India's apparent deficiency in climate financing is overstated
India, a rapidly developing nation, is projected to require significant capital inflows to support its growth ambitions, particularly in the sectors of power, steel, cement, and road transport. According to a recent study, the annual capital expenditure required from external sources for these sectors between 2023 and 2030 is approximately USD 43 billion.
However, the study also estimates that India's four highest-emitting sectors will require a total of US$467 billion in climate finance by 2030, averaging US$54 billion annually. This figure includes funding for transitioning from fossil fuels to renewables, carbon capture, use, and storage, and infrastructure development for electric vehicles and charging stations.
The real challenge lies in reconciling India's energy transition with competing priorities such as infrastructure development and industrial capacity expansion. With government debt at 82.6% of GDP, fiscal consolidation is imperative for long-term stability. Mobilizing large-scale public funding for climate action will be particularly difficult under these circumstances.
One potential solution could be to raise the current account deficit to around 2.5% of GDP to absorb the required inflows without jeopardizing financial stability. The remaining funding gap would have to be bridged domestically, primarily by boosting the national savings rate to avoid crowding out other sectors.
The power sector is expected to require US$57 billion in additional capital expenditure between 2023 and 2030, with US$47 billion for shifting from fossil fuels to renewables and US$10 billion for pumped hydro and battery storage. For road transport, the study estimates India's additional financing needs at US$18 billion, with US$10 billion for shifting from internal combustion-engine vehicles to electric ones and US$8 billion for developing electric vehicle charging infrastructure.
India's steel industry is projected to require US$251 billion in climate finance by 2030, due to rapid expansion and carbon-intensive production methods. The cement industry is projected to require US$141 billion in climate finance by 2030, with a focus on reducing carbon emissions.
Directing climate finance toward these four sectors could potentially reduce India's coal use by 291 million tonnes and cut petrol and diesel consumption by 72 billion litres by 2030, lowering CO2 emissions by 6.9 billion tonnes. This transition aligns with the Sustainable Development Goals (SDGs) 7. Energy, 9. Infrastructure, and 13. Climate, as well as topics such as Carbon & Climate, Cities, Energy, Manufacturing, Policy & Finance, and Transport.
The article is related to regions like Asia Pacific, Global, and India, and is authored by Janak Raj, a Senior Fellow at the Centre for Social and Economic Progress, and Rakesh Mohan, a former deputy governor of the Reserve Bank of India, who is the President Emeritus and Distinguished Fellow at the same centre. The article's tags include batteries, clean energy, financing, hydropower, investment, power plants, public transport, research, solar, storage, wind, cement, climate, urbanisation, Carbon capture, use and storage, decarbonisation, sustainable finance, net zero, electrification, steel, climate finance, manufacturing, transport.
