We estimate the impact of one flood on economic outcomes of households located in the region (Chennai, India). We measure the impact of the flood on income and consumption of households, and explore heterogeneity in impact by prosperity and financial constraints. We exploit a novel panel dataset (the CMIE CPHS) which covers 170,000 households in India, three times a year.

 

We find that immediately after the floods, there was a sharp increase in consumption, which is reversed over a year. Expenditures are financed by not saving, or postponing asset purchases. The expenditure increase for the more vulnerable, or the financially constrained households, is smaller. This may be consistent with greater hardship for them.