Greening Growth in India

India stands at a crossroads where the imperatives of rapid development and urgent climate action intersect. The recent release of the draft Framework of India’s Climate Finance Taxonomy by the Ministry of Finance marks a watershed moment not just in India’s policy landscape, but in the global quest for a sustainable future. This taxonomy, far from being a mere technical document, is a strategic lever to mobilize the trillions needed for India’s climate goals while safeguarding its developmental priorities.

Why This Taxonomy Matters

India’s climate ambitions are among the most significant in the world. With a pledge to achieve net zero greenhouse gas (GHG) emissions by 2070 and a commitment to reduce emissions intensity of GDP by 45% from 2005 levels by 2030, India is signalling its resolve. Yet, its per capita GHG emissions remain far below the global average of 6.7, and dramatically lower than developed economies like the US or EU. India’s energy consumption per capita is just one-fifth that of developed countries, underscoring the scale of its development needs.

India’s low energy consumption per capita and achieving a “Viksit Bharat” (developed India) by 2047 will require a dramatic increase in energy use, infrastructure, and resilience measures. The taxonomy recognizes these realities. It is designed to ensure that climate finance does not come at the expense of growth or poverty alleviation. Instead, it aims to channel investments into activities that genuinely promote both climate mitigation and adaptation, while supporting India’s broader developmental aspirations.

Journey so far

India has implemented several key national policies and laws to combat climate change and promote sustainable development. The National Action Plan on Climate Change (NAPCC), launched in 2008, outlines missions on solar energy, enhanced energy efficiency, sustainable habitat, water, and more. The Energy Conservation Act (2001) mandates energy efficiency standards and labelling, enforced by the Bureau of Energy Efficiency. To further drive industrial energy efficiency, the Perform, Achieve and Trade (PAT) Scheme introduces a market-based mechanism for energy-intensive sectors. Meanwhile, the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme incentivizes the adoption of electric and hybrid vehicles. Complementing these efforts, Production Linked Incentive (PLI) Schemes aim to boost domestic manufacturing of green technologies, such as solar photovoltaic modules and advanced chemistry cells. Additionally, India launched LIFE (Lifestyle for Environment) as a mass movement to promote sustainable lifestyles, advocating for conservation and moderation in daily practices.

On the international front, India aligns with the Paris Agreement (2015), which calls for making finance flows consistent with low-emission, climate-resilient pathways (Article 2.1c), and mandates that developed countries provide financial resources to developing nations for mitigation and adaptation efforts (Article 9). Under global finance commitments, developed countries pledged to mobilize at least USD 100 billion annually by 2020 (extended to 2025) for climate finance in developing countries. At COP29 in 2024, a New Collective Quantified Goal (NCQG) was established, raising the bar to USD 300 billion per year by 2035, with a broader target of USD 1.3 trillion annually from all sources for developing nations.

Clarity, Credibility, and Capital Mobilization

The draft taxonomy identifies and prioritizes the sectors most critical for achieving decarbonization and climate resilience in India. Key focus areas include renewable energy, grid modernization, and energy storage within the power sector; electric vehicles and public transportation in mobility; green construction and energy-efficient retrofits in the built environment; and climate-resilient agriculture, efficient irrigation, and water conservation in the agriculture and water sectors. The taxonomy also acknowledges the importance of hard-to-abate industries such as steel and cement, which are vital for economic development but are significant sources of emissions.

Grounded in eight guiding principles — (i) Consistency with stated position on Climate Action and development priorities, (ii) Do no significant harm to other objectives of the climate finance taxonomy, (iii) Focusing on pathways and trajectories in the country context, (iv) Interoperability and consistency, (v) Support Transition Activities, (vi) Promoting the use of Indigenous technologies, (vii) Be science-based and transparent, (viii) Proportionality - Support for MSMEs — the taxonomy emphasizes alignment with India’s development objectives, the promotion of indigenous technologies, and support for transitional activities. Central to its framework is the “Do No Significant Harm (DNSH)” principle, ensuring that climate actions do not result in unintended negative social or environmental consequences. To uphold credibility and prevent greenwashing, the taxonomy provides clear definitions, eligibility criteria, and science-based benchmarks, enabling transparent and measurable environmental claims. A key contribution of the taxonomy is its ability to bring clarity and credibility to India’s green finance ecosystem. By establishing rigorous and standardized criteria for climate-aligned investments, the framework aims to:

✻Prevent greenwashing by ensuring sustainability claims are accurate and verifiable.

✻Build investor confidence and mobilize both domestic and international capital by aligning with global best practices, while tailoring them to India’s unique context.

✻Enable policy coherence across diverse sectors by providing a unified reference for climate-compatible economic activities.

The taxonomy adopts a phased and pragmatic approach, beginning with foundational principles and evolving into detailed sector-specific guidelines. Designed as a “living document,” it will be continuously updated to reflect advancements in technology, market conditions, and climate science, ensuring its ongoing relevance and effectiveness.

Balancing Development and Decarbonization

India’s climate finance needs are staggering: up to USD 2.5 trillion through 2030 for mitigation, and nearly USD 650 billion for adaptation. The taxonomy framework rightly emphasizes that the pace and pathway of India’s transition must be balanced, considering access to finance, technology, and critical resources. A rapid, one-size-fits-all transition could divert resources from urgent development priorities and risk social disruption. By embedding principles such as “Do No Significant Harm” and ensuring that climate investments also support jobs, equity, and resilience, the taxonomy seeks to avoid the pitfalls of a narrow carbon-centric approach. It recognizes that sustainable development in India must be inclusive, just, and context-sensitive.

Global Alignment, Local Leadership

India’s approach to climate finance and investment is further supported by the development of its own green taxonomy. Drawing from global frameworks such as the EU Taxonomy, UK Green Taxonomy, and Climate Bonds Initiative, India’s taxonomy is tailored to the national context while ensuring alignment with international standards. This alignment promotes investor confidence and ensures clarity in climate-related investments. It acknowledges the historical responsibility of developed nations, the need for differentiated timelines, and the imperative of aligning climate action with the nation’s growth trajectory. This approach is not just pragmatic; it is essential. India’s taxonomy could become a model for other emerging economies grappling with the dual challenges of development and decarbonization.

Conclusion

India’s Climate Finance Taxonomy is a crucial policy innovation, rooted in authentic data, robust national laws, and global best practices. It is designed to unlock capital, guide sustainable investments, and ensure India’s growth is both inclusive and green. If implemented effectively, it will not only help India achieve its climate and development goals but also set a precedent for other emerging economies navigating the complex intersection of growth and sustainability. But the real test will be in implementation. The taxonomy must be backed by robust regulatory support, capacity building, and integration into financial sector practices. Only then can it unlock the scale of investment needed for India’s green transformation.

Praveen Garg is a Former Special Secretary, MoEFCC, India and President, Mobius Foundation. Sudheer Kumar Shukla is Head Think Tank, Mobius Foundation. Views expressed are personal