New Delhi: The government’s Economic Survey for 2025-26 has flagged a growing mismatch between global climate and sustainable development ambitions and the financing available to meet them, warning that the shortfall—estimated at $4 trillion—has widened, particularly for developing economies, even as international public finance remains limited.
The annual survey, released on Thursday, also highlighted the structural biases in the international financial architecture that continue to favour the developed economies.
For India, the survey highlights that climate finance remains skewed towards mature sectors such as solar, wind energy and energy efficiency, while critical areas including climate adaptation, MSMEs, urban infrastructure and hard-to-abate industries—sectors such as steel, cement, chemicals, aviation and shipping, where reducing carbon emissions is difficult due to high energy requirement—remain under-funded. At present, about 83% of India’s mitigation finance and 98% of adaptation finance is sourced from domestic resources, underscoring the limited role of international capital.
The call for bridging the financial gap comes at a time when India’s energy transition space, despite the rapid growth in capacity installation and local manufacturing is facing obstacles, including about 43 GW of unsigned power purchase agreements and curtailing of green power in solar power-rich states of Rajasthan and Gujarat.
Mint had earlier reported that the ministry of new and renewable energy is exploring the feasibility of various financing and contract models contract for difference, or CFD, for power purchase agreements that may be promoted instead of the conventional long-term pacts of up to 25 years. Under CFD, either party has to pay the difference between the contracted and the actual price. The ministry is also considering innovative models such as mezzanine finance that combines debt and equity, as reported by Mint.
According to the International Energy Agency’s World Energy Investment 2025 report, amid a rise in power demand and the power generation capacity, there has been a surge in investment in renewables, led by solar that constitutes over half the total non-fossil investment over the past five years. In 2024, 83% of power sector investment went to clean energy, it said.
Bond push
The survey said that to bridge the gap, bond markets are crucial for financing climate infrastructure that requires substantial upfront capital and extended repayment horizons. According to a government assessment, well-developed bond markets can provide stable, long-term financing at predictable costs, while also attracting institutional investors with long-term capital. Bond markets are also enabling urban local bodies to raise local-currency funds for climate-aligned services such as water supply, waste management and renewable energy.
“In India, cities including Indore, Ahmedabad, Ghaziabad and Vadodara have issued municipal green bonds in line with Sebi’s green bond framework. These issuances could help unlock USD 2.5–6.9 billion for locally driven climate action over the next 5–10 years,” the survey said. At the national level, the government has issued sovereign green bonds worth ₹15,000 crore in FY26, taking cumulative issuance since FY23 to ₹72,697 crore.
On 6 January, Mint reported that the government is drawing up a blueprint to give municipal administrators greater autonomy over finances and service delivery and encourage urban local bodies (ULBs), including municipal corporations, municipalities and nagar panchayats, to tap market-based instruments including municipal and green bonds to fund long-term urban investment.
It said India has adopted a two-pronged strategy focused on strengthening domestic financial systems while seeking greater international support. Specialized institutions such as Ireda, Nabard, Sidbi, Power Finance Corp and Rural Electrification Corp are supporting low-carbon and renewable energy projects by improving project preparation and bankability. Regulatory initiatives, including Sebi’s Business Responsibility and Sustainability Reporting framework, green bond guidelines, and IFSCA’s sustainability-linked lending norms, have also enhanced disclosure standards and investor confidence.
On international climate finance, the report flagged persistent gaps between commitments and actual flows under the Paris Agreement, citing high capital costs and structural weaknesses in the global financial system. It called for coordinated reforms in multilateral development banks, cautious use of blended finance, and strong governance to ensure climate finance supports growth and resilience without undermining fiscal stability or development priorities.
Global financial assets under management reached $147 trillion in 2025, yet climate finance flows remain highly skewed. In 2023, global climate finance totalled $1.9 trillion, of which private capital accounted for nearly $1.3 trillion. More than half of this private finance flowed to advanced economies, with China attracting another 30%, while developing countries, excluding China, got only about 15%. International public finance to developing economies remains limited, and domestic actors continue to dominate global climate finance, accounting for nearly 80% of total flows.
“These patterns embedded in the international financial architecture reflect a persistent and clear bias in favour of developed countries. Capital tends to flow to the economies with deeper financial markets, stable macroeconomic conditions, and those that are generally perceived as having lower risks,” the survey said.
Taking a dig at developed economies over their lack of action on climate change and support to developing and least developed countries, the survey said: “Even the new NDCs (nationally determined contribution) for 2035 of major developed economies show only limited enhancement in their climate mitigation goals, backpedalling on their commitments under the Paris Agreement, despite the fact that these countries reached their peak emissions decades ago, vis-à-vis developing countries like India.”
Aggravating the weakening global efforts against climate change, the climate finance commitments to the developing countries continue to remain diluted. “The clear signals from the global north, which are dithering on their own climate action, warrant that India must place adaptation centre stage in India’s climate action story to ensure that development gains are not lost,” the Economic Survey said.
Climate adaptation refers to anticipation of the adverse effects of climate change and taking appropriate action to prevent or minimize the damage or taking advantage of the opportunities that may arise. Climate mitigation is to make the impact less severe by preventing or reducing the emission of greenhouse gases into the atmosphere.
“Sustainability and climate resilience is core to long-term growth of the nation, as outlined in the Economic Survey. It highlights accelerated investments in adaptation—such as water security, resilient infrastructure, and livelihood protection—reflecting a shift toward self-funded climate resilience,” said Sambitosh Mohapatra, partner and leader, climate and energy at PwC India. “On mitigation, strong progress is noted around renewable energy capacity, critical mineral localization, and clean tech manufacturing to balance decarbonization with energy security.”