Budget 22: India should make this year’s budget climate responsive

This brief is a part of the Budget 2022: Numbers and Beyond series.

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The Union Budget for financial year 2022-23 is expected to be growth-driven. After witnessing the worst slowdown of the decade amid massive disruptions caused by the ongoing COVID-19 pandemic, the economic indicators signal rapid recovery for the Indian economy. According to the recent forecast by IHS Markit,  India’s nominal GDP is set to rise to US$8.4 trillion by 2030, making the country Asia's second-largest economy. However, the impact of climate change poses a significant risk. According to a report by the Overseas Development Institute, India is likely to lose between 3 to 10 percent of its GDP annually by 2100, and its poverty rate may rise by 3.5 percent by 2040 due to climate change. A business as usual approach will further weaken the country’s efforts towards poverty eradication, economic growth, and job creation—something which the country cannot afford.

India is likely to lose between 3 to 10 percent of its GDP annually by 2100, and its poverty rate may rise by 3.5 percent by 2040 due to climate change.

At COP26, India announced its aim to achieve net-zero emissions by 2070 and reducing its emissions intensity, or emissions per unit GDP, by at least 45 percent by 2030. The upcoming Union Budget is a historic opportunity for the government to achieve such a GDP aspiration by 2030 by making it ‘responsive’ to climate change. However, there are critical questions that need to be addressed: How can India’s economic progress and climate targets be addressed together through a climate-responsive budget? What should be the framework of mainstreaming climate imperatives in India’s budgeting and planning process? How will a climate-responsive budget maximise the benefits of India’s public expenditure? The first step in this direction is to recognise that development goes beyond economic growth.  The new economic normal is premised on a ‘transformational’ concept of the economy, which imbibes ‘resilience’ as a key attribute. The conventional paradigm of “growing-the-pie” and then redistributing economic wealth can no longer sustain the needs of the country. There is an urgent need for a paradigm shift from measuring economic growth through the statistics of gross domestic product (GDP) to integrating sustainable, inclusive, and green metrics that can capture the interactions between the economic, social, and environmental pillars of development to monitor the “quality of growth”. Placing the climate imperative at the core of national growth and development strategies will be the biggest opportunity for India to efficiently address socio-economic vulnerabilities while creating new sources of growth. Adopting an inclusive, low-emission, and climate resilient growth agenda would significantly boost the effectiveness of India’s domestic public spending.

Placing the climate imperative at the core of national growth and development strategies will be the biggest opportunity for India to efficiently address socio-economic vulnerabilities while creating new sources of growth.

Second, a climate-responsive budget would provide a fresh impetus for dealing with allocation and utilisation of finances by introducing a system of checks and balances to ensure that infrastructure creation is not devoid of climate-based resilience. While increased spending in infrastructure to meet development needs has remained a top priority for the government over many years, however, research highlights that climate responsiveness is yet to be translated into infrastructure programmes or project designs that could account for the magnitude of future risk. A study by Climate & Development Knowledge Network has found that for most city development or infrastructure projects, addressing climate concerns remain a secondary focus and limited only to paper, primarily to ensure that national government funds flow into the cities. While Odisha and Gujrat have introduced a climate budget to provide an account of tracking climate public expenditure, however, there is a need for a big shift from this fragmented, piecemeal approach to a uniform national strategy for climate-responsive budgeting and reporting that can effectively integrate subnational actions with national expenditure and climate targets. Finally, the hard-to-abate and carbon-intensive sectors will have an indispensable role in designing and implementing a climate-responsive budget. These sectors such as power, energy, transport, industry, buildings, amongst others, have considerable share in GDP as well as in the overall carbon emissions of the economy. Also, these sectors form the basic pillars of infrastructure development for meeting the country’s aspirations for the future. However, a low-carbon transition is poised or is already underway in many of these economic sectors. Hence, such areas of the economy will need budgetary guidance and fiscal support to mitigate and adapt to climate change. Financial schemes that promote low-carbon transitions in such sectors will lay the groundwork for India to become an attractive destination for global climate finance, which it requires to meet its global climate commitments. According to an estimate by CEEW Centre for Energy Finance, India would need cumulative investments of a whooping US $10.1 trillion to achieve net-zero emissions by 2070. Climate-responsive budgeting can help reduce India’s external dependence for additional investments in climate actions.

A study by Climate & Development Knowledge Network has found that for most city development or infrastructure projects, addressing climate concerns remain a secondary focus and limited only to paper, primarily to ensure that national government funds flow into the cities.

On the other hand, climate-induced disasters such as droughts, erratic rainfall, cyclones, etc. will continue to exacerbate the social and financial vulnerability of a majority of population, thereby, increasing their dependence on government support. Adopting a climate-responsive budgeting today will ensure the fiscal stability required in future to steer a smooth, just transition of the economy. Hence, a climate-responsive budget is not only a tool to project the nation’s clear intent on its economic policy going forward, but it is also means to push low-carbon transitions and provide an economic stimulus and political intent for the same. To address climate change and achieve global climate goals, India needs to act on all fronts. This Union Budget will be the biggest opportunity for the country to take a leap forth in this direction.

• Indian Economy
• Climate Change
• India
• budget 2022
• Climate change
• Economic
• GDP
• Union Budget

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