Financing Climate Change by Indian States: Progress and Prospects

MUKHERJEE, Atri and Behera, Samir Ranjan and Yadav, Kovuri Akash and Saha, Debapriya (2025): Financing Climate Change by Indian States: Progress and Prospects.

Abstract

Climate change presents a growing threat to India's macro-financial outlook, with significant implications at the subnational level. This study compiles the data on climate-related expenditure by 31 Indian States and Union Territories from 2004-05 to 2022-23. The State governments, on an average, spend 1.1 per cent of their GSDP and 7.3 per cent of total expenditure on climate-related activities. A dynamic panel regression identifies fiscal capacity, intergovernmental transfers, and expenditure persistence as key determinants of climate spending of States, whereas climate vulnerability plays a limited role. The paper also reviews the current sources of climate financing of the States and explores the opportunities to scale up financing through various alternative channels. It underscores the need for strengthening institutional capacity and use of strategic fiscal tools to enhance climate responsiveness of States.

• Item Type: MPRA Paper
• Language: English
• Keywords: Green budgeting, Climate budget tagging, Climate expenditure, Climate finance, Environmental transfers, Fiscal decentralization, Indian States
• Subjects: H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H72 - State and Local Budget and Expenditures; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H76 - State and Local Government: Other Expenditure Categories; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H77 - Intergovernmental Relations ; Federalism ; Secession; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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