Sustainable finance: India’s growth story is entering a phase where scale alone will no longer suffice. Climate stress, fiscal constraints, and social unevenness are now binding conditions, not distant risks. The question facing policymakers is not whether India should pursue sustainability and inclusion, but whether the financial system can be aligned quickly enough to support them.
Green and inclusive finance have moved from niche concepts to central policy instruments because they sit at the intersection of these pressures. They shape how capital is raised, priced, and deployed across energy, infrastructure, cities, and livelihoods. For a country managing rapid urbanisation, ambitious renewable targets, and high climate vulnerability, the design of this financial architecture will influence development outcomes for decades.
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Green and inclusive finance must move together
India’s sustainable finance framework rests on two related objectives. Green finance directs capital towards mitigation and adaptation- renewable energy, clean transport, resilient infrastructure, sustainable agriculture. Inclusive finance ensures that these transitions do not deepen existing inequalities across regions, income groups, and labour markets. Separating the two weakens both. A low-carbon transition that raises energy costs or displaces workers without alternatives will face political and social resistance. Inclusion without environmental discipline locks in fragile growth.
India’s climate commitments underline the scale of the challenge. Under its updated nationally determined contribution, India has pledged to reduce emissions intensity of GDP by 45% from 2005 levels by 2030 and reach net zero by 2070. According to government estimates, India accounts for roughly 4% of global greenhouse gas emissions, while remaining among the most climate-vulnerable large economies. Financing these commitments requires sustained capital mobilisation rather than episodic public spending.
The numbers are instructive. India’s non-large-hydro renewable capacity crossed 197 GW by September 2025. Clean-energy investment in FY2021-22 was about ₹1.77 trillion, accounting for nearly half of mitigation-related flows. These figures reflect momentum, but also the gap between ambition and financing depth.
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India’s sustainable finance market has evolved
India’s sustainable finance ecosystem has expanded rapidly in recent years. According to Climate Bonds Initiative data, cumulative issuance of green, social, sustainability and sustainability-linked debt reached $55.9 billion by end-2024—almost three times the level in 2021. Green bonds dominate this market, accounting for over four-fifths of issuance. The sovereign green bond programme, launched in 2023, has issued around ₹477 billion so far and has helped establish benchmarks for pricing and disclosure.
Capital allocation remains heavily skewed. Renewable energy absorbs the largest share, reflecting both policy clarity and revenue visibility. Government assessments suggest that meeting medium-term targets will require annual investments of nearly ₹1.9 trillion in solar, wind and battery storage alone. Electric mobility, industrial energy efficiency, and green buildings are also attracting interest. By contrast, adaptation finance—covering water systems, agriculture resilience, public health, and disaster-proofing—remains underfunded despite its high social returns.
Regulatory support has improved disclosure standards. The Securities and Exchange Board of India’s Business Responsibility and Sustainability Reporting framework now applies to the top 1,000 listed companies, strengthening ESG transparency. Yet taxonomy alignment, verification norms, and data comparability remain uneven, limiting investor confidence and cross-border capital flows.
Structural constraints holding the market back
Despite visible progress, sustainable finance in India is still constrained by design gaps. The absence of a fully harmonised green taxonomy increases the risk of mislabelling and raises due-diligence costs. ESG disclosures, while broader, vary in quality and are not always decision-useful for investors.
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Project economics present a second hurdle. Green projects often involve high upfront costs and long payback periods, particularly in emerging areas such as green hydrogen, grid modernisation, and nature-based solutions. Commercial lenders remain cautious, especially where policy or technology risks are evolving. Blended-finance structures—combining development finance, guarantees, and private capital—are repeatedly identified as necessary, but remain limited in scale.
Fiscal constraints sharpen these challenges. India’s general government debt stood at about 82% of GDP at end-March 2024, narrowing room for large public outlays. While national missions on green hydrogen, offshore wind, agricultural solarisation, and municipal infrastructure signal intent, public finance alone cannot carry the transition.
Inclusion is the weak link in the transition
The credibility of India’s sustainability strategy depends on whether it addresses distributional outcomes. Climate transitions affect jobs, incomes, and access unevenly. Coal-dependent regions, informal workers, small farmers, and urban migrants face higher adjustment costs. Without targeted finance for reskilling, local adaptation, and livelihood diversification, green growth risks becoming socially brittle.
This is where inclusive finance must move beyond credit access. Risk-sharing mechanisms, first-loss facilities, and local-government capacity building are critical to channel funds into climate-vulnerable districts. Municipal green bonds, agricultural resilience financing, and gender-responsive climate funds remain underdeveloped but essential.
India stands at a narrow but decisive moment. Green and inclusive finance can support competitiveness, resilience, and social stability—if designed with clarity and discipline. This requires credible taxonomies, stronger project pipelines, risk-mitigation instruments, and attention to who bears transition costs. The coming decade will test whether India’s financial system can evolve from incremental adjustments to a coherent sustainability architecture. If it does, growth, inclusion, and climate responsibility need not pull in opposite directions.
Naman Mishra is a doctoral researcher, and Palakh Jain Associate Professor at Bennett University, Greater Noida.