Context

• India’s clean energy transition has gained global recognition for its rapid scale and ambition. In 2024 alone, the country added 24.5 gigawatts (GW) of solar energy capacity, becoming the third-largest contributor worldwide after China and the United States.
• This accomplishment, alongside its leadership in creating the International Solar Alliance (ISA), places India at the forefront of the global shift towards renewables.
• However, beneath the success stories lies a significant financial gap that threatens to slow the pace of transformation.
• Without adequate and innovative climate finance mechanisms, India risks falling short of both its national and international climate commitments.

India’s Rising Leadership in Renewable Energy

• India’s clean energy sector has expanded at an impressive rate, making it a central player in the global renewable energy landscape.
• The United Nations Secretary-General’s 2025 Climate Report highlights India, alongside Brazil and China, as a leading developing nation in scaling up solar and wind energy.
• This progress is not merely environmental but also economic.
• By 2023, the renewable energy sector employed over one million people and contributed nearly 5% to India’s GDP growth.
• Off-grid solar solutions alone created 80,000 jobs in 2021, reflecting the sector’s potential for inclusive growth.
• Moreover, the International Renewable Energy Agency (IRENA) projects that if India follows a 1.5°C-aligned pathway, it could achieve average annual GDP growth of 2.8% through 2050, more than double the G20 average.
• This illustrates the economic case for clean energy, particularly through technologies such as decentralised grids, battery-integrated renewables, and green hydrogen.

The Critical Gap: Financing the Transition

• Despite this remarkable progress, India faces a pressing financial challenge. To remain on track with its climate targets, India requires between $1.5 trillion and $2.5 trillion by 2030.
• These funds are essential not only for scaling renewable energy but also for modernising electricity grids, deploying battery storage, advancing sustainable transport, and ensuring climate-resilient agriculture.
• Current climate finance flows remain inadequate to meet this scale of investment.
• While India’s green finance market has shown growth, with cumulative green, social, sustainability and sustainability-linked (GSS+) debt issuance reaching $55.9 billion by 2024, the funding remains concentrated.
• Green bonds, which account for over 80% of this issuance, have primarily benefited large corporations.
• Micro, small, and medium enterprises (MSMEs), local infrastructure projects, and agri-tech innovators often struggle to access climate finance due to high risks and lack of concessional funding.
• This imbalance underscores the need for diversified strategies that extend beyond large corporate players. 

The Way Forward

• Expanding the Climate Finance Strategy
  • To bridge the financial gap, India must diversify its climate finance instruments and strengthen policy frameworks.
  • Public finance will play a catalytic role. National and state governments can leverage budgetary allocations and fiscal incentives to de-risk green projects, thereby attracting private investment.
  • Blended finance models, which combine public and private funds, represent a powerful tool in this effort.
  • Instruments such as credit guarantees, subordinated debt, and risk-sharing mechanisms can make renewable projects more attractive to private lenders.
  • For instance, performance guarantees could unlock financing for mid-sized clean energy infrastructure in smaller urban centres, where governance and delivery risks may otherwise deter investors.
• Tapping Emerging Avenues: Carbon Markets and Innovation
  • Beyond traditional finance, India must also explore innovative approaches.
  • The launch of the Carbon Credit Trading Scheme offers an opportunity to mobilise new funding streams, provided it is managed transparently and equitably.
  • Similarly, financing for adaptation and loss-and-damage measures must gain greater attention, ensuring vulnerable communities are not left behind.
  • Technology-driven solutions can also strengthen India’s climate finance framework.
  • Blockchain could improve transparency in tracking funds, while Artificial Intelligence can enhance risk assessments for green portfolios.
  • Tailored blended finance models that reflect India’s diverse social and economic realities will be critical in ensuring that the transition remains inclusive and scalable.

Conclusion

• India has demonstrated global leadership in renewable energy deployment and job creation, while also contributing meaningfully to international climate cooperation.
• Yet, the journey ahead depends on closing the enormous climate finance gap.
• By diversifying financial instruments, unlocking institutional capital, and embracing innovative tools such as carbon markets and AI-driven assessments, India can not only meet its climate commitments but also drive inclusive, sustainable economic growth.