India urgently requires substantial investment in climate adaptation efforts to sustain progress on development. Recognizing the criticality of the impact of climate change for development and growth, India has anchored its adaptation approach within the country’s wider development goals. While the government has endeavored to finance adaptation initiatives, adaptation investment needs at the national level are large and will increase in the future.

This study examines India’s approach to adaptation, related investment needs, and funding gaps, as well as avenues for bridging these gaps through public and private finance. Our report also delves into the existing challenges in financing adaptation efforts in India at the subnational level, and the potential ways in which adaptation finance can be scaled. Based on the report’s findings, we share recommendations to accelerate action.

Key Insights

• India is yet to establish a common framework for climate risk and a systematic methodology for evaluating the extent to which development programs address climate risk and vulnerability.
• Despite some of these systemic issues, the growing drive for action on climate adaptation has resulted in relevant plans, policies, institutions, and schemes at the national and state levels. However, the progress and focus of policies and schemes related to climate adaptation vary at the state level.
• States hold the primary responsibility for adaptation-related interventions, given the local nature of adaptation. States, which have updated their State Action Plans on Climate Change in the last few years, have substantial adaptation investment needs. CPI analysis identifies that collective annual investment needs of six states alone amount to INR 444.7 billion (USD 5.5 billion) from 2021 to 2030.
• However, it is a challenge for many states to finance their adaptation investment needs. Over the last few years, state finances have been stressed by factors including the economic slowdown in 2019-20 and the COVID-19 pandemic, constraining their ability to invest in climate adaptation. States also face borrowing constraints under new fiscal rules and pressure to reduce existing debt burdens, which further restrict their ability to bridge the adaptation funding gap.

Recommendations

CPI recommends strategic interventions to bolster state fiscal capacity and mobilize private finance for climate adaptation-related efforts, as crucial steps to bridge the funding gap. More specifically, we propose:

• Including adaptation-related interventions in the upcoming deliberations of India’s Finance Commission to inform the allocation of funds to state governments.
• Putting in place mechanisms such as time-bound, climate-incentivized borrowing ceilings tailored to state-specific vulnerabilities, to facilitate increased access to finance for climate-vulnerable states.
• Developing robust green finance data infrastructure to inform investment decisions and enhance transparency.
• Promoting financial mechanisms such as public-private partnerships and blended financing to catalyze private-sector investment.

Download the report