Policy Update
Saachi Saxena
Background
India’s net-zero transition is increasingly becoming an economic concern alongside its environmental goals. India needs to expand energy access, support industrialisation, meet rising electricity demand and improve living standards while reducing the emissions intensity of economic activity. The challenge is not simply to replace fossil fuels with cleaner alternatives, but to finance this transformation without placing an unsustainable burden on public finances, businesses or households. Future policy frameworks must also account for human development priorities, including health, education and poverty reduction, to ensure that emissions reduction targets remain compatible with improvements in living standards and broader socioeconomic progress.
NITI Aayog’s Scenarios Towards Viksit Bharat and Net Zero: An Overview provides a useful basis for understanding this challenge. Published in 2026, the report compares the Current Policy Scenario (CPS) with the Net Zero Scenario (NZS) and examines the investment requirements and broader economic implications of both pathways up to 2070. Its findings indicate that the transition will require substantial additional investment, particularly in electricity generation, transmission, storage, transport and industrial decarbonisation
The scale of this challenge becomes clearer when the two scenarios are compared. NITI Aayog estimates that cumulative investment between 2025 and 2070 would amount to approximately USD 14.7 trillion under the Current Policy Scenario and USD 22.7 trillion under the Net Zero Scenario. The difference of around USD 8.1 trillion represents the additional investment required under the net-zero pathway. These figures are based on modelled scenarios and should not be treated as government spending commitments or as amounts that must be financed entirely through public funds.
The Economic Survey 2025–26 offers another perspective on India’s progress. It reports that domestic expenditure on adaptation and resilience increased from 3.7% of GDP in FY2015–16 to 5.6% in FY2021–22. It also notes that India has reduced its emissions intensity and achieved 50% non-fossil installed electricity capacity ahead of schedule (Ministry of Finance ).
These developments show that climate action has become an integral part of India’s development journey. However, progress in expanding renewable energy and financing adaptation does not, by itself, address the much larger investment needs of a net-zero economy. The key challenge is to mobilise additional resources, direct them towards areas where they are most needed and ensure that the costs of the transition are shared fairly.
This review examines NITI Aayog’s investment scenarios alongside the Economic Survey’s assessment of climate finance and argues that financing the transition requires more than simply increasing the amount of capital available. The financing approach must also account for differences in investment risks, government finances, technological maturity and the ability of households and businesses to manage the costs of economic change.
Functioning
The net-zero transition requires different types of financing. Renewable energy projects need substantial initial investment, transmission infrastructure requires coordinated long-term funding, and industrial decarbonisation may depend on technologies that are still developing commercially. Given these differences, therefore, no single financial instrument or funding source can meet all these needs effectively.
NITI Aayog estimates that total investment under the Net Zero Scenario will reach USD 22.7 trillion by 2070, with more than half going towards the power sector. Around USD 8 trillion would need to be invested by 2050, including nearly USD 5 trillion in the power sector. This highlights the investment that needs to be made early to build low-carbon infrastructure before the later stages of industrial transformation (NITI Aayog).
The difference between initial costs and long-term returns is important. Renewable energy generation, grid expansion and storage require substantial upfront investment, while their benefits are realised over several years. High borrowing costs can make such projects less attractive to investors, particularly when future revenues are uncertain. Blended finance, which combines public or concessional funding with private investment, and risk-mitigation guarantees can help address this constraint by reducing the risks borne by private lenders and investors. These mechanisms can be particularly useful for long-term green infrastructure projects that offer wider economic benefits but may not generate sufficient returns to attract private capital on their own.
India therefore needs to work on a financing system that brings together public expenditure, domestic private investment, institutional lending and international capital.
Public funding is particularly important for infrastructure that offers wider economic benefits but may not generate enough private returns on its own. Private investment can support projects with reliable revenue streams, while concessional finance and grants can help fund technologies that remain expensive or commercially uncertain.
The Economic Survey identifies several existing financing instruments, including sovereign green bonds, green deposits, specialised development finance institutions and sustainable lending frameworks. India issued sovereign green bonds worth ₹15,000 crore in FY2025 – 26, taking cumulative issuance since FY2022 – 23 to ₹72,697 crore. The Survey also highlights the role of municipal green bonds in financing local infrastructure, including water treatment, solar power and sewage treatment (Ministry of Finance).
Ghaziabad illustrates how green bonds can translate financial mobilisation into infrastructure investment. In April 2025, Ghaziabad Nagar Nigam raised ₹150 crore through India’s first certified green municipal bond to support a tertiary sewage treatment plant. The project was developed under a public-private hybrid annuity model, combining municipal funding with private participation. The plant is designed to treat wastewater for reuse by industrial units, helping address water-management needs while reducing reliance on conventional water sources. This example demonstrates how municipal bonds can mobilise capital for specific infrastructure projects, while public-private financing arrangements can help distribute project costs.
Each of these instruments serves a different purpose. Sovereign green bonds finance eligible public expenditure, while municipal green bonds help connect local infrastructure needs with capital markets. Institutions such as the Indian Renewable Energy Development Agency, NABARD and SIDBI support project preparation and improve access to finance for specific sectors and borrowers.
However, the availability of these financial instruments is not sufficient. An important aspect here is whether the available finance is sufficient and suited to the scale, duration, cost and risk of the projects being developed.
Performance
NITI Aayog’s assessment also highlights the gap between the investment required for India’s net-zero transition and the financing expected to be available. For 2026 – 2070, the report estimates a total financing requirement of USD 22.7 trillion, compared with approximately USD 16.2 trillion in expected financing flows. This leaves a gap of USD 6.53 trillion. For 2026 – 2050, the estimated shortfall is around USD 2.5 trillion, equivalent to approximately USD 100 billion annually. Over the longer period, the annual financing gap is estimated to rise to around USD 145 billion (NITI Aayog, 2026).
An equally important aspect is the distribution of this gap across sectors. For the period up to 2050, NITI Aayog estimates that the power sector will require USD 4.32 trillion in financing, against an expected USD 2.34 trillion in available finance. This leaves a shortfall of USD 1.98 trillion. The estimated financing gaps for transport and industry are USD 0.22 trillion and USD 0.29 trillion, respectively, over the same period (NITI Aayog, 2026).
The large financing gap in the power sector shows that India’s immediate priority cannot be limited to expanding renewable energy generation. It must also include investment in transmission networks, storage and the infrastructure needed to integrate variable renewable energy into the electricity system. Without these supporting investments, expanding generation capacity alone may not deliver the intended benefits.
The Economic Survey further highlights the imbalance in the sources and distribution of climate finance. It reports that domestic sources account for approximately 83% of India’s mitigation finance and 98% of its adaptation finance. It also points to funding gaps in adaptation, micro, small and medium enterprises (MSMEs), urban infrastructure and hard-to-abate industries (Ministry of Finance, 2026).
All of the above findings highlight two main challenges. India needs to mobilise additional capital while ensuring that it reaches the sectors and activities where it is most needed. If financing continues to flow mainly towards established renewable technologies, less commercially mature sectors and climate-vulnerable communities may struggle to secure the resources required for the transition.
At the same time, the estimated financing gap needs to be interpreted with caution. NITI Aayog notes that the projections depend on assumptions about technology, future policy decisions, development pathways and costs. Some sectors relevant to mitigation, including buildings and waste, are also excluded from the investment estimates. The reported gap should therefore be treated as a planning benchmark rather than a complete estimate of all the financing India will need for its climate transition (NITI Aayog, 2026).
Impact
The impact of India’s net-zero transition will depend not only on the amount invested but also on how that investment is financed and how its costs are distributed across states and communities. For coal-dependent states such as Jharkhand, a gradual shift away from fossil fuels could put pressure on government finances through changes in coal-related revenues, royalties and economic activity. An analysis by the Institute for Energy Economics and Financial Analysis (IEEFA) estimated that coal and petroleum together accounted for 32% of Jharkhand’s own revenue in FY 2022–23, highlighting the state’s fiscal exposure to changes in fossil fuel activity.
This makes fiscal federalism an important consideration in planning the transition. States differ in their dependence on fossil-fuel revenues and their capacity to absorb the costs of economic adjustment. Policymakers must account for these differences while ensuring that state governments can maintain public services, support affected workers and diversify local economies. The choice of financing will therefore influence not only national economic outcomes but also the capacity of individual states to manage the transition.
The cost of reliance predominately on domestic capital
Domestic finance is essential to support India’s investment needs. However, if the same pool of savings has to fund both the net-zero transition and other productive activities, increased borrowing could intensify competition for capital. Businesses may face higher borrowing costs, while public investment in climate infrastructure may compete with spending on health, education and other development priorities.
NITI Aayog warns that greater dependence on domestic financing could crowd out other investments and push up interest rates. Its modelling suggests that foreign financing could ease some of these pressures by bringing in additional capital instead of relying entirely on domestic financial resources (NITI Aayog, 2026). However, the downside to external finance is that it can expose India to currency fluctuations, repayment obligations and other financial risks. The important consideration is whether the financing supports productive investment at a manageable cost or creates liabilities without generating sufficient economic returns.
For India, this means that the financing strategy should focus on reducing the cost of capital. Concessional loans, grants and guarantees can lower project risks and encourage private investment, particularly for projects offering wider social benefits.
The fiscal trade-off
The transition will also have implications for government revenue. As India becomes less dependent on fossil fuels, revenue linked to their production and consumption may change. At the same time, governments will need to fund infrastructure, support the adoption of new technologies and address the adjustment costs faced by affected regions and workers.
NITI Aayog’s macroeconomic analysis examines how different transition pathways could affect government revenue, the energy import bill, household consumption and sectoral output. It estimates that the net-zero pathway could begin generating net savings in the energy fuel import bill around 2035, with savings reaching approximately 0.5% of GDP over 2050 – 2070 compared with the Current Policy Scenario (NITI Aayog, 2026).
These potential savings could help India gradually reduce its dependence on imported fossil fuels. However, they will not provide immediate financial gains to the government. The benefits will take time to materialise, while infrastructure requires upfront investment. Lower import spending also does not automatically increase government revenue. Fiscal planning should therefore consider both the initial costs and long-term benefits of climate investments. Projects should be assessed on their contribution to energy security, productivity, resilience and public welfare, not just their environmental benefits.
Who bears the costs and benefits?
Economic growth at the aggregate level does not necessarily translate into equal gains for households, workers, businesses and regions. Higher investment alone cannot guarantee that those facing the greatest adjustment costs will benefit from the transition.
NITI Aayog projects that direct and indirect employment in the energy sector could increase from approximately 6 million in 2022 to 7 million by 2050 under a domestically financed net-zero scenario. Under a foreign-financed scenario, employment is projected to reach 6.7 million. The report also estimates that, under its most optimistic foreign financing scenario, real wages could be up to 3% higher by 2050 compared with the Current Policy Scenario (NITI Aayog, 2026).
These projections highlight the need to look beyond the number of jobs created and consider their quality and distribution. New opportunities in renewable energy, grid infrastructure and low-carbon manufacturing may not automatically offset the losses faced by workers in sectors undergoing structural change. Access to skills, training and employment opportunities will influence who can move into these emerging occupations.
The choice of financing also affects households. If domestic financing increases borrowing costs and limits other investment, the consequences may extend beyond the energy sector to employment, wages and consumption.
A fair transition therefore will aim to combine investment mobilisation with measures that help workers and smaller businesses participate in the emerging economy.
Emerging issues
Three issues need particular attention highlighted in the report as India moves beyond broad climate commitments and begins financing the long-term transition of its economy.
First, the cost of capital remains a major constraint. The availability of global savings does not necessarily mean that Indian climate projects can access them at affordable rates. Investors consider factors such as regulatory uncertainty, project preparation, the reliability of future revenues and repayment risks. When these risks are high, projects may face expensive financing even if they offer significant wider economic benefits. This makes the Economic Survey’s emphasis on concessional finance is particularly relevant to India’s investment needs (Ministry of Finance, 2026).
Second, uncertainty around emerging technologies makes long-term financing more complicated. NITI Aayog expects the investment profile to change after 2050, as green hydrogen, carbon capture, utilisation and storage (CCUS), and direct air capture become more prominent in the net-zero pathway. These technologies may require substantial investment in infrastructure, and their financing needs cannot be assessed in the same way as those of established renewable energy technologies (NITI Aayog, 2026).
This creates a challenge in deciding when to invest. Committing large amounts of capital too early, before costs and commercial viability are established, could increase financial risks. However, delaying investment in technologies that will eventually be needed could make the transition more expensive in the future. Public funding should therefore be released in stages, linked to clearly defined technological milestones, cost reductions and evidence of commercial viability. Periodic reviews should determine whether further funding is justified by technological progress and changing market conditions.
Third, climate finance data needs to be comparable and reliable enough to guide investment decisions. Developed by NITI Aayog, the India Climate and Energy Dashboard (ICED) provides a public platform for accessing climate, energy and economic indicators, including data on domestic and international renewable energy finance. It aims to support evidence-based economic decision making by making relevant data and visualisations more accessible (NITI Aayog, n.d.).
Along with this, policymakers need consistent information on funding commitments, actual disbursements, project completion, financing costs and outcomes. Unless announced funding is clearly distinguished from money actually deployed, it becomes difficult to identify whether financing gaps arise from a lack of capital, inadequate project preparation, implementation delays or a mismatch between funding instruments and investment requirements.
These challenges show that the next stage of climate finance policy must focus on both mobilising capital and ensuring accountability.
Additional funding is essential, but reliable data and stronger institutional capacity are equally important to ensure that resources reach projects capable of delivering measurable economic and environmental benefits.
Way forward
India’s financing strategy needs to move beyond raising more green capital & should focus on matching financial instruments to the country’s economic needs. The evidence highlighted in the report points to five key priorities.
1. Establish a transparent and regularly updated financing framework.
The government should clearly distinguish between total investment requirements, existing financing flows, confirmed commitments and actual disbursements. NITI Aayog’s estimated financing gap of USD 6.53 trillion provides a useful starting point, but the underlying assumptions and coverage need to be updated as technologies, costs and policies change. The India Climate and Energy Dashboard (ICED) can support this process by making comparable climate and energy data more accessible.
At the implementation level, strengthening the capacity of municipal bodies and district administrations to prepare projects, access funding and monitor expenditure is equally important. This would help bridge the gap between nationally announced climate finance and the funds actually disbursed and utilised on the ground. Regular reporting should therefore track not only funding commitments but also disbursements, project implementation and outcomes, enabling policymakers to identify whether delays arise from funding shortages, limited administrative capacity or inadequate project preparation.
2. Match financing instruments to sectoral needs.
The large financing gap in the power sector highlights the need for long-term capital to support transmission, storage and renewable energy integration. Green bonds and institutional investment can help finance eligible infrastructure, while development finance institutions can improve project preparation and reduce barriers to funding. For MSMEs and hard-to-abate industries, credit guarantees, concessional lending and well-designed public support may be more suitable than relying entirely on conventional commercial loans. Financing instruments should reflect differences in project maturity, repayment capacity and wider public benefits instead of following the same approach across all sectors.
3. Mobilise international finance on affordable terms.
The scale of the projected financing gap makes it difficult for India to depend on domestic resources alone. It should seek greater access to concessional loans, grants, guarantees and long-term institutional capital. International support is particularly important for technologies that are necessary for decarbonisation but are not yet commercially viable at scale. As the Economic Survey highlights, reforms in multilateral development finance and stronger risk-sharing arrangements can help reduce the cost of capital for developing economies (Ministry of Finance, 2026).Both domestic and international sources should complement each other, allowing India to expand investment without putting excessive pressure on domestic savings or creating unnecessary financial risks.
4. Make distributional protection part of transition finance.
Financing decisions should consider the workers, households, small businesses and regions that may bear a greater share of the costs of economic change. Reskilling programmes, access to affordable credit and support for economic diversification can help these groups benefit from emerging opportunities. Such measures should be incorporated into sectoral and regional transition plans, with clear responsibilities and measurable outcomes. This would ensure that the distribution of costs is considered from the beginning of investment planning rather than addressed only after economic disruption has occurred.
5. Link financial support to outcomes and fiscal discipline.
Public funding should prioritise investments that can demonstrate credible economic and environmental benefits. Transparent project appraisal, regular monitoring and clear reporting can help distinguish productive investment from expenditure that delivers limited results. For emerging technologies, phased funding and periodic reviews can reduce the risk of committing large amounts of capital before their commercial viability is established.
Fiscal discipline also requires a realistic assessment of when the benefits of these investments are likely to materialise.
Conclusion
NITI Aayog’s Scenarios Towards Viksit Bharat and Net Zero places financing at the heart of India’s long-term economic transformation. Its estimated investment requirement of USD 22.7 trillion and financing gap of USD 6.53 trillion highlight the scale of the resources that may be needed under the modelled net-zero pathway. The Economic Survey raises another concern: domestic finance continues to play a dominant role, while several sectors and activities still face funding shortages.
The evidence does not suggest that India has to choose between economic development and climate action. Instead, it highlights the importance of how the transition is financed. Domestic capital, international support, public expenditure and private investment all have a role to play.
The key policy question is not simply how much India can spend on its net-zero transition. It is how the country can raise capital at an affordable cost, direct it towards productive uses and ensure that the benefits of economic change reach a wider section of society rather than remaining concentrated among those already better placed to benefit.
Achieving this will require reliable data, carefully planned investment, stronger financial institutions and greater attention to how the costs and benefits of the transition are distributed. India’s net-zero transition should therefore be approached as a strategy for economic modernisation and livelihood protection, rather than solely as an environmental obligation. By linking climate investments with productive capacity, employment opportunities and improvements in living standards, policymakers can make the transition more inclusive and strengthen public support for the changes it requires. Ultimately, success will depend not only on mobilising sufficient capital but also on ensuring that the resulting economic opportunities and benefits are accessible across regions and sections of society.
References
Institute for Energy Economics and Financial Analysis. (2024). A just transition financing pathway for Jharkhand
IEEFA-CEED_A Just Transition Financing Pathway for Jharkhand_Sept2024.pdf
Ministry of Housing and Urban Affairs, Government of India. (2025, April 29). Ghaziabad Nagar Nigam pioneers sustainable water management through India’s first certified Green Municipal Bonds.
https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2125188&lang=2®=48&
Ministry of Finance, Government of India. (2026). Economic Survey 2025–26: Chapter 10, Environment and climate change: Building a resilient, competitive and development-driven India.
https://www.indiabudget.gov.in/economicsurvey/doc/eschapter/echap10.pdf
NITI Aayog. (2026). A study report on scenarios towards Viksit Bharat and net zero: An overview (Vol. 1). Government of India. https://www.niti.gov.in/sites/default/files/2026-02/Scenarios-Towards-Viksit-Bharat-and-Net-Zero-%20An-Overview-Vol1.pdf
NITI Aayog. (n.d.). India Climate and Energy Dashboard (ICED). Retrieved October 19, 2026, from
About the Contributor
Saachi Saxena is an undergraduate student pursuing B.A. (Hons.) Economics at Gargi College, University of Delhi. Her research interests include climate economics, public policy, sustainable development, healthcare economics, and development policy. She has actively contributed to policy research and social impact initiatives and is passionate about evidence-based policymaking for inclusive and resilient development.
Reviewers:
Anushree Khare & Gowri Kodali
Acknowledgements
The author is grateful to IMPRI – Impact and Policy Research Institute for providing the opportunity to prepare this policy update. The author sincerely acknowledges the guidance, valuable feedback, and constructive suggestions received during the review process, which significantly strengthened the quality and analytical depth of this article.
Disclaimer
The views and opinions expressed in this policy update are those of the author and do not necessarily reflect the official position of IMPRI or any affiliated institution. While every effort has been made to ensure the accuracy of the information and data presented, readers are encouraged to verify facts independently before relying on them for any decision-making purpose.
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