India urgently needs significant investment in climate adaptation efforts to sustain development progress. India recognizes the importance of climate change impacts on development and growth and places adaptation approaches within the country's broader development goals. While governments have made efforts to fund adaptation efforts, the need for investment in adaptation at the national level is significant and will continue to grow.
This study examines India's approach to adaptation, associated investment needs, funding gaps, and means of bridging these gaps through public and private finance. Our report also delves into the existing challenges in financing adaptation efforts in India at the local level and potential ways in which adaptation financing can be scaled up. Based on the report's findings, we will share recommendations to accelerate action.
key insights
- India has not yet established a common framework on climate risks or a systematic methodology for assessing the extent to which development programs address climate risks and vulnerabilities.
- Despite some of these systemic problems, the growing appetite for action on climate adaptation is generating relevant plans, policies, institutions, and plans at the national and state levels. However, the progress and focus of policies and programs related to climate adaptation vary at the state level.
- Given the local nature of adaptation, states have primary responsibility for adaptation-related interventions. States that have updated their state action plans on climate change in the past few years are in need of significant investment in adaptation. According to the CPI analysis, the total annual investment demand for the six states alone from 2021 to 2030 will reach 444.7 billion rupees (US$5.5 billion).
- However, funding adaptation investment needs is difficult for many states. In recent years, state finances have been strained by factors such as the 2019-2020 economic slowdown and the COVID-19 pandemic, constraining their ability to invest in climate adaptation. Countries also face borrowing constraints under new fiscal rules and pressure to reduce existing debt burdens, further limiting their ability to close adaptation financing gaps.
Recommendations
CPI recommends strategic interventions to strengthen national fiscal capacity and mobilize private finance for climate adaptation-related efforts as important steps to fill funding gaps. More specifically, I propose the following:
- Include adaptation-related interventions in the upcoming deliberations of the Finance Commission of India and inform the allocation of funds to state governments.
- To facilitate greater access to finance for climate-vulnerable states, introduce mechanisms such as borrowing caps that incentivize time-limited climate change tailored to state-specific vulnerabilities.
- Develop a robust green financial data infrastructure to inform investment decisions and increase transparency.
- Promote financial mechanisms such as public-private partnerships and blended financing to encourage private sector investment.
