The World Economic Outlook projects global growth at 3.3 percent, but the IMF projection of India’s GDP growth at 6.5 percent allows it to maintain the status of fastest growing major economy in FY 25-26 as well. The economic growth figures might look attractive and mislead you into believing that the Indian economy is fine, but the risks are almost certain. One such risk is the economic cost of “climate change.” The 2022-23 RBI report suggests that up to 4.5 percent of India’s GDP could be at risk by 2030 due to extreme heat.

India’s economy relies heavily on natural resources. Global think tanks estimate that up to a quarter of its GDP is at high risk from climate change by 2050, potentially costing over 10 percent of national income and pushing 50 million people back into poverty by the end of the century.

So, the moot question is: what should India do to tackle climate change while maintaining economic growth and bringing 300 million Indians out of poverty by 2030? On February 1st, the finance minister will present the Union Budget for 2025 in Parliament. Could we expect that the ground rules for “Economic Reforms 2.0” – one that could usher us into a New Climate Economy domestically – would be laid out.

Let us explore crucial aspects where Budget 2025 could make an impact and set international benchmarks for India as the “Voice of Global South.”

Accelerating Energy Transition

Renewable Energy Sector: India is on track to achieve the 50 percent non-fossil fuels target by 2030, but the rate of new RE capacity addition is too slow to meet the 500 GW target. Experts say it needs at least an additional 50 GW annually until 2030.

• #Budget2025 should promote inter- and intra-agencies competitiveness, targeting State Renewable Energy Agencies by incentivizing timely and efficient allocation of land, power evacuation infrastructure, and environmental clearance for utility-scale projects.
• The Decentralized Solar segment, especially rooftop, is lacking to meet the NDC target of 60 GW by 2022. Budget 2025 should bank on public interest in PM Surya Ghar: Muft Bijli Yojana 2024 and monetize both (in cash and capacity) while working with banks to improve the allocation of small-scale individual loans (for 2- and 3-kW Solar Rooftop systems). This requires increasing capacity and target-driven competition. Both public and private banks need to deal with RE project financial assessment guidelines.

Transport: Promoting electrification of mobility helps reduce national oil imports and is crucial for India to tackle air pollution.

• Budget 2025 should reduce the cost of EV manufacturing components like batteries and critical minerals by cutting import duties and extending tax breaks and upfront capital assistance for domestic EV manufacturing.

New Energy Innovation: Besides conventional power generation, large industries like iron, steel, and cement contribute 32 percent to India’s national GHG emissions.

• Budget 2025 should take policy and fiscal measures to promote production and consumption of new sources like #GreenHydrogen. And consider special tax breaks and targeted abolition of import duties on all components (including solar panels) for green hydrogen facilities.
• Another area is to improve private sector co-investment into green hydrogen by providing upfront capital subsidies via a special purpose vehicle modeled to aggregate demand for captive generation at source by consumers like steel SEZs within the country.

Climate Proofing India’s Economic Backbone

Agriculture and Allied Sectors: Despite maintaining a consistent decadal growth rate of almost 6 percent, India has a sizeable poor/ marginalized section. The country also features among the top 10 in the list of most vulnerable countries to climate impacts (as per Germanwatch). The need to invest in #ClimateResilient practices, especially in livelihood sustenance activities such as agriculture, should be among the top priorities for Budget 2025.

Policy measures to improve the financial assistance efficiency of mega schemes like MNREGA, should be considered. These would help promote co-benefit resilient agricultural practices that improve soil health, #WaterConservation, #Reforestation, and #Ecosystem services. A successful example of the co-benefit use of MNREGA fund is Sikkim’s Agriculture and Horticulture boards. They adjoined State and Central funds into Men and Material components to promote Organic Agri/Horticultural practices.

Agriculture-enhanced Energy Security. In 2022, a 20% ethanol blending target with conventional fuels was revisedfrom 2025 to achieve by 2030. Blending biofuels canhelp Indiastrengthenenergy security and reduce vehicular emissions. Furthermore, repurposing agricultural and municipal waste as monetized input boosts productivity and income of farming communities. The 2025 Budget should consider special measures for viability gap funding and upfront subsidies to promote new startups in this sector.

Climate and Ecosystem Aligned Urbanization: By 2030, roughly half of India’s population will live in cities. The influx of people migrating for economic opportunities and climate distress has put immense pressure on the urban ecosystem. The current construction practices are ecosystem-agnostic and have a huge climate footprint, as our cities will swell further in the next few years.

• “Budget 2025 should strengthen Urban Resilience by incentivizing low carbon construction through financial tools like capital subsidies for builders, tax breaks on imported machinery, raw materials, and technology, and additional home loan rebates for buyers investing in Low carbon/ Green Housing via existing missions like National Urban Renewal Mission.”

Setting the stage for International Green Financial Standards and National Carbon Trading: cash in hand dictates the fiscal space to allocate meaningful budgets towards national priorities.

• Budget 2025 must open avenues for generating domestic green finance opportunities by clarifying the “National Carbon Trading Scheme” and improving the enabling environment. One area to do so is to initiate the “Green Climate Finance Taxonomy.” A clear directive is essential for developing guidelines for clean, green, #Sustainable, and net zero activities, necessary for a transparent, accountable, and regulated National Carbon Trading Scheme potentially linked with international trading schemes in near future.

While the above recommendations may not be reflected in letter and spirit, the larger impetus via Budget 2025 should aim and project India as a “Global South Voice” and a potential climate leader poised to host and deliver a successful COP 33 UN in 2028.

By Nakul Sharma, Program Coordinator, CANSA