Nature finance in India: India’s biodiversity ambitions require substantial investment. UNDP estimates that meeting the country’s national biodiversity targets will require about ₹816 billion a year. The government has also begun putting financial instruments in place through the Carbon Credit Trading Scheme and the Green Credit Programme. Yet capital can be deployed only when there are credible projects to finance.
That is where India faces a less visible constraint. A mangrove restoration programme, an agroforestry project or the rehabilitation of degraded land has to pass through months of preparatory work before an investor can assess it. Land rights have to be established, ecological baselines measured, local participation secured and implementation costs worked out. Monitoring arrangements also have to satisfy whichever carbon, biodiversity or other environmental standard the project intends to use. Without this work, ecological potential remains an idea rather than an investment proposition.
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A district may contain thousands of hectares that appear suitable for agroforestry. That acreage tells an investor little about how many farmers are willing to participate, whether their plots meet eligibility conditions, which species are appropriate or how revenues will be shared. Wetland restoration raises different questions involving hydrology, tenure, ecological risks and responsibility for long-term management. Each type of project requires evidence specific to the proposed intervention.
India therefore has a project-preparation problem within its larger nature-finance gap. The distinction deserves attention because creating new sources of capital will have limited effect if too few projects can withstand technical and financial scrutiny.
Project preparation is expensive and hard to finance
The work required before investment begins can itself be costly. Feasibility studies, baseline surveys, geospatial analysis, consultations with affected communities and financial modelling require specialised expertise. At this stage, however, the project sponsor may still be unsure whether the proposal will proceed.
Commercial investors generally enter after the major uncertainties have been investigated. State agencies, local bodies and community institutions may know where restoration opportunities exist, yet many lack the budget or technical staff needed to prepare detailed investment proposals. Project developers also have little incentive to absorb large preparatory costs when future revenues remain uncertain.
Promising projects can therefore remain stranded between identification and financing. The problem is especially acute where the eventual investment is relatively small or spread across many landholders, since project-development costs then consume a larger share of expected returns.
A Nature Project Preparation Facility could bridge this gap. It should finance the technical and institutional work needed to establish whether a proposed project deserves implementation funding. Plantation, restoration or other field expenditure would remain outside its mandate.
This model already has precedents in climate finance. The Green Climate Fund, for example, provides dedicated support for project preparation because many worthwhile proposals need technical work before they can qualify for larger financing. India could adapt that principle to its own biodiversity, forestry and landscape-restoration priorities.
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Nature finance in India: Feasibility must eliminate weak proposals
A preparation facility would work best if projects moved through successive tests rather than receiving a single development grant.
Initial screening could use satellite data, land records and available ecological information to identify areas where a proposal appears plausible. Local consultations at this stage would reveal obvious problems involving ownership, land use or community interest before substantial money is spent.
Projects that survive this screening would undergo more detailed assessment. The work would vary by project type, but it could include ecological baselines, land eligibility, restoration methods, environmental risks, monitoring arrangements, institutional responsibilities and the terms on which local participants would share benefits.
Financial analysis should come after these questions have been examined. Developers could then estimate implementation costs against realistic environmental outcomes and expected revenues. The exercise may show that a proposal can attract commercial or blended finance. It may also show that the project has ecological value but no viable revenue stream.
That second finding would be equally useful. Wetlands, grasslands and other ecosystems can deserve restoration even when carbon revenues or other environmental credits cannot support the cost. Such projects may require government expenditure or grant finance. Trying to package every ecological intervention as an investment opportunity would obscure this distinction and could direct scarce preparation money towards projects that have little prospect of attracting private capital.
A preparation facility should therefore be judged partly by the projects it rejects. Public expenditure would have served a useful purpose if a relatively small feasibility grant prevented a much larger investment in a project with weak environmental assumptions, unresolved land issues or unrealistic revenue estimates.
Prepared projects can attract larger pools of capital
For projects that pass the feasibility process, public spending on preparation can reduce uncertainty for subsequent investors. By then, the area available for intervention should have been established, major implementation risks identified and the likely environmental gains estimated against credible baselines.
Investors could assess such proposals with far more confidence than they could respond to broad claims about the number of hectares available for restoration. Climate funds, companies and impact investors would also be able to compare projects using more consistent information.
This division of risk is appropriate. Governments and concessional institutions can finance some of the information that has public value but is costly for individual investors to produce. Private capital can enter once the project has demonstrated that it can meet the relevant financial and environmental requirements.
India’s carbon-market and green-credit frameworks make better project preparation more urgent. A trading system creates demand for verified outcomes. It does not create the land arrangements, community agreements, baselines or monitoring capacity required to produce those outcomes. Weak preparation will eventually surface as poor-quality credits, failed projects or disputes over benefits.
Smallholder projects depend on local institutions
The preparation challenge becomes harder in situations dominated by small farms. A commercially meaningful agroforestry or soil-carbon programme may need to aggregate hundreds or thousands of holdings. Individual plots are often too small to bear the transaction costs associated with project registration, monitoring and verification.
Aggregation works only when a credible local institution can organise participation and maintain the project over time. Farmer producer organisations, cooperatives and panchayats are possible intermediaries, depending on the local circumstances. Their capacity varies widely.
A project assessment therefore has to examine who will maintain records, coordinate field activity, manage monitoring obligations and distribute benefits among participants. Good estimates of carbon sequestration are of limited use when the institution responsible for implementation cannot sustain farmer participation or maintain reliable records.
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This institutional assessment is especially important for long-duration projects. Carbon and restoration schemes may require monitoring over many years. Agreements that look workable during project preparation can deteriorate if farmers leave, land use changes or benefit-sharing arrangements lose local support.
States need investible projects, not acreage claims
State governments could use a national or state-level preparation facility to develop pipelines of projects that have passed progressively more demanding tests. Investors would then see projects at identifiable stages of development rather than lists of districts or hectares described as having restoration potential.
The same system would give governments a clearer picture of where projects fail. Some proposals may fall away because of land disputes. Others may prove ecologically unsuitable, too expensive to monitor or dependent on revenue assumptions that do not survive scrutiny. Tracking these failures would improve subsequent project design and prevent repeated spending on proposals with similar weaknesses.
A prepared pipeline would also make it easier to decide which source of money suits each project. Commercially viable projects could seek private or blended finance. Projects with strong ecological benefits and weak revenue prospects could move towards public budgets, conservation grants or other concessional sources.
India has spent considerable policy effort creating instruments that can attach financial value to environmental outcomes. The harder task is to produce enough projects in which those outcomes can be measured, delivered and sustained.
If project preparation remains underfunded, carbon markets and green-credit schemes will confront the same constraint from different directions. There will be money looking for credible environmental assets and landscapes seeking money, with too few projects capable of connecting the two. A dedicated preparation facility would address that gap before India commits far larger sums to implementation.
Sayanta Ghosh is an Associate Fellow at The Energy and Resources Institute. His work focuses on biodiversity and climate finance, ecosystem restoration, carbon markets and geospatial approaches to natural resource management.