India’s Green Finance Needs Significant Investment Boost

India’s climate targets demand a substantial increase in investments. A recent report by the Climate Policy Initiative (CPI) marks the urgent need for funding to meet these goals. Current investments are falling short of the estimated Rs 16,250,000 crore required by 2030. This amount translates to around Rs 1,100,000 crore annually. The report puts stress on the importance of scaling up both public and private financial flows.

Current Investment Landscape

In the financial year 2021-22, India’s mitigation sector attracted Rs 371,200 crore, marking a 20% rise from 2019-20. Adaptation investments surged to Rs 1,09,200 crore, indicating a nearly three-fold increase. Despite this progress, gaps remain. The government projects a need for Rs 8,560,000 crore for adaptation by 2030, with annual requirements reaching Rs 5,733,000 crore.

Sources of Green Finance

The CPI report reveals that 83% of India’s green finance for mitigation comes from domestic sources. The private sector contributes 66% of this domestic finance. International contributions have increased slightly, accounting for 17% in 2021-22. Among international flows, private sources have risen to 66%, up from 40% two years prior.

Sectoral Distribution of Investments

Investment in clean energy dominates, attracting 47% of total funding. Energy efficiency follows with 35%, while clean transportation receives 18%. Adaptation funding, however, is primarily sourced from public means, with 98% coming from government budgets.

Adaptation Financing Trends

Adaptation financing is expected to rise as climate change intensifies. Disaster risk management is the largest recipient, accounting for 42% of adaptation funds. This sector saw a ten-fold increase in financing since 2019-20, driven by government spending. Flood and cyclone mitigation received 32%, while on-farm adaptation activities garnered 24%. Notably, 99% of funding for on-farm activities comes from public sources.

Challenges Ahead

Despite the growth in green finance, challenges persist. The need for private sector involvement in adaptation financing is critical. Current contributions from private equity and venture capital in agriculture are minimal, indicating a gap that needs to be addressed. The report calls for enhanced collaboration between public and private sectors to mobilise the necessary funds.

Future Outlook

To achieve climate targets, India must not only increase the volume of investments but also improve the efficiency and effectiveness of financial flows. The landscape of green finance is evolving, but work remains to bridge the investment gap for both mitigation and adaptation efforts.

Questions for UPSC:

1. Discuss the role of public and private sectors in financing climate adaptation measures in India.
2. Critically examine the impact of international financial flows on India’s green finance landscape.
3. Explain the significance of the Paris Agreement in shaping national climate action plans.
4. Comment on the challenges faced by India in scaling up investments for climate mitigation and adaptation.

Answer Hints:

1. Discuss the role of public and private sectors in financing climate adaptation measures in India.

1. Public sector dominates adaptation financing, contributing 98% from government budgets.
2. Private sector involvement in adaptation is minimal, with less than 1% from private equity and venture capital.
3. Disaster risk management receives the largest share of public funding, indicating priority areas.
4. Collaboration between public and private sectors is essential to mobilize more funds for adaptation.
5. Increasing private sector investment can enhance innovation and efficiency in adaptation strategies.

2. Critically examine the impact of international financial flows on India’s green finance landscape.

1. International finance accounted for 17% of India’s green finance in 2021-22, showing a slight increase.
2. Private international contributions rose to 66%, indicating growing foreign investment interest.
3. Public international sources dominate, providing 92% of international finance, essential for large-scale projects.
4. International flows help bridge funding gaps but are still a small share compared to domestic sources.
5. Increased international collaboration can enhance technology transfer and capacity building in green finance.

3. Explain the significance of the Paris Agreement in shaping national climate action plans.

1. The Paris Agreement sets global targets to limit temperature rise to 1.5°C, influencing national policies.
2. Countries submit Nationally Determined Contributions (NDCs) outlining their climate action commitments.
3. The agreement encourages transparency and accountability in climate finance and emissions reduction.
4. It encourages international cooperation, enabling countries to share resources and technology for climate action.
5. India’s NDCs highlight the need for substantial investments, shaping its green finance landscape.

4. Comment on the challenges faced by India in scaling up investments for climate mitigation and adaptation.

1. Current investments fall short of the estimated Rs 16,250,000 crore needed by 2030 for climate targets.
2. There is reliance on public funding, with limited private sector participation in adaptation.
3. Gaps in awareness and incentives hinder private investments in climate-related sectors.
4. Coordination between various stakeholders is often lacking, complicating fund mobilization efforts.
5. Increasing climate change impacts may escalate funding needs, demanding urgent financial strategies.