The report —India's first-ever effort to track green investment flows—recommended public finance must increasingly play a role in mobilising private finance.

India needs to quadruple its climate finance: Study

India’s green finance flows are grossly insufficient for the country to achieve Paris Agreement targets, with adaptation finance falling severely short

A new update on a study tracking India’s green investment flow reveals that they are less than a fourth of the country’s needs. ‘Landscape of Green Finance in India’ by Climate Policy Initiative (CPI) found that green finance in India 2019-2020 was ₹309 thousand crore (~$ 44 billion) per annum. 

The report estimated that for India to achieve its Nationally Determined Contributions (NDCs) under the Paris Agreement, the country requires an approximate ₹162.5 lakh crore ($2.5 trillion) from 2015 to 2030 or roughly ₹11 lakh crore ($170 billion) per year.

 The study—India’s first-ever effort to track green investment flows—tracks the flow of finance right from the source to the end beneficiaries through different instruments based on actual flows rather than commitments.

Caption: Tracked green finance investments and the estimated finance required to meet current NDCs. Source: Landscape of Green Finance in India

Sources of finance

The study tracks both public and private sources of capital—domestic as well as international. Even though the amount of climate finance is far from sufficient, finance flows have increased by 150% from 2017-2018 to 2019-2020 as per the study. In the overall increase, public sector flows increased by 179% and private sector flows by 130%.

Domestic sources continue to account for the majority of green finance, with 87% and 83% in FY2019 and FY2020, respectively. Of these, the private sector contributed about 59%–₹156.9 thousand crore ($22 billion)—while public sector flows were evenly distributed between government budgetary spends (central and state) and PSUs at approximately 54% and 46% respectively.

The share of international sources increased from 13% in FY 2019 to 17% in FY 2020, but it is still a far cry from Prime Minister Narendra Modi’s demand of a trillion dollars of climate finance at Glasgow last year, to help meet India’s 2030 and net-zero goals. 

Sectors of finance

Climate mitigation and climate adaptation are two sectors which were tracked. The total fund flow towards mitigation was almost equally split between clean energy (42%) and energy efficiency (38%), and was significantly higher than clean transport (17%). Within clean energy, solar projects received the greatest share (41%) of financial investments over 2019/2020.

The report says that India needs approximately ₹162.5 lakh crore ( $2.5 trillion) till 2030 for NDCs and ₹716 lakh crore ($10.1 trillion) to achieve net-zero emissions by 2070. By conservative estimates, the current tracked green finance in India represents less than 25% of the total requirement across sectors just to meet the NDCs. This accounts for mitigation only. Adaptation flows are even more muted. 

Tracked finance for the adaptation stood at ₹37 thousand crore ($5 billion) in FY 2020, which was severely short of the required needs. The major source of funding was domestic (94%), and it was fully funded by central and state governments.

Directions to improve 

The report recommended public finance must increasingly play a role in mobilising private finance. The report also noted the majority of the flows remain concentrated in select sectors that have more market maturity.

 Additional policy support and investment mobilisation are required to mobilise earlier-maturity sectors such as decentralised energy sources and EVs. Several policy considerations should be considered as key levers including a green taxonomy.

 “The report shows increased flows to renewable energy sectors. This indicates the positive role policy support has had on the renewable sector. We would also in the future hope to see a similar role being played in other sub-sectors like distributed renewable energy—rooftop solar and clean mobility,” said Neha Khanna, project manager and lead author, Climate Policy Initiative. 

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