Climate change action necessary but international; private capital flows remain constrained: Economic Survey

Developing countries will require $310 billion to $365 billion annually by 3025 to integrate climate adaptation into their ecosystems, according to the 2025 Adaptation Gap Report, the Economic Survey noted on Thursday. 

However, the current capital flow stands at about $26 billion, highlighting one of the major pain points of climate adaptation in the world. 

Amidst this reality, India is focusing on a development-led approach, utilising domestic public investment in core development sectors with the country’s adaptation and resilience-related domestic spending surging to 5.6% of the GDP in FY22, the report noted. 

The country is focusing on a combination of initiatives across various sectors to help with energy transformation. This includes sectors such as nuclear, solar, wind energy, green hydrogen, battery storage, and critical minerals. According to the International Renewable Energy Agency (IRENA)’s Renewable Energy Statistics 2025, India now ranks fourth globally in total installed renewable energy capacity after China, the USA, and Brazil. 

Most recently, the country also introduced the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Act, 2025, under which the country began enabling the participation of the private sector or state governments previously not allowed to participate in key activities, including operating plans, power generation, equipment manufacturing, and more. 

Despite efforts taken to fast-track adoption, challenges remain. For instance, the renewable energy systems of solar and wind are highly material and capital-intensive, the survey noted. 

Bridging the climate finance gap

The survey identified a massive global financing gap, with developing countries (excluding China) receiving only about 15% of global private climate finance. While India managed to reduce its emissions intensity by 36% since 2005 and achieved 50% non-fossil power capacity ahead of schedule, climate finance remains skewed towards mature sectors such as solar, wind energy, and energy efficiency. 

Critical sectors, including adaptation, financing for MSMEs, urban infrastructure, and hard-to-abate industries, remain underfunded. 

Amidst this, India has taken steps to mobilise climate financing. This includes sovereign green bonds, which have been issued to fund low-carbon public infrastructure projects, setting up of specialised financial institutions that are working in the renewable energy space, and expanding insurance coverage against climate risk. 

For instance, cities like Indore, Ahmedabad, and Vadodara have successfully issued green bonds for water and solar projects.

The report noted that current global capital allocation overlooks the long-term benefits of investing in climate solutions as well as the role of public policy and international cooperation. As a result of this, developing countries have to manage their climate-related investments with shorter-term loans, higher risk premiums, and a need to utilise their own resources, which limits the ability to implement effective climate action. 

“As climate risks intensify and global transitions accelerate, India’s experience offers a development-centric framework, one that integrates resilience, competitiveness, and sustainability, demonstrating that economic growth and environmental stewardship can advance together rather than in opposition,” the survey noted.