After a gruelling summer during which India witnessed one of its worst heatwave spells, the full budget of the new government will be tabled before the 18th Lok Sabha on July 23.
Following a reduced majority in Lok Sabha, the Bharatiya Janata Party will have to accommodate the requests of its partners in the ruling National Democratic Alliance. There is likely to be some change in financial allocations and utilisation. But the long persisting demand for climate budgeting has still not been incorporated.
Until only a few weeks ago, India experienced one of its worst heatwave spells, lasting almost 50 days. These adverse climate effects are now extending into the monsoon as well.
India will need approximately Rs 167 lakh crore (at 2014-’15 rates) from 2015 to 2030 to implement climate adaptation actions in critical sectors, according to the preliminary financial estimates of the Nationally Determined Contribution document. Further investments are necessary to bolster resilience and enhance disaster management capabilities.
Though Finance Minister Nirmala Sitharman referred to the 2023 budget as a “green budget”, government’s environmental inclinations were limited to allocating funds for a few schemes spread out across ministries and departments. The interim budget announced in February this year included similar allocations to existing government interventions, signalling policy continuity.
What a climate budget does
According to a report by the United Nations Development Programme, a climate budget is vital for a country’s financial reports, providing a clear distinction between funds allocated for climate-related activities and other expenses. Climate budgeting is an exercise that runs parallel to the government budget but is a separate climate budget document.
A climate budget integrates environmental concerns into annual budget processes, mainstreaming climate action across all departmental activities. Climate mainstreaming systematically integrates climate considerations throughout the state’s strategy and operations.
In India, specific budget mapping efforts have been made in areas such as grants in aid salaries, general and capital budgets for Scheduled Castes and Scheduled Tribes and gender budgeting. However, incorporating climate change into the larger macro-fiscal framework has only started to be recognised and appreciated more recently.
For instance, in September 2023, the National Institute of Public Finance and Policy published a working paper on climate-responsive budgeting that analysed climate-intensive allocations. It found that across eight core sectors analysed, there were deviations in the budget estimates and actual spending.
Climate budgeting is gaining ground in parts of India.
In June, the Brihanmumbai Municipal Corporation released its inaugural Climate Budget Report, also referred to as the Green Budget book, the first city in India to do so. The budget document stated that from the total capital expenditure allocation of Rs 31,774.59 crore, Rs 10,224.24 crore, which is 32.18% of the budget, has been earmarked for climate-related concerns.
Odisha adopted the “Climate Budget Tagging” framework in 2020. This involves identifying and tagging specific budget allocations that directly or indirectly contribute to climate action.
Efforts at the subnational level to address climate change are praiseworthy, but India needs to incorporate climate budgeting at the national level across all ministries and departments.
The climate adaptation and mitigation efforts of Central and state governments are incorporated into their annual budgetary allocations across various schemes and programmes. The National and State Action Plans for Climate Change are an umbrella document for climate actions. However, there is a notable absence of a consolidated climate budget statement.
The mobilisation of finance remains crucial, but the emphasis is shifting towards prudent spending, particularly in light of the need to balance urgent priorities within the Indian government’s fiscal policy. Consequently, India requires a comprehensive approach that reshapes its fiscal, financial and monetary policies and decisions.
These are a few starting measures towards this:
First, implementing climate budgeting in India at national and sub-national levels should begin with climate change action plans. These plans offer a foundation for aligning the budgeting process and implementation across ministries and departments.
Second, the Climate Change Finance Unit in the finance ministry serves as the nodal point on all climate change financing matters. It can play a pivotal role in climate budget tagging for coordinating, implementing and evaluating the progress of both central and state-level plans, ensuring efficient utilisation of climate budgets.
Third, adopting a climate budgeting model, similar to the established gender budgeting, will involve releasing a detailed annual budget analysis publicly for accountability.
Climate budgeting as a governance tool can be instrumental in directing the flow of finance. For instance, the Indian government can use the proceeds raised from Sovereign Green Bonds to finance or refinance expenditures for eligible green projects. Sovereign green bonds are government instruments specifically for climate action projects.
Additionally, an outcome analysis of the yearly expenditure, at the national and sub-national level, should also be published. This will enhance transparency and facilitate annual revisions, gap identification, and improved execution. Bangladesh publishes an Annual Climate Budget report that includes an analysis of climate-relevant allocations along with the total budgetary allocations of 25 ministries/divisions of the government.
Finally, climate budgeting can account for the impact of climate change on the most vulnerable population by integrating feedback through public consultations and comprehensive internal evaluations and audits of programmes related to the sustainable development goals outlined by the United Nations, inclusion and climate action.
Given the escalating concerns about the intensifying impacts of climate change, the Centre’s full budget should mirror this sense of urgency. Adopting climate budgeting can be a strategic step in catalysing comprehensive and effective climate action.
Now more than ever, there is a strong need to integrate climate budgeting as the country grapples with the severe impact of climate change.
Aradhana Gupta is a former LAMP Fellow. Shashank Pandey is a Research Fellow at Vidhi Centre for Legal Policy.
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