Looking inward: Can India pave its own path to self-reliant climate finance?

As global climate finance falling woefully short, India may need to start charting its own course to sustainability—leveraging domestic resources, financial innovation, and strategic investments to bridge the funding gap 

The year 2024, the warmest year on record, marked a turning point in the global climate crisis. 

The world officially breached the 1.5°C temperature threshold. Climate systems are now closer than ever to irreversible tipping points. At a time when the world needed to show renewed urgency, the year ended with a double setback. Negotiations at COP29 in Baku, Azerbaijan, resulted in a paltry $300 billion commitment from the rich countries, which came laden with caveats. On the other side of the world, former US president and climate denier Donald Trump was reelected to power.  

For India, an emerging economy that is already facing the worst impact of climate change, these developments confirm what it had already known for a while now—it has to start looking inwards to fund its climate battle. India’s annual Economic Survey presented earlier this year in Parliament clearly says that the shortfall in climate finance “may lead to a reworking of the climate targets.” Beyond phasing out fossil fuels, climate finance is critical for India to build resilient infrastructure, accelerate clean energy adoption, and safeguard vulnerable communities.

With international climate finance falling short, what are some of the alternate strategies that India can adopt to generate climate finance? Experts suggest tapping into multilateral development banks (MDBs), sovereign wealth funds, pension funds, and private equity investments, while simultaneously mobilising domestic resources through commercial banks, non-banking financial corporations (NBFCs), and institutional investors. According to them, addressing high capital costs and improving credit access is essential, as is reforming MDB mechanisms to provide affordable concessional funding instead of high-interest loans.

India’s response to this funding crisis will not only help set its own climate trajectory, it will also establish its role in global climate leadership. Experts believe India has a chance to turn its financial constraints into an opportunity for innovation and resilience, thereby securing its climate future.

Climate crisis at its peak  

The planet is heating up at an alarming rate and Earth is fast approaching a tipping point. The past decade has seen record-breaking temperatures, with 2024 being the warmest on record. Despite being a La Niña year, India recorded its warmest January this year. The Himalayan glaciers are melting at twice the previous rate and ocean temperatures are rising four times faster than in the 1980s. These shifts have led to increased floods, landslides, droughts, and cyclones, causing economic devastation and loss of life.

According to a report by the World Meteorological Organisation (WMO), “Economic losses from drought, floods and landslides have rocketed in Asia.” The report says that in 2021 alone, weather- and water-related hazards caused total damage of $35.6 billion, affecting nearly 50 million people. There were more than 100 natural hazards events in Asia that year which caused almost 4,000 deaths. 

A report by CEEW predicts that production losses in rice, wheat, and maize alone could go up to $208 billion and $366 billion in 2050 and 2100, respectively. An ADB report says 300 million Indians could face coastal inundation, leading to a 24.7% GDP loss by 2070.

The developing world and a country like India needs urgent climate finance to fight the impacts of global warming. But there are various estimates about how much climate finance India will need to deal with the challenges of rising temperature. 

India’s climate finance needs: A growing gap

The Indian government estimates $2.5 trillion will be needed by 2030 or $170 billion annually to achieve its Nationally Determined Contribution (NDC) under the Paris Agreement in 2015. India has since updated its NDC, therefore even this figure may fall short. 

A report of an independent high level expert group on climate finance released at COP29 last year said emerging markets and developing countries (EMDC) other than China need $2.3-2.5 trillion per year of investment in climate action by 2030. 

“[T]he projected investment needs of around $2.4 trillion per year in 2030 for EMDCs other than China, around $1.6 trillion is for the clean energy transition, $0.25 trillion for adaptation and resilience, $0.25 trillion for loss and damage, $0.3 trillion for natural capital and sustainable agriculture, and $0.04 trillion for fostering a just transition,” the report said.

While the Global South demanded $1.3 trillion at COP29,  they got just $300 billion, which will be given by 2035. This massive shortfall was strongly criticized by the Indian government and climate observers.

Climate finance roadmap for India: Challenges and solutions

As an emerging economy with a population of over 1.4 billion people, India needs vast funds for basic education, employment and poverty alleviation. According to a UN report published in 2019, India needed to spend 10% of its GDP to meet the sustainable development goals (SDGs) by 2030. That is an estimated $2 per person per day. Considering only half of the Indian population needs support from the government, India will still require $1.4 billion per day (considering the population 1.4 billion)  which comes to more than $500 billion per year. 

Experts say India’s climate goals will be impacted as the government will mostly rely on domestic funding for climate change, as indicated in the Economic Survey. “The funding shortfall may lead to a reworking of the climate targets. Considering that domestic resources will be the key to action, resources for meeting development challenges may be affected, undermining progress toward sustainable development objectives and compromising the integrity of international climate partnerships,” the survey stated. 

RR Rashmi, a climate change expert and distinguished fellow at New-Delhi-based The Energy and Resources Institute (TERI) says the “decision taken in Baku is quite clearly a disappointment.” Speaking to CarbonCopy, Rashmi said that before the Baku conference, many countries were expecting that international finance will drive ambition towards the climate goals, but now it is clear that it won’t happen. 

“We have already overshot the temperature barrier and quite clearly we will miss the global targets. This is due to many factors including the inadequacy of climate finance. The other major reason is the inadequacy of efforts on the part of developed countries. That inadequacy is getting reflected in their financing commitments,” Rashmi said.  

Leveraging alternative financial mechanisms

Union minister for environment, forest and climate change Bhupendra Yadav told the Parliament earlier this month that India has received $1.16 billion as climate finance so far. This amounts to less than one percent of India’s annual requirement ($170 billion) for climate action. Yadav told Parliament that most of India’s climate action is financed by domestic resources.  

A report published by Climate Policy Initiative (CPI) last year stated that “despite the challenges, India has made commendable progress in attracting green finance.”

As per CPI estimates in 2019-20, a total of $44 billion was raised, marking an increase of 150% on 2017-18. These strides are laudable but inadequate. Current investment represents approximately 25% of the total required across sectors just to meet the country’s NDCs. While climate-related foreign direct investment (FDI) has increased substantially, to reach $1.2 billion in FY 2020, this only accounts for ~3% of total FDI during that year.

At COP29, a new climate funding regime, the New Collective Quantified Goal (NCQG), was adopted. The NCQG replaces the annual $100 billion assistance provision from developed countries to developing nations, which was agreed upon at the Paris COP in 2015. While the climate finance target has supposedly tripled under the NCQG ($300 billion), it is considered highly insufficient given the needs of developing countries, which are running into trillions annually. 

It is also anticipated that India, being a large economy, will not receive any grants under the NCQG, and the needs of Least Developed Countries and Small Island states will be prioritised. A major portion of India’s climate finance will likely be generated through domestic sources, or loans from Multilateral Development Banks (MDBs) and agencies, and bilateral mechanisms. 

Avinash D. Persaud, who is the Special Advisor on Climate Change to the President of the Inter-American Development Bank, Washington DC, told CarbonCopy, “India is already financing its green transformation domestically. But that will mean the pace is not fast enough, because the size and pace of the investment required to protect the planet outstrips available domestic savings in all developing countries except China.” 

The high cost of capital is a challenge for developing countries. To meet the vast demand of climate finance, India will require soft loans of long duration, equity investment and technology transfer at a faster pace. 

The CPI report says: To bridge the climate finance gap, India needs to exploit the rapidly growing pool of global green capital from sovereign wealth funds, global pensions, private equity, and infrastructure funds. Ways to do so include addressing barriers to investment in transition projects, fostering a sustainable finance ecosystem, and diversifying funding sources.

Persaud says, “The domestic investment will need to be augmented by foreign investment, perhaps to buy — at high prices — those investments that have already been made and the start-up risks taken by local investors who would then have the cash from selling those investments to foreign investors, to go and invest more locally.” 

Labanya Prakash Jena, a sustainable finance expert, says India has largely mobilised capital from the domestic market, although foreign investment in climate mitigation keeps rising in India. 

“Commercial banks and NBFCs will continue to allocate capital to renewable energy and clean transportation. It is important India needs to look at other sources such as pension funds, insurance companies, and mutual funds to mobilise capital. These sources of capital are largely untapped,” Jena said. 

The role of MDBs  

The role of multilateral development banks (MDBs) is important in providing climate finance, particularly to low- and middle-income group countries. They can help these vulnerable countries to  achieve their climate goals. At COP29, MDBs issued a joint statement saying that “by 2030, their annual collective climate financing for low- and middle-income countries will reach $120 billion.”

“MDBs significantly exceeded their ambitious 2025 climate finance projections set in 2019, with a 25% increase in direct climate finance and mobilization for climate efforts doubling over the past year,” the joint statement said. 

The NCQG makes MDB finance legally part of agreed climate finance. Paragraph 8C of the document recognises “all climate-related outflows from and climate-related finance mobilized by multilateral development banks towards achievement of the goal”.  

According to Rashmi, it is now the duty of the developed world to ensure a “concessional flow” of funds so that countries like India do not suffer high cost of capital while availing the long term longs for climate action. 

“Since the requirement of climate finance is that it should be concessional by nature, it becomes an obligation on the developed countries to create mechanisms through the MDBs to allow the concessional funds to flow and rate of capital to go down. It can be through a sovereign guarantee mechanism, partial credit guarantee mechanism or by creating let’s say a hedge fund for meeting the currency cost or the fluctuation in the currencies,” Rashmi said.  

There are more than 40 multilateral financial institutions and bilateral development corporations and agencies listed in the UN website, including the Asian Development Bank, European Investment Bank and World Bank. Bilateral agencies are mostly located in the US, Europe and Australia. 

Jana said, “The MDBs can provide risky capital (e.g. credit enhancement), which can improve the credit profile of climate businesses. This will attract these low risk-seeking institutional investors. It is important that this risky capital must be at an affordable rate (e.g. less credit guarantee fees for partial guarantee), which will be attractive for the users of capital.”

But there are some problems as well. As highlighted by the authors in this piece of World Resources Institute (WRI), the “MDBs need to improve the quality of their climate finance and ensure sufficient concessionality to match needs.” Authors also underline the “continued financing of fossil fuels”, which is detrimental to climate actions. Also the share of climate finance going to the most vulnerable countries is decreasing.  

Adaptation versus mitigation: The issue of unequal funding

India has ambitious mitigation plans  with a target to achieve net-zero emissions by the year 2070. But being among the most vulnerable countries to the impacts of climate change, India needs to work on adaptation so that it can deal with loss and damage and build a climate resilient infrastructure. Extreme heat, prolonged droughts, water scarcity, sudden floods, and frequent cyclones can damage infrastructure, hamper crop yields and impact the economy. 

In such a situation, a natural question also arises whether climate finance is equally available for both adaptation and mitigation projects? Although the “thumb rule”, according to experts, is that finance should be divided equally between mitigation and adaptation, the former gets financed relatively easily, while it is hard to get finance for the latter.

Jena says, “Climate adaptation is considered to be a public good, which is struggling to attract private capital. It means they will continue to rely on public capital. So, it is more problematic for developing countries than developed countries, including India where fiscal muscles of governments are limited.” 

The Economic Survey declares “It [India] has to focus a lot more than it has so far on adaptation than on emission mitigation”. It clearly says that “vulnerable developing countries such as India need to undertake climate adaptation on an urgent footing as this has a direct impact on lives, livelihoods and the economy.”

However, the intentions shown in the Economic Survey to give priority to adaptation do not match the records and reality so far. The National Adaptation Fund for Climate Change (NAFCC) was established to support adaptation activities in the country. This fund, however, was transformed from scheme to non-scheme in 2022. According to an analysis by Down to Earth, NAFCC has not received any budget since 2022-23. The budget of the National Coastal Mission has been reduced, while no budget has been allocated to the programme O-SMART (Ocean services, Modelling, Application, Resources and Technology) in the past two years. 

However, the government has increased the budget of the National Mission for a Green India (NMGI) from ₹160 crore in 2024-25 to ₹220 crore in 2025-26. The government has also launched some ambitious projects like ‘Mission Mausam’ (to make the country ‘Weather-ready and Climate-smart’ ) in 2024, with a budget outlay of ₹2,000 crore for two years. 

Since developing countries and Least Developed Nations (LDCs) are more vulnerable to climate-induced extreme weather events, they also need finance for loss and damage, which is even more difficult.

Jana says, “Loss and damage fund is a post-event fund where capital [aid] will come after the event has occurred. Only public finance will be able to fund these, unless assets are ensured.” 

Persaud says with public support, private savers can finance much of mitigation and public savers can finance much of the climate adaptation that generates future savings, such as investments in climate resilience, health and infrastructure. He says financing loss and damage generates few savings and no revenues and this must be financed by grants. 

“Grants are scarce at the best of times and so new sources will have to be found, like taxes on emissions in shipping and transport more generally and a reduction in subsidies for polluting industries,” He said. 

Hiding behind Trump 

The return of a climate-skeptic US administration raises concerns that global climate finance commitments will weaken further. Nakul Sharma, programme coordinator of Climate Action Network South Asia warns that Trump’s policies could shift India’s climate strategy inward, prioritising agriculture, energy diversification, and urban resilience over ambitious renewable energy goals. “In the absence of fair and funded means of implementation (MoI), India in particular, which had historically committed to international climate ambition beyond its fair share, will now recalibrate its strategy from relying heavily on implementation in sectors such as renewable to an inward-looking approach where sectors such as agriculture, new and innovative energy sources and building climate resilience of its urban agglomeration will be priorities,” Sharma said. 

This is India’s opportunity to drive meaningful reforms in climate finance and set a precedent for developing nations. The challenge is immense, but with adequate planning and policy innovation, India can create a model for sustainable development, experts say.

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Hridayesh Joshi

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