How Budget 2021 can boost climate finance and adaptation funds in India

Never has the need been more urgent to focus on climate change in the land, and a lot hinges on Budget 2021 to boost, consolidate and ensure better use of the funds set aside for it.

Shubham Gupta
| Updated: January 30th, 2021

Photo: flickr


India has been making significant progress towards achieving its Nationally Determined Contributions (NDC) under the Paris Agreement, through its ongoing expansion of solar and other renewable energy (RE) projects, and initiatives like the International Solar Alliance

Budget 2020 also saw a sizeable allocation of Rs 22,000 crore for the power and RE sector. However, adaptation and mitigation are two vital and mutually reinforcing pillars of climate action. In the upcoming budget 2021, attention, and more importantly, investments need to be evenly distributed between them to effectively fight the impact of climate change, and ensure the wellbeing and sustainable development of India’s highly vulnerable population

The climate adaptation fund

Identifying this need, India launched the National Adaptation Fund for Climate Change (NAFCC), its flagship fund to finance adaptation in 2015. India was among the first countries to set up this dedicated fund in accordance with the National Adaptation Plan for Climate Change (NAPCC) and State Action Plans for Climate Change (SAPCC). The fund is anchored and financed by the Ministry of Environment Forests and Climate Change (MoEF&CC), with the National Bank for Agriculture & Rural Development (NABARD) acting as the implementing entity. So far, it has sanctioned 30 projects with a total financial assistance of INR 847 crore. Of them, 28 projects are state-specific with financial assistance between ten to twenty five crore rupees, and the rest involve participation of multiple states, with more than INR 100 crore. 

Project development, appraisal and investment decision involve multiple stakeholders and stages including the final approval of the National Steering Committee on Climate Change (NSCCC). Most of the projects focus on rural economy, cutting across five broad categories – resilient agriculture, forestry, coastal management, livestock and water (Figure 1) with 86% of the funding going towards providing investment support, and the rest for capacity building and baseline measurement (Figure 2).

Figure 1: Activity-wise distribution of NAFCC projects. Source: NABARD Annual Report 2019-20
Figure 2: Percentage fund allocation for various activities in 21 sanctioned projects. Source: Ravi S Prasad and Ridhima Sud (2019)

However, it is hard to assess the implementation progress, impact, and the future scalability of these projects due to the lack of information in the public domain. A research paper published in 2019 by MoEFCC officials notes that while dedicated funding for climate adaptation promotes competitive federalism among states and NAFCC has helped to foster successful incremental adaptation project, it is now time to scale these efforts to achieve transformative outcomes and prioritize projects that can have impacts at a larger scale.

At the fund level, financial support from the Centre and aggregate expenditure has fluctuated on an annual basis with no discernible trend. For instance, in 2019-20, out of the INR 100 crore allocated, only INR 40 crore was spent, as opposed nearly 100% utilization in the previous years. The fund was established with the initial allocation of INR 350 crore. However, subsequent annual allocations have been lesser (Figure 3). These statistics raise concerns, as they do not reflect urgency to ramp up adaptation actions.  The allocated amounts are also inadequate to carry out these actions at the scale needed.

Figure 3: NAFCC Budget Allocation & Spends (2015/16 – 2020/21). Source: Compiled from Union Budget Documents

The Way Forward

Five years since its inception, NAFCC may not have achieved the potential it holds to anchor India’s adaptation efforts, but its performance is promising. Going forward, it is important to review the role, contributions and uptake of NAFCC to assess if it should be continued in its current avatar. Is the size, scope and speed of its current funding sufficient to meet India’s adaptation requirement? 

To start with, NAFCC’s role should not be restricted to providing top-up finance for standalone projects. Instead, the fund should be envisaged as a vehicle to mainstream adaptation into development planning and budgeting. It should be able to provide credible and evidence-based insights to decision makers at both national and subnational levels on maximising the adaptation benefits of their expenditure. Often climate co-benefits of government expenditure remain underutilized – even unutilized – due to operational inflexibilities or lack of localized information.  NAFCC should help in bridging this gap. It should try out new adaptation techniques and tools which can be subsequently integrated in flagship government programs. 

The fund’s operations also need rethinking in terms of its scope. The world’s largest urban transformation is happening in India with an expected 400 million increase in urban population by 2050. Accordingly, more focus is required on understanding and building urban resilience. Size and type of the funding per project also requires more flexibility, depending on financial products such as concessional loans, etc. that can be used to support larger projects. Strengthening of institutions and capacity building of officials and communities at the local level are key to robust adaptation. A stronger capacity building component under NAFCC projects can help in ensuring that local knowledge and capacities are being built for longer term, sustained efforts. 

Finally, attracting private sector investments in adaptation projects has been a challenge globally. It would be interesting to explore the possibility of supporting adaptation projects by private entities, especially by small companies and start-ups. The fund itself can campaign and build awareness to mobilize resources from large companies under corporate social responsibility or philanthropic initiatives for its investment operations. 

These efforts could kindle further dialogue and deliberations among key stakeholders regarding the future of the NAFCC. In the wake of Covid-19, India, like all other countries, has to look inward to mobilize finances, and ramp up climate action. The NAFCC, albeit with its short history and experience, is uniquely placed to play a pivotal role in shaping the future of climate finance and adaptation in India. Hopefully, the budget 2021 allocations for NAFCC would prove to be a step in this direction.

Shubham Gupta is Manager, Climate Finance and Parvathi Preethan is Senior Project Associate with the Climate Resilience Practice program at the World Resources Institute India. Views are personal.