Dishita Singh

India’s climate commitments ranging from 500 GW of non-fossil energy by 2030 to net-zero emissions by 2070 signal high ambition under the Paris Agreement. Yet, despite policy intent, the green transition remains severely constrained by the lack of accessible and accountable finance. This article goes beyond surface-level reporting to analyze the deeper structural, institutional, and justice-related barriers to climate finance in India.

Using the frameworks of climate justice, environmental federalism, and green political economy, we critically examine India’s climate finance landscape, explore who gains and who is left behind, and offer practical yet transformative solutions for unlocking sustainable and inclusive growth.

1. Understanding Climate Finance and Why It Matters

Climate finance broadly refers to funds – domestic or international, public or private – used to address climate change. It supports both mitigation (reducing emissions) and adaptation (reducing vulnerability to climate impacts).

Mitigation includes projects like solar farms, electric vehicles, and energy-efficient buildings. Adaptation includes heat action plans, disaster-resilient infrastructure, and drought-tolerant agriculture.

According to the UNFCCC, developed countries committed to mobilizing $100 billion annually for developing countries like India by 2020. However, actual flows have fallen short, making domestic climate finance and innovative private sector engagement even more vital for India.

Beyond climate imperatives, climate finance is a tool for development. Green investments create jobs, improve public health, protect livelihoods, and strengthen economic resilience. According to IRENA (2023), India’s renewable energy sector supports over 100,000 jobs, with potential for several lakh more if scaled strategically.

2. India’s Climate Goals: Between Vision and Viability

India’s policy goals are clear:

• 500 GW of renewable capacity by 2030
• Net-zero by 2070
• Resilience through the National Action Plan on Climate Change (NAPCC)

Yet, translating goals into action reveals core implementation and financing gaps.

2.1 Mitigation: Ambitious Targets, Slow Delivery

India has achieved about 220 GW of non-fossil capacity (Press Information Bureau, 2025), but to reach 500 GW by 2030, it needs ~$160 billion annually in clean energy investments (IEA, 2021). In reality, only ~$13 billion was attracted in 2024, indicating a sharp investment gap.

Major barriers include land access issues, regulatory uncertainty, and the rising cost of domestic green bonds, which face higher interest rates than conventional debt.

2.2 Adaptation: The Forgotten Half of Climate Action

Adaptation is often sidelined, despite India’s extreme vulnerability to climate risks. Heatwaves, floods, and droughts are increasing in frequency and intensity. Yet adaptation receives a fraction of climate funding.

The Climate Policy Initiative (2024) highlights that most Indian states cannot quantify adaptation spending. The National Adaptation Fund remains underutilized and lacks transparency.

A study by the Overseas Development Institute (ODI) warns that climate change could push an additional 50 million Indians into poverty by 2040, if adaptation is not mainstreamed into development.

3. Climate Justice, Equity, and Federal Tensions

3.1 Who Bears the Burden?

India’s poorest and most vulnerable communities face the brunt of climate change, yet receive the least climate finance. Drought-prone states like Jharkhand or heat-exposed districts in Rajasthan often lack the technical and financial capacity to design, pitch, or implement green projects.

Without mechanisms to ensure equity in climate finance distribution, the risk is a deepening of existing social and regional inequalities.(CEEW,2021)

3.2 Centre-State Gaps: A Federal Blindspot

Climate governance in India is highly centralized, but implementation rests with states. State Action Plans on Climate Change (SAPCCs) are often under-resourced and disconnected from budgetary planning.

There is no unified coordination mechanism to align national funds with state-level needs. As a result, many adaptation projects, especially in remote areas, remain underfunded or unfunded.(CPI, 2024)

This is not just a policy flaw – it is a governance gap that undermines environmental federalism and decentralised climate action.

4. Policy and Market Gaps Blocking Green Investment

4.1 No Tax Incentives for Green Bonds

Unlike countries like China or Germany, India offers no tax relief, interest subsidies, or credit guarantees for green bonds. As a result, investors see no clear benefit in choosing green over conventional bonds.

Domestic green bonds often have higher interest rates (7-9%) compared to international green bonds (2.7-6%) (Lexology, 2024). This discourages smaller companies and public bodies from entering the green finance market.

4.2 Weak Green Taxonomy

India lacks a legally binding definition of what counts as “green.” While SEBI introduced the Green Debt Framework, it remains voluntary and lacks strict enforcement.

This leads to greenwashing – where weakly sustainable projects are branded green to attract capital. A strong taxonomy, aligned with international standards (like the EU’s), is necessary to build investor trust and prevent misallocation.

4.3 Over-Reliance on Mitigation

Most climate finance flows into large-scale mitigation: solar parks, EVs, green hydrogen. Adaptation, which often yields local or non-commercial returns, is neglected.

Even India’s sovereign green bonds do not earmark funds for adaptation. This imbalance is a policy failure that widens vulnerability gaps.

5. Institutional and Implementation Challenges

5.1 Limited Pipeline of Bankable Projects

Indian banks are hesitant to fund green projects, citing weak credit history, uncertain returns, and technical complexity. States often lack the skills to prepare detailed, financially sound proposals.

This is especially true for adaptation or nature-based solutions, which have long timelines and uncertain revenue models.

RBI Governor Shaktikanta Das and Finance Secretary Sanjay Malhotra have both emphasized the need for a “common pipeline” of bankable projects to reduce risk and crowd in investment (Reuters, 2025).

5.2 Weak Monitoring and Fragmented Governance

The Prime Minister’s Council on Climate Change has met only once since 2014. Many missions under the NAPCC lack dedicated budgets or evaluation frameworks.

There is no unified dashboard to track climate finance flows or measure outcomes. Without transparency and accountability, goals remain aspirational and funding often goes untraced.

6. Lessons from Real Cases:

Gujarat’s Renewable Push

Gujarat’s proactive renewable energy policy, single-window clearance for solar parks, and power evacuation planning helped it attract over 30 GW of installed capacity. The state used public-private partnerships to reduce investor risk and fast-track infrastructure.

Odisha’s Disaster Preparedness

Odisha has emerged as a leader in cyclone management. Its early warning systems, community shelters, and state-led coordination drastically reduced disaster mortality. However, recent failures in compensatory afforestation reveal gaps in post-disaster ecological recovery.

Failed Afforestation in Jharkhand

Jharkhand often failed to utilize over crores of compensatory afforestation funds due to departmental delays, lack of monitoring, and poor land records. The result: missing trees, wasted money, and ecological loss.

South Africa’s Just Transition Framework

South Africa offers a powerful example of how to balance decarbonisation with social justice. Its Presidential Climate Commission, set up in 2020, brought together government, industry, unions, and civil society to design a national Just Transition Framework.

The country’s coal-heavy economy is now transitioning more responsibly, with plans to reskill workers, support affected communities, and attract green investment. Backed by an $8.5 billion Just Energy Transition deal from international partners, South Africa shows what’s possible when long-term climate plans are rooted in consensus and equity.

What India can learn:

• Set up independent just transition commissions, especially in coal-rich states.
• Build tripartite agreements to avoid social backlash.
• Link national climate targets with local livelihood protections.

China’s Green Bond Market

China has built the world’s largest green bond market—thanks to strong definitions, central coordination, and local incentives. Its Green Bond Catalogue and sector-specific lists give clear guidance on what counts as “green,” reducing investor confusion and greenwashing.

What stands out is how local governments bundle projects and issue bonds through state-backed financing platforms. These include EV charging, flood control, and waste-to-energy—making even small urban projects financeable at scale.

What India can learn:

• Finalise a national green taxonomy and enforce third-party verification.
• Support municipalities to pool and finance green projects.
• Build digital dashboards for tracking and transparency.

7. Moving Forward: Bold and Equitable Policy Proposals

7.1 Create a National Climate Resilience Fund

Adaptation finance in India is fragmented, opaque, and often fails to reach vulnerable communities. The National Adaptation Fund remains underutilized, and most states can’t even quantify their adaptation spending (CPI, 2024). Without a unified funding mechanism and performance-linked incentives, adaptation continues to be sidelined in policy and budget priorities. Establish a centrally managed National Climate Resilience Fund to pool and disburse adaptation finance. Offer block grants to states tied to transparent metrics and incentivize community-led green infrastructure at the local level.

7.2 Make Climate Budgeting Mandatory

Climate goals are often disconnected from mainstream fiscal planning across ministries. Most ministries lack dedicated budget lines for climate, making cross-sectoral climate integration difficult (CPI, 2024). Without embedding climate objectives into annual budgets, action plans remain toothless and fragmented. Mandate all ministries and departments to earmark a percentage of their budgets for climate-related goals. This ensures that climate priorities are embedded in core sectors like health, education, and infrastructure.

7.3 Finalize and Enforce a Green Taxonomy

The lack of a clear, enforceable definition of what qualifies as “green” creates confusion and allows greenwashing. SEBI’s Green Debt Framework is currently voluntary, and enforcement remains weak (Lexology, 2024). Without a legally binding taxonomy aligned with global standards, investor confidence is low, and capital misallocation persists. Finalize a national green taxonomy through coordinated action by SEBI, RBI, and the Ministry of Environment. Enforce third-party verification and align disclosures with international norms like the EU taxonomy.

7.4 Provide Fiscal Incentives for Green Finance

Green finance instruments face higher costs and lower uptake than conventional options. Domestic green bonds in India carry interest rates of 7–9%, significantly higher than global averages (Lexology, 2024). Without policy nudges, investors and issuers lack incentives to choose green over regular instruments. Offer tax breaks on green bonds, lower stamp duties, credit guarantees for first-time issuers, and interest subsidies for certified projects. These steps can enhance market confidence, especially for small investors and local governments. IFC reports show that such incentives have successfully expanded green markets in Latin America and the EU.

7.5 Prioritize Just Transition and Climate Equity

Climate finance tends to bypass small states, tribal areas, and frontline communities. Vulnerable districts often lack access to finance due to limited technical capacity and political visibility. This results in growing spatial and social inequalities in how climate risks are addressed. Design affirmative finance allocations for vulnerable geographies and implement participatory budgeting models that empower communities to decide how funds are spent.

7.6 Strengthen Local Capacity

Many states and local bodies lack the tools and expertise to design bankable green projects. States struggle to prepare credible proposals for green finance, especially for adaptation and nature-based solutions (Reuters, 2025). Even when funds are available, lack of technical capacity hampers utilization and impact. Provide state officers with toolkits, project design training, and sector templates. Build a national repository of ready-to-fund projects to fast-track implementation and investor interest.

7.7 Empower Urban Local Bodies

Indian cities face growing climate risks but have limited fiscal autonomy to respond. Municipalities lack capacity to issue green bonds, despite the growing need for resilient urban infrastructure (CEEW, 2025). Without financial empowerment, cities will remain reactive rather than proactive in climate planning. Support ULBs through credit enhancement mechanisms, pooled finance structures, and technical handholding. With the right ecosystem, Indian cities could raise ₹20,000 crore by 2030 for green infrastructure.

8. Conclusion

India’s climate finance challenge is not just about money-it is about systems, institutions, justice, and trust.

We are not short of vision. But ambition alone will not ensure a fair, inclusive, and sustainable transition. What is needed is a robust architecture that addresses financial risk, corrects market failures, empowers states, and puts vulnerable communities at the heart of climate planning.

If India embraces a justice-centered, capacity-driven, and innovation-led approach to climate finance, it can become a global leader not only in clean energy but in just and inclusive climate action.

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