India’s Climate Finance Requirements: An Assessment

Abstract

This study assesses India’s climate finance requirement from 2022-2030 to decarbonise its four major carbon-emitting sectors—cement, steel, power, and road transport. Climate finance or additional capital expenditure (capex) for transitioning to a low-carbon economy, i.e., over and above the capex already planned in the business-as-usual (BAU) scenario, has been estimated at US$467 billion for 2022-2030 or 1.3 per cent of India’s gross domestic product (GDP) annually. This comprises  US$251 billion for the steel sector, followed by US$141 billion for cement,  US$57 billion for power and US$18 billion for road transport. The estimated investment in the four sectors will reduce the use of 291 million tonnes of coal and 72 billion litres of petrol and diesel, mitigating 6.9 billion tonnes of CO2 emissions (excluding road transport). The study also evaluated the macroeconomic consistency of India’s estimated climate finance requirement. Overall, capital and financial flows net of the projected current account deficit (CAD) for India are estimated at US$530 billion during 2023–2030 as against the projected expansion of US$474 billion in monetary base. Thus, India would need to skilfully manage both (i) capital flows in the BAU; and (ii) climate finance from external sources. India may have to strategically widen its CAD, subject to a maximum of 2.5 per cent of GDP.