Big promises, bigger gaps: Effective climate action demands a cohesive policy approach
India has set bold climate targets, but ambition alone won’t deliver results. Without a unified legal and fiscal framework to manage trillions in green spending, pledges risk staying on paper. Can legislative action make a difference?
India has set ambitious climate goals, but lacks a critical piece: the institutional and financial architecture to achieve them. Estimates suggest India needs over $ 1.5 trillion by 2030 to meet its climate and net-zero pledges. Attracting finance is a challenge, but the deeper issue lies in how these funds are managed. Fragmented responsibilities, opaque spending and weak accountability risk keeping ambitious pledges from becoming bankable projects.
Fiscal credibility and climate ambition are two sides of the same coin. Mobilizing capital at scale requires a public financial management (PFM) system that covers budgeting, reporting and auditing, and functions with clarity and predictability. In other words, India needs a unified institutional framework to unlock its green transition.
Institutional chasm: Currently, climate governance is scattered under the ministry of environment, forests and climate change (MoEFCC), ministry of finance, Niti Aayog and the ministry of new and renewable energy (MNRE), while states handle most of the policy implementation. The MNRE , for example, drives solar and green hydrogen initiatives, but its efforts remain in a silo apart from India’s broader climate agenda.
Bodies like the Prime Minister’s Council on Climate Change (PMCCC) have attained limited traction and we have no statutorily-backed intergovernmental council to address cross-state challenges. Expectations that successive Finance Commissions would introduce climate-linked grants have not materialized, largely because of an absence of statutory backing and uniform metrics.
This gap creates a financing chasm. Despite India’s success with direct benefit transfers and expenditure control, climate spending is diffused and lost across hundreds of schemes. Without a dedicated budget code, tracking total expenditure is impossible, leading to both under- and double-counting of green outlays.
A framework climate law: To bridge this chasm, India should enact a national framework climate law that is consistent with a constitutional imperative. In 2024, the Supreme Court recognized the right to be free from the adverse effects of climate change and urged the government to consider “a separate, standalone legislation" to create a coherent regulatory framework.
International experience—from the UK’s Climate Change Act to Brazil’s National Policy on Climate Change—shows that a clear legal mandate creates consistency across political cycles, links planning to budgets and thus strengthens investor confidence.
Such a law could:
Establish a high-powered intergovernmental council: A permanent national climate council chaired by the Prime Minister that includes Union and state leaders would institutionalize cooperative federalism, resolve cross-state disputes, align regional policies and endorse a unified national climate strategy that integrates state-level action plans.
Mandate climate budgeting: All ministries and states would tag mitigation and adaptation expenditures appropriately, integrating climate priorities into fiscal policy.
Enforce accountability: Annual climate-fiscal statements should be presented to Parliament and state legislatures, with the Comptroller and Auditor General empowered to conduct green performance audits.
Align the Centre and states: The law could guide Finance Commissions to incorporate climate resilience and emission metrics into its devolution formula and create performance-based grants tied to verified results.
India’s broad aim should be to move from ad-hoc spending to strategic investment. A PFM system that integrates climate action would turn it into a central pillar of economic planning. Countries like Indonesia and Bangladesh already use climate-budget tagging to report spending transparently to donors and credit agencies. India’s own experience with gender budgeting offers a ready template for climate budget statements.
This integration is vital for managing fiscal risks. Climate shocks create large contingent liabilities now treated as ad-hoc emergencies. A unified framework would institutionalize climate-related fiscal risk management, requiring ministries and states to assess the exposure of investment plans and link disaster relief to risk-reduction performance.
The current PFM system, often reliant on off-budget instruments and offering limited disclosure, raises fiduciary concerns. Embedding climate accountability within India’s constitutional audit and fiscal responsibility framework would send out a powerful signal of stability.
Publishing annual green accounts and integrating climate metrics into risk assessments under the Fiscal Responsibility and Budget Management Act would provide the transparency investors need. A dedicated national climate finance authority could coordinate domestic and international flows, harmonize definitions, certify projects and ensure funds reach priority areas efficiently.
India’s climate challenge is not one of ambition, but of institutional coherence. It must be built on a transparent and rules-based domestic fiscal architecture. A framework climate law, complemented by a strengthened green-PFM system, is a precondition for success. It would roll climate action into fiscal policy, create a forum for cooperative federalism, clarify roles across government and provide the accountability and predictability that are needed.
The author is distinguished fellow at the Centre for Social and Economic Progress (CSEP) and former member of the 15th Finance Commission
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