India's Climate Finance Paradox: Recognition Without Adequate Resourcing
Climate change has steadily climbed India's economic agenda, with Economic Surveys dedicating entire chapters to climate risks and budget speeches framing growth through a green lens. The country has formally estimated its climate finance requirements at approximately $2.5 trillion by 2030 to address mounting challenges. However, a persistent and troubling gap exists between this recognition and the actual financial resources allocated through Union budgets over the past decade.
The Stark Reality of Climate Spending
Despite annual budget seasons bringing renewed climate promises, both allocation and implementation remain grossly inadequate. Even when generously counting solar subsidies, electric vehicle schemes, irrigation programs, and similar initiatives, climate-related federal spending has reached only about 1.5% of GDP. This falls significantly short of the government's own estimate, which suggests needing three times that amount to effectively combat climate challenges.
The ministry of environment, forests and climate change's annual budget, hovering around ₹3,000 crore, represents barely a footnote in the total central expenditure of ₹48 trillion. To put this in perspective, the government spends 70 times more on defence and 170 times more on debt servicing. This disparity reveals that while climate issues enjoy high salience in speeches, they command a low claim on actual spending.
Imbalanced Allocation: Mitigation vs Adaptation
More revealing is how public money is distributed within climate initiatives. Budgetary funds heavily favor mitigation efforts, which include renewables, electrification, and efficiency improvements. The ministry of new and renewable energy saw its budget jump from ₹7,563 crore to ₹19,100 crore in just two years, while electric vehicles and solar installations have been primarily driven by subsidies.
In contrast, adaptation remains marginal, fragmented, and largely invisible in budget allocations. Preparing for climate impacts already underway—such as heat stress, floods, water scarcity, and crop losses—continues to be treated as episodic shocks rather than predictable economic risks requiring sustained investment. The National Adaptation Fund, while formally existing, receives just ₹100-300 crore yearly, often remaining underspent.
This imbalance isn't accidental. Mitigation, focused on reducing planet-warming emissions, attracts roughly three-quarters of climate-related spending. Adaptation receives the remainder, scattered and untracked across various budget heads. Flood protection money hides within disaster relief allocations, drought resilience funds are buried in rural employment schemes, and heat preparedness barely exists as a distinct budget allocation category.
State Initiatives and Federal Shortcomings
Some states have taken initiative to address this vacuum. Odisha now identifies ₹36,065 crore as climate-relevant, representing nearly half its total budget. Rajasthan has published its first climate budget, estimated at ₹2.78 trillion. These exercises create accountability and transparency that the Centre has yet to implement.
This matters profoundly because budget choices directly shape ground realities. States bear most direct climate costs, whether from crop failures, infrastructure damage, emergency responses, or other needs. Yet, the Finance Commission formula for distributing Union tax revenues among states appears to ignore climate vulnerability entirely. Odisha faces annual cyclones and Rajasthan battles desertification, but the transfer formula treats these critical factors as irrelevant.
The Private Capital Illusion
Union budgets seem to assume private capital will bridge the climate finance gap. However, green bonds constitute less than 1% of government borrowing, and private investment naturally chases profits. Solar farms, for example, offer returns, while adaptation infrastructure—such as cyclone shelters, heat-resistant public spaces, and flood-resilient urban infrastructure—generates no private profit.
This creates a troubling paradox: climate risks are acknowledged as threats to economic growth, yet climate spending isn't treated as growth-critical investment. Bridging this gap doesn't require fiscal recklessness but demands fiscal clarity and strategic prioritization.
Pathways to Credible Climate Budgeting
First, the Centre needs to make climate spending visible through a formal climate budget statement, similar to the recent gender statement. This would force a reckoning between ambition and allocation while enabling parliamentary scrutiny.
Second, adaptation must be treated as essential infrastructure. Protecting cities from floods, farms from droughts, and workers from heat is as crucial to long-term growth as highways or power plants. This requires long-term public investment financed through capital budgets and long-term borrowing, not episodic relief measures.
Third, climate priorities must fundamentally shape expenditure decisions. Choices between grey infrastructure and nature-based solutions, between road expansion and public transport, and between fertilizer subsidies and soil resilience are essentially climate decisions with long-term consequences.
Finally, federal transfers must be reformed to include climate vulnerability as a Finance Commission criterion. This would ensure states bearing the highest climate costs receive appropriate central support.
Urgent Need for Action
None of these measures requires creating new bureaucracy. The tools of budget classification, capital expenditure frameworks, and devolution formulas already exist. For a decade, climate has featured prominently in Economic Surveys and budget speeches, but money must finally match the rhetoric.
Climate threats are no longer hypothetical. They're causing clear economic losses measurable in GDP terms, with a warming planet already impacting productivity, inflation, public health, and fiscal stability. India's climate challenge could steepen significantly without immediate corrective action.
The Union budget has mastered climate vocabulary but now needs to incorporate climate economics by translating recognition into resources and aspiration into allocation. At stake isn't just climate credibility but how smoothly India's economy emerges from current and future climate challenges. The tools exist—what's needed is the political will to use them effectively before economic losses become irreversible.
