To align with climate goals, India must shift budgetary practices to include climate adaptation and mitigation, ensuring long-term resilience and sustainability
In August of 1975, the term ‘global warming’ was first mentioned by Wallace S. Broecker. At the time, global warming and climate change were still only ‘perceived’ challenges. Almost half a century later, the effects of climate change are no longer a myth. Even as countries are actively trying to reverse the consequences of their emissions, the already altered patterns of climate are wreaking havoc in lives and livelihoods across the world. India and the Global South are especially vulnerable to its effects due to its population density and geography. India has already undertaken massive green transition mandates. Yet, the attention—monetarily and functionally—is being given to climate mitigation over adaptation. The situation is exacerbated since private investors are sceptical of investing in climate adaptation projects. Therefore, this requires the Indian state to gear its expenditure towards adaptation.
Indian public expenditure on climate change has constantly been focused on mitigation-centric projects rather than adaptation. Since its establishment, the National Adaptation Fund for Climate Change (NAFCC) has seen drastic budget cuts. In 2017-18, while there was a total allocation of INR 115.36 crore, the funding came down to INR 34 crore in 2022-23. India is already undergoing a huge energy transition demonstrated by the World Economic Forum, ranking it 63rd on the global Energy Transition Index. Thus, it is on track to achieve its 2030 goal of 500 GW of renewable energy installed capacity.
Indian public expenditure on climate change has constantly been focused on mitigation-centric projects rather than adaptation. Since its establishment, the National Adaptation Fund for Climate Change (NAFCC) has seen drastic budget cuts.
Although allocating funds to energy transition is invaluable, they are, fundamentally catering to mitigation efforts. These funds only slow down or try to reverse the effects of climate change. However, it is estimated that even if we were to turn net zero now, the already existent emissions will take at least a century to go. This means climate change is here and now, necessitating the need to build capacity, infrastructure, and systems that can adapt to the existing and future effects.
The trend of investments and expenditure flowing largely towards mitigation-centric projects is not unique to India and can be witnessed globally, especially with private investments. BCG estimates that only 36 percent of investors in India sees an opportunity in adaptation-building measures as opposed to the 42 percent that see an opportunity in mitigation-related themes such as power generation. The data also shows that 50 percent of the investors are less inclined to invest in humanitarian response-building themes.
The lack of enthusiasm to fund climate adaptation projects is due to the difficulty associated with assessing project outcomes. Adaptation projects are often perceived as riskier due to the uncertainty and complexity of climate impacts and are claimed to result in public benefits rather than direct financial returns. This is confirmation that the duty to build resilience and adaptation cannot be outsourced and lies on the government. The need for such adaptation-focused expenditure is exacerbated by the recent climate events like the Uttarakhand floods and heatwave over the Northern Plains.
The lack of enthusiasm to fund climate adaptation projects is due to the difficulty associated with assessing project outcomes.
Therefore, the climate crisis has reached a point where it has to be looked at as more than just a rise in global temperatures. Its effects have to be mitigated and adapted through more than just climate action plans, ambiguous guidelines and lofty goals. A country’s fiscal policy determines how the climate agenda factors into the usual metrics of employment, GDP, and income. How can India ensure that public expenditure can transparently accommodate funding for adaptation?
Although the Prime Minister endorsed the need to redefine development when he called on global leaders to adopt the concept of green GDP, domestic budgets have to go a step further by integrating climate adaptation into the meaning of development across sectors. Standalone expenditures on building climate infrastructure (viz. renewable energy, energy storage technologies etc.) are futile unless overall the public expenditure mainstreams mitigation and adaptation into its calculations.
It is important to mention that gearing public expenditure towards a climate-adaptation objective is wholly in line with the ultimate purpose of the budgetary process: a means of weighing competing demands against each other and allocating scarce resources in a way which optimises welfare and the achievement of policy goals. Despite this, underinvestment in climate adaptation looms large. The Climate Policy Initiative estimates that in annual terms, estimates of India’s investment needs for adaptation-related development interventions for 2015-2030, range from US$ 14 billion to US$ 67 billion. However, over the last three Budgets, the allocation to the Ministry of Environment, Forests, and Climate Change (MoEFCC) has only been about 0.1 percent of the total budget expenditure. What then needs to be done to make the climate agenda a centrepiece of the economic development and budget debate?
One of the ways how adaptation can feature in the budgetary process is through macroeconomic forecasting and fiscal sustainability analysis. Future projections of developmental projects often discount the effects of long-term (like frequent high temperatures and heatwaves) and catastrophic effects (cloudbursts, floods etc.) of climate change leading to unsustainable debts, timelines and unfinished projects. Incorporating climate considerations into the fiscal forecasts through models that accommodate physical risks which combine the impact on GDP for all the components of the risk for each country by temperature over time.
One of the ways how adaptation can feature in the budgetary process is through macroeconomic forecasting and fiscal sustainability analysis.
However, in the Indian context, domestically significant variables like employment, wages, and import prices also have to be accounted for. Transitioning from labour-intensive industries to low-carbon sectors calls for training workers to manufacture, install, operate, and dispose of renewable energy and low-carbon technology. This will require a well-coordinated worker training programme. In the budgetary process, this may manifest in the form of cross-sectoral expenditures. Programme budgeting in India still follows a single-agency administrative setup. Climate adaptation requires institutions to work together and find solutions to competing priorities.
Moving further from the budgetary process itself, Indian public expenditure could benefit from expenditure tracking using a climate budget tagging (CBT) system. One of the biggest hurdles that the flow of funds into adaptation faces is its tracking. CBT empowers the government with information to make better allocations and reveals gaps and under-resourced priorities. Nepal has developed a CBT mechanism that allows climate-relevant expenditures and signifies the degree of alignment between budget allocation and climate change purposes. A similar CBT system that accounts for India’s geographical diversity and the variety of climate changes it faces will institutionalise the climate agenda in India’s budget massively.
The 2024-25 Budget has attempted to walk the tightrope between economic development and environmental protection. The difference in budget allocation for mitigation and adaptation strategies is staggering—in 2023-24 mitigation budgetary response increased by 48.15 percent whereas the adaptation response increased by only 1.63 percent. These trends have revealed a fundamental flaw in India’s approach to the climate agenda. The existing budgetary practices that drive public expenditure on adaptation and resilience measures by the government do not bode well for India’s climate agenda. Adoption of budgetary strategies that quantify the monetary value of climate-led development will impart much-needed coherence between India’s existing global climate commitments and domestic policy decisions such as the ones announced in the Union Budget.
Pragya Narayanan is a New Delhi-based lawyer. She is a law graduate from the National University of Advanced Legal Studies (NUALS), Kochi.
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Pragya Narayanan is a New Delhi-based lawyer. She is a law graduate from the National University of Advanced Legal Studies (NUALS), Kochi. Her areas of ...
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