Empower states to tackle climate challenges equitably

ndia is reshaping its growth story, moving from simply chasing speed to ensuring sustainability. The next wave of growth will therefore be driven not by smokestacks, but by green factories, zero-cmission transport, renewable power and digital transformation. By 2047, India aims to become a developed economy, and by 2070, a netzero one. Crossing these milestones would require the country to act on two fronts simultaneously. Investing in clean energy and industries will drive growth, jobs, better air quality and lower emissions; investing in resilience through climate-smart farming, cooler cities and flood defences will protect people and assets. Financing this dual transition will cost trillions of rupees, but the cost of inaction would be even higher, with losses borne by our GDP, competitiveness and macro-financial stability.

- AMIT KAPOOR & KOYEL KUMAR MANDAL

To finance this transition and attract private investment, we propose that the 16th Finance Commission introduce a climate criterion into the Centre-state devolution formula, with an initial weight of 5%. It would take into consideration climate exposure, climate sensitivity and the adaptive capacity of states. Over time, new indicators that reflect the clean-growth investment needs of states should be included and the weight increased.

From heatwaves that push electricity demand to unprecedented peaks almost every year to the recent floods in Punjab, Delhi-NCR and other regions, climate shocks have become a recurrent feature of India's development landscape. This challenge is magnified by India’s vast and varied geography; climate risks are unevenly distributed and adaptation needs differ sharply. In such a federal system, much of the responsibility for climate-related investment falls on states. India’s system of Centre-to-state revenue transfers is designed to balance resources, with the Finance Commission assessing costs both vertically (between the Centre and states) and horizontally (across states).