changeadminThe Economic Survey 2025-26, tabled in the Indian Parliament today by the Minister for Finance, Mr Nirmala Sitharaman, states, “the global climate change agenda has reached an inflexion point.”
This Economic Survey noted, “What was once framed as a straightforward moral and technological transition toward a net-zero future is today marked by complex trade-offs, capacity constraints, and a widening gap between ambition and operational reality.”
The Survey highlights that if complex systems are introduced too quickly, without buffers, redundancy, and institutional capacity, they are likely to become fragile rather than thrive.
Stating that climate policy should prioritise human welfare, particularly for poorer and climate-vulnerable societies, the Survey observes that development is, in itself, a form of adaptation.
The Economic Survey of India is an annual document of the Ministry of Finance, prepared under the guidance of the Chief Economic Adviser and presented in Parliament each year just before the budget.
The Economic Survey 2025-26, prepared by India’s Chief Economic Adviser, Dr V. Anantha Nageswaran, identifies adaptation as central to India’s climate strategy.
For India to achieve sustained growth and rising living standards, it will require a substantial expansion of the supply of affordable, reliable electricity.
Renewable energy will play a major and growing role in this expansion; however, capacity additions alone do not automatically translate into a dependable supply, the Survey says.
India must, therefore, approach the coming decade not as a climate policy problem in isolation, but as a broader energy system strategy.
Adaptation: Strengthening climate resilience
Integrating climate adaptation and resilience into development plans is essential for sustainable growth.
India’s climate adaptation strategy is predominantly advanced through a development-led approach, utilising domestic public investment in core development sectors, the Survey observes.
India’s adaptation and resilience-related domestic spending surged from 3.7 per cent of the GDP in FY16 to 5.6 per cent of the GDP in FY22.
The National Action Plan on Climate Change (NAPCC) spearheads climate action through nine missions, many of which focus on adaptation.
While the National Mission on Sustainable Agriculture promotes climate-resilient farming, the National Water Mission emphasises conservation and fair access through integrated resource management.
National frameworks and programmes provide policy coherence, financial support, and institutional mechanisms, while States contextualise and operationalise these interventions through sectoral policies, public programmes, and local institutions, the Survey says.
The State Action Plans on Climate Change (SAPCCs) are crucial tools for translating the NAPCC’s broader objectives into actionable steps.
The Survey highlights that as Indian cities continue to grow rapidly, internalising climate risk into the fabric of urban planning requires consideration of how climate change affects land use, infrastructure, and the services provided to residents.
Mitigation: Transition to a low-carbon economy
India is adopting a multifaceted approach to mitigate global warming by diversifying its energy sources and enhancing access, increasing the share of non-fossil fuels, improving energy efficiency, and promoting stability across its energy systems.
The Economic Survey highlights examples from European countries, including the Netherlands, Germany, and Spain, to illustrate the risks of transitions that outpace investment in baseload generation, transmission, and system flexibility.
India’s energy transition is being pursued through a combination of initiatives across sectors, including nuclear, solar, and wind energy; green hydrogen; battery storage; and critical minerals, thereby addressing both energy security and transition imperatives.
India has already surpassed the 50 per cent installed power capacity target from non-fossil fuel sources, which stood at 51.93% at the end of December 2025, supported by record annual additions of renewable energy capacity.
Progress in expanding non-fossil-fuel-based power capacity has been supported by a wide range of initiatives to enhance renewable energy systems.
Additionally, new measures are being implemented to support other clean energy sources, such as the National Nuclear Mission, the Green Hydrogen Mission, and the Bio Energy Programme.
Despite progress in expanding non-fossil-fuel energy, challenges remain. The survey identifies material and storage requirements as two barriers to greater utilisation of these energy sources.
Critical Minerals as a Determinant of Energy Transition
The Economic Survey says that the global energy transition is no longer solely determined by technology; it is increasingly constrained by who controls critical minerals.
Metals such as lithium, cobalt, nickel, copper, and rare-earth elements have become new strategic chokepoints in shaping the contours of a low-carbon economy.
As demand accelerates, advanced economies are responding by promoting standards-based critical mineral markets that emphasise sustainability, traceability, and governance.
India’s strategy strikes a balance, focusing on domestic capabilities through the National Critical Mineral Mission and an appropriate incentive mechanism, while engaging in international partnerships such as the Minerals Security Partnership and the Indo-Pacific Economic Framework.
The Government of India has launched the National Critical Mineral Mission as a strategic initiative to secure the supply chain of minerals essential for renewable energy and storage technologies.
Meanwhile, the government’s joint venture, Khanij Bidesh India Ltd. (KABIL), has acquired 15,703 hectares in Argentina for lithium mining, in addition to partnerships in Australia and Chile.
In December 2025, India adopted the landmark Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Act.
The new framework enables private-sector participation in key activities, including plant operations, power generation, equipment manufacturing, and research and innovation in the peaceful uses of atomic energy.
Carbon Credit Trading Scheme: from framework to implementation
The government adopted the Carbon Credit Trading Scheme (CCTS) in June 2023, which operates through a dual mechanism that combines mandatory compliance and voluntary offset approaches.
This framework leverages the existing Perform, Achieve and Trade (PAT) scheme infrastructure, gradually transitioning it into a fully operational compliance carbon market.
Under the Offset Mechanism, Non-Obligated Entities may voluntarily register projects that reduce, remove, or avoid greenhouse gas emissions to earn CCCs.
This mechanism enables mitigation outcomes from entities outside the compliance framework and incentivises climate action in these areas.
Mission LiFE
The Mission LiFE – Lifestyle for Environment, an initiative introduced in 2021 at COP26 in Glasgow, connects individual and community behaviour change with efforts to deal with climate change.
The Economic Survey terms Mission LiFE as an integral part of India’s Nationally Determined Contributions.
The majority of India’s climate-oriented schemes are aligned with the ethos of Mission LiFE, combining government interventions with behavioural and lifestyle shifts at the household, community, and enterprise levels.
India’s climate strategy is not confined to emissions targets or technologies alone; it is deliberately designed to reshape consumption patterns, social norms, and daily choices, making Mission LiFE not a parallel initiative but the behavioural foundation underlying most climate policies in the country, the Survey says.
Climate Finance
Current levels of climate finance fall short of developing countries’ requirements to achieve their climate ambitions.
The Economic Survey 2025-26 highlights that despite sustained global efforts, the gap between sustainable development ambitions and available financing has continued to widen—particularly for developing countries—reaching an estimated USD 4 trillion.
International public finance to developing economies remains limited, and domestic actors continue to dominate global climate finance, accounting for nearly 80 per cent of total flows.
These patterns embedded in the international financial architecture reflect a persistent and clear bias in favour of developed countries.
The Economic Survey notes that India faces global challenges in climate finance, with funding skewed toward mature sectors such as solar, wind, and energy efficiency.
Critical areas, including adaptation, MSME financing, urban infrastructure, and hard-to-abate industries, remain underfunded.
Currently, approximately 83 per cent of India’s finance for mitigation and 98 per cent of its finance for adaptation are sourced domestically.
Bridging the Finance Gap in the Indian Context
India has adopted a two-pronged strategy to scale up climate finance through both domestic and international sources.
Strengthening the Domestic Financial System
Specialised Institutions such as IREDA, NABARD, SIDBI, Power Finance Corporation Ltd., and Rural Electrification Corporation Ltd. are already working in the low-carbon/renewable energy space, promoting the adoption of sustainability practices and encouraging green investments through key initiatives and schemes.
These institutions support climate project preparation and enhance project bankability through catalytic capital, which closely aligns with India’s development priorities, including climate action.
SEBI’s Business Responsibility and Sustainability Reporting (BRSR) framework, green bond guidelines, and IFSCA’s guidance on sustainability-linked lending have improved disclosure quality and investor confidence in climate-related investments.
Deep and Liquid Bond Markets
Bond markets are crucial for financing climate infrastructure, which requires substantial upfront capital and extended repayment horizons. Deeper, more liquid bond markets can provide long-term, stable, and scalable financing at predictable costs.
Sovereign green bonds (SGBs) have been issued to fund low-carbon public infrastructure, providing policy signalling and market benchmarks.
On the one hand, mature markets are important for attracting institutional investment, which provides long-term capital.
On the other hand, bond markets provide an important platform for local administrative bodies to raise local-currency finance for climate-aligned functions, such as water supply, waste management, and green energy, tailored to area-specific adaptation and resilience needs.
The Economic Survey highlights that urban local bodies in Indore, Ghaziabad, Ahmedabad, and Vadodara have issued green bonds in line with SEBI’s green bond framework.
Municipal green bonds can unlock USD 2.5–6.9 billion for local bodies driven by climate action over the next 5–10 years.
Moreover, the Government of India has issued sovereign green bonds totalling ₹15,000 crore in FY26, bringing the cumulative issuance to ₹72,697 crore since FY23.
The Survey also notes that the yield advantage of green bonds over comparable conventional bonds (Greenium) has been observed across several sovereign issuers, but its magnitude and persistence vary significantly by market.
Cross-country experience shows that greenium outcomes depend less on investor intent alone and more on market design, liquidity, credibility, and reporting frameworks.
India’s Greenium is categorised as Intermittent (0-6 bps) on the basis of a clear sovereign green bond framework, strong domestic institutional demand, and policy signalling value.
International Climate Finance and the Role of Multilateral Development Banks
The Economic Survey clearly mentions that Global capital markets are flush with funds, yet flows to sustainable development and climate projects in the Global South remain constrained by entrenched risk aversion embedded in the architecture of global finance.
This is most evident in the operating models of Multilateral Development Banks (MDBs) and in the prudential regulations of developed countries.
MDBs continue to prioritise low-risk, sovereign-backed lending and the preservation of AAA ratings, limiting balance-sheet recycling and private capital mobilisation.
A shift toward balance-sheet optimisation—from “originate-to-hold” to “originate-to-share”—is essential to reposition MDBs as global risk managers, utilising guarantees, insurance, and blended finance to attract private investment.
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