Budget 2024 Misses: Financing The Green For Viksit Bharat
As the seventh most vulnerable country globally, the lack of mention of climate financing in the Union budget represents a significant oversight.
The Union Budget presented by the Government of India yesterday missed a critical opportunity to urgently address climate financing. Despite the crucial role of BFSI in funding climate action, the budget fell short of providing tangible support for green financing initiatives. Anticipated measures like interest subvention for green projects and incentives for green deposits to foster long-term customer engagement were notably absent.
Though the budget mentioned the forthcoming development of a climate taxonomy, this has been in progress for over two years, with little advancement despite extensive deliberations by financial regulators and the government. The lack of a robust and actionable climate finance strategy is particularly disheartening, given the pressing need for substantial investments to combat climate change.
The urgency of addressing climate change cannot be overstated, yet the budget’s approach does not match the scale of the challenge. As India aims to achieve ambitious climate targets, including net-zero emissions by 2070, it is hoped that the government will not only acknowledge but actively address the financial gaps that impede progress. Without decisive action and a clear climate finance strategy, India risks falling short of its climate goals, potentially compromising both economic stability and environmental sustainability.
In its annual report, the Reserve Bank of India identified increasing climate shocks as a significant risk to the Indian economy. Last year’s report on Currency and Finance outlined the impact of climate change and highlighted the financing requirements amounting to 2.5% of India’s GDP annually until 2030. As the seventh most vulnerable country globally, the lack of mention of climate financing in the Union budget represents a significant oversight.
Food inflation, a global phenomenon over the past two years, is closely linked to climate change. Research indicates the rising vulnerability of food prices to climate impacts such as heatwaves, uneven monsoon distribution, unseasonal rainfall, hailstorms, torrential rains, and record droughts. Both macroeconomic and microeconomic levels require urgent climate action. The recent challenging summer underscored the need for infrastructure changes and agricultural shifts that existing government schemes may not address.
Currently, budgets for climate-related activities are integrated into the regular budgeting process and implemented through various departments and ministries. This approach necessitates prioritisation, a challenging task even now. Past budget announcements have shown the government’s interest in climate action and sustainability, yet this opportunity was surprisingly missed this time.
The expectations were high for this year’s Union budget to introduce a climate budgeting model, akin to the established gender budgeting framework. Such a model would involve a detailed annual analysis of climate-related expenditures, publicly released to ensure transparency and accountability. By clearly earmarking funds and integrating climate considerations into all aspects of budgeting, the government could have improved the efficiency and impact of its climate policies while fostering greater public engagement and support.
The Financial Stability and Development Council plays a pivotal role in coordinating the efforts of India’s financial regulators to ensure systemic stability and promote economic development. By neglecting climate finance as a priority so far, the FSDC has failed to address the urgent political and economic imperative of climate action. Climate change poses multifaceted risks to financial stability and economic growth, and without a dedicated focus on climate finance, the FSDC misses the opportunity to mobilise necessary capital and create a cohesive strategy for achieving sustainability goals. Hopefully, the government’s intent in putting together a Vision document for the financial sector could change this, and bring climate agenda into FSDC.
The varied approaches and pace of different financial regulators to climate finance create significant challenges, with each body operating under its own set of boundaries and definitions. This lack of consistency leads to fragmented policies and regulatory confusion, hindering effective mobilisation of climate capital. A standardised framework for climate finance is essential to ensure clarity and coherence across the financial system. Harmonising regulations would facilitate better alignment of financial instruments, reduce compliance burdens, and enhance investor confidence. By establishing a unified taxonomy and regulatory approach, India can more effectively channel resources toward climate initiatives, thereby strengthening the overall impact and efficiency of its climate finance efforts.
In the face of an urgent climate crisis, the Union budget's fleeting mention of a future climate taxonomy reveals a missed opportunity to catalyse transformative change. True progress demands not just recognition but actionable commitment, as postponing critical climate finance undermines our path to sustainability and economic resilience. The government has a track record of introducing essential policy developments or changes outside of the budget when the need arises. Given the urgency of climate finance, there is hope that the government will swiftly present a comprehensive climate finance strategy. This approach would involve urging sectoral regulators to prioritise climate finance and ensure that regulated entities engage with the necessary speed and significance to address this critical issue.
Srinath Sridharan is a policy researcher and corporate advisor.
The views expressed here are those of the author, and do not necessarily represent the views of NDTV Profit or its editorial team.
