India will need to mobilise USD 467 billion in climate finance by 2030 to steer four of its most carbon-intensive sectors – power, steel, cement and transport – onto a low-carbon pathway, according to a new study released on Thursday.
The working paper, India’s Climate Finance Requirements: An Assessment, authored by economists Janak Raj and Rakesh Mohan for the Centre for Social and Economic Progress (CSEP) and the Task Force on Climate, Development and the IMF, departs from conventional top-down modelling approaches.
Instead, it adopts a bottom-up methodology, estimating sector-by-sector requirements to provide what the authors described as a “granular understanding” of India’s challenge.
The analysis found that decarbonising the four sectors, which together accounted for more than half of India’s carbon dioxide emissions in 2023, would demand an average of USD 54 billion annually between 2022 and 2030. This amounts to around 1.3 per cent of the country’s GDP.
“Contrary to the common narrative, the study finds that it is not the power sector, but the steel and cement sectors which need large climate finance,” Raj said.
He noted that both industries are hard to abate and would require costly carbon capture and storage (CCS) technology, which remains the only feasible option at this stage.
The report estimates that over 80 per cent of the USD 467 billion requirement will come from steel and cement alone. By contrast, the power sector will require around USD 57 billion, significantly lower than prevailing assumptions, due to falling capital costs of renewable energy.
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The transport sector is also expected to demand significant investment, particularly to accelerate the shift from internal combustion engines to electric mobility.
This would require scaling up charging infrastructure, creating viable financing mechanisms and strengthening regulatory frameworks, the paper said.
Mohan stressed that although the sums are substantial, they remain within reach.
“The incremental financial resources needed for climate change mitigation in India for four key emitting sectors – energy transition, steel, cement and road transport – at an annual average of 1.3 per cent of GDP up to 2030, are within reach,” he said.
“Contrary to most astronomical estimates that are done top down, this estimate has been derived on a bottom-up granular basis. It provides a basis for optimism on our financial capacity to tackle climate change,” he added.
The study warns, however, of a financing gap that will need to be bridged through both domestic and external sources.
It suggested that India may prudently expand its fiscal deficit up to 2.5 per cent of GDP to absorb external climate finance but emphasised that this must be complemented by stronger domestic mobilisation.
Policy recommendations include incentivising private investment in steel and cement through targeted subsidies, research and development support and international technology transfer.
The authors also urged the government to develop a clear national framework to accelerate electric vehicle adoption, alongside expanding battery storage and hydro-pump capacity to strengthen the power grid for renewable integration.
The report argued that how India navigates this transition will be closely observed by other emerging and developing economies facing similar dilemmas.
“The bottom line: Steel and cement are the financial linchpin in India’s decarbonisation efforts. With a carefully calibrated economic strategy, India can navigate the dual challenge of sustaining rapid growth while tackling climate vulnerabilities, offering lessons for other developing economies confronting similar challenges in financing ambitious climate transitions,” it said.
The authors called for urgent action, given the long lead times for investment in heavy industry and energy infrastructure. They cautioned that delays in mobilising finance could lock India into high-emission pathways that would be costly to reverse.
Raj, who has previously worked with the Reserve Bank of India and the International Monetary Fund, and Mohan, a former Deputy Governor of the RBI and a member of the Prime Minister’s Economic Advisory Council, said their findings aim to inform both domestic policymakers and the international community as India prepares for the UN climate conference (COP30) in Belem, Brazil, later this year.
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