October 8, 2025

General Studies Paper-3

Context

  • India is positioning itself as a global leader in climate action with ambitious targets for renewable energy, green hydrogen, and decentralized power systems.
  • However, it is threatened by a persistent and widening climate finance gap.

India’s Clean Energy Transition

  • India is rapidly shifting from coal-dominated power generation to a diversified mix of solar, wind, hydro, bioenergy, and nuclear with a target of achieving 500 GW of non-fossil fuel capacity by 2030.

Growth in Renewable Energy

  • India’s non-fossil fuel installed capacity reached 213.70 GW by late 2024.
  • India added 24.5 GW of solar energy capacity, ranking third globally—behind only China and the United States in 2024.
  • India stands alongside Brazil and China as a leading developing economy advancing large-scale solar and wind deployment, recognised by the UN Secretary-General’s 2025 Climate Report.
  • Wind Energy: Installed capacity grew to 47.96 GW, with total wind capacity (including pipeline projects) at 74.44 GW.
  • Hydro and Bioenergy: Combined capacity from small and large hydro projects exceeded 72 GW, while bioenergy reached 11.34 GW.
  • Nuclear Energy: Installed capacity rose to 8.18 GW, with total capacity including pipeline projects at 22.48 GW.
    • India contributed nearly 5% to India’s GDP growth, supporting over one million jobs, including 80,000 in off-grid solar in 2023.
    • IRENA projects India could achieve 2.8% average annual GDP growth through 2050 under a 1.5°C-aligned pathway.

Growth of Green and Sustainable Finance

  • Green, Social, Sustainability and Sustainability-linked (GSS+) debt issuance totalled $55.9 billion, marking a 186% rise since 2021.
  • Green bonds accounted for 83% of this, with cumulative investments surpassing $45 billion in 2025, with sustainable finance targets set at $100 billion by 2030.
  • Key enablers include:
    • Sovereign green bonds and SEBI-regulated social bonds;
    • Solar Park Scheme auctions that attract private capital;
    • Growing investor confidence in India’s sustainable finance frameworks;

Financial Gap Behind the Growth

  • India requires between $1.5 trillion and $2.5 trillion in climate investments by 2030, according to IRENA and India’s Ministry of Finance, to stay on a 1.5°C pathway. These funds are needed for:
    • Expanding renewable capacity;
    • Strengthening power grids;
    • Scaling battery storage and green hydrogen;
    • Supporting sustainable transport and agriculture;
  • Most Green Bonds have been driven by large private firms, which accounted for 84% of total green bond issuance.
  • Expanding access to MSMEs, agri-tech innovators, and local developers remains critical.
  • Carbon-intensive Sectors in India: ‘India’s Climate Finance Requirements: An Assessment’ highlighted that India needs to mobilise USD 467 billion in climate finance by 2030 to put its four most carbon-intensive sectors — power, steel, cement, and transport — on a low-carbon trajectory.

Way Forward

  • Diversifying Climate Finance Strategy: India needs to broaden and deepen its climate finance approach. Public finance needs to play a catalytic role in leveraging private investment through fiscal incentives and de-risking tools. Blended finance offers a pragmatic pathway:
    • Partial guarantees and subordinated debt can enhance investor confidence.
    • Performance or loan guarantees can mobilize funds for mid-sized clean projects in Tier II and III cities.
    • Institutional capital—from pension funds, insurers, and sovereign wealth funds—must be mobilized for green investments.
    • Regulatory reforms are essential to enable institutional investors to commit a portion of their portfolios to ESG-aligned projects.
  • Unlocking Carbon Markets and Innovation: The Carbon Credit Trading Scheme(CCTS) presents another opportunity to generate climate finance if implemented with transparency and equity.
    • Simultaneously, India must prioritize financing for climate adaptation and loss & damage, areas often overshadowed by mitigation.
  • Blended Finance Models: Combining concessional and commercial capital to de-risk investments and support MSMEs, agri-tech innovators, and decentralized energy developers.
  • Climate Finance Taxonomy: The Finance Ministry’s draft taxonomy aims to guide investments toward sustainable projects and prevent greenwashing, aligning with India’s Net Zero by 2070 goal.
  • India needs to focus on technology-driven solutions such as:
    • Blockchain for transparent climate finance tracking;
    • AI-powered risk assessments for green portfolios;
    • Customised blended finance models adapted to India’s socio-economic context;
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