Home / Economy / India needs to spend 11% of its GDP on decarbonisation to achieve net zero target by 2050
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NEW DELHI : India will have to increase its spending significantly on transition towards decarbonisation in a bid to achieve net zero target by 2050 and raise the spending to 11% of the GDP, according to a report by McKinsey.

Annual capital spending on physical assets in India would rise from around $300 billion in 2020 to an average of $600 billion between 2021 and 2050.

"India’s annual capital spending on the transition would be about 11 percent of GDP in the Net Zero 2050 scenario, compared to the global average of about 7.5 percent of GDP," it said.

Much of that capital would be used to reduce the use of existing coal power and expand renewable electricity capacity. In India, almost 40% of spending would be in power, said the report. In addition to capital spending on low-emissions technologies, India may also have to invest more heavily than other countries in climate adaptation measures given their relatively high physical risk exposure to climate change.

Despite India’s physical and transition risk exposure, India has an abundance of low-emission or critical transition resources and is geographically positioned to become a leader in the transition, it noted.

India has a high solar potential (5.1 kWh/m2/day) and potential for CO2 abatement through reforestation and afforestation (16 tonnes/km2). The country also has a high potential among countries analyzed for ratio of reserves relative to global production of key minerals required for the transition, including in particular zinc and rare earth metals.

"India is also poised to become a leader for producing the talent and technologies required to achieve net zero. India has a relatively high number of climate change mitigation-related patents (511) and share of STEM graduates across India’s population with college or graduate level degrees (29%)," it said.

The report said that as global climate commitments ramp up, countries and companies are grappling with the transformation of economies required to reach net-zero emissions of greenhouse gases by 2050.

It further said that extensive labour reallocations may be needed, with globally, about 200 million direct and indirect jobs gained and 185 million lost by 2050 from the net-zero transition. The scale of workforce reallocation may be smaller than that from other trends such as the farm-to-non farm transition, and automation.

 “The net-zero transition will amount to a massive economic transformation. Actions by individual companies and governments, along with coordinated support for vulnerable sectors, countries, and communities, could facilitate the economic and societal adjustments that will be required," said Mekala Krishnan, a partner at the McKinsey Global Institute

Rajat Gupta, Senior Partner at McKinsey and Asia leader of McKinsey Sustainability said: “The economic transition to achieve net-zero will be complex and challenging, but India’s abundance of lower mission or critical transition resources and geographical position could allow it to become a leader in the transition. Our findings serve as a clear call for a well-considered, urgent, national plan, as an imperative for India to secure an orderly transition to net zero." 

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