are a key political constituency in India—have continued to light fires.

Shilan Shah, an India economist at Capital Economics, doubted there would be any significant, long-term economic impact on foreign investment or tourism. “We might see a temporary blip in output in November," Shah said.

Rising discontent over air pollution could result in renewed attempts at banning diesel cars, said Mizuho’s Patnaik, which would hit car-makers in Asia’s third-biggest auto market. Worsening pollution, he added, could also drag on an already “quiet" local real estate market. Bloomberg

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