India’s Green Budgeting Initiatives: Progress and Challenges

Balancing rapid economic growth with environmental stewardship is one of the toughest fiscal puzzles of our time. Green budgeting, a policy tool that embeds environmental priorities directly into government spending decisions, has emerged as a promising answer. Over the last decade, India has taken meaningful steps in this direction, from coal cess reforms to sovereign green bonds and state-level climate budgets. Yet significant gaps remain between ambition and execution.

What green budgeting actually means 🔗

At its core, green budgeting is a fiscal planning tool that systematically maps government outlays and expenditures against environmental goals. It does not replace existing policies. Instead, it gives policymakers a clearer picture of how budget choices affect climate and environmental outcomes. According to The Energy and Resources Institute, the approach aims to strengthen inter-departmental planning, enhance policy coherence for domestic and international commitments, develop frameworks to assess performance against environmental targets, and send market signals for sustainable development.

This matters because environmental ministries typically receive a small share of the national budget. When sustainability is mainstreamed across ministries such as agriculture, transport, urban development, and energy, every rupee is scrutinised for its ecological footprint. That is the shift green budgeting attempts to trigger.

How India’s green fiscal journey began 🔗

India’s green fiscal experiments started even before the term “green budgeting” became common vocabulary. A Clean Environment Cess was first introduced in 2010 as a levy on coal sales. The proceeds were meant to flow into the National Clean Energy and Environment Fund, which would finance renewable energy research, afforestation, and river rejuvenation efforts.

The fiscal turning point came around 2015 and 2016, coinciding with India’s commitments under the Paris Agreement. The 2015-16 budget introduced the Faster Adoption and Manufacturing of Electric Vehicles scheme and raised the coal cess from Rs 100 to Rs 200 per tonne, which was doubled again to Rs 400 per tonne in the 2016-17 budget. That same period saw an increase in allocations for the National Afforestation Programme and several clean energy initiatives.

The coal cess and its unfinished story 🔗

Despite the promising design, the cess underperformed. A significant share of collections never reached the earmarked clean energy fund. After the introduction of the Goods and Services Tax in 2017, the cess was folded into the GST compensation cess, which is used to compensate states for revenue shortfalls rather than supporting environmental initiatives. This episode offers an important lesson: earmarked green revenues are only as effective as the institutional discipline that protects them.

The Union Budget’s evolving green architecture 🔗

Successive Union Budgets have layered new instruments onto the green agenda. The 2021-22 budget placed clean energy, waste management, and scrappage of old vehicles on centre stage. The 2022-23 budget went further by announcing sovereign green bonds to fund public sector projects with low-carbon goals, alongside a push for a circular economy and energy efficiency.

The 2023-24 budget was arguably the most explicit in framing fiscal policy around environmental outcomes. The 2023-24 budget identified inclusive development and green growth as two of seven key priorities, with substantial increases in allocations for initiatives like ultra mega solar projects, battery energy storage, and a national hydrogen mission targeting 5 million tonnes of green hydrogen production by 2030. Significant funding was also earmarked for transmission infrastructure to integrate renewable capacity from Ladakh into the national grid.

What the 2025-26 budget signalled 🔗

The most recent budget cycles have tried to balance fiscal discipline with clean energy ambition. The Union Budget 2025-26 removed customs duty on imports of waste lithium-ion batteries and scrap of 12 critical minerals, added 35 capital goods for EV battery manufacturing to the exemption list, and expanded the Production Linked Incentive scheme and Green Hydrogen Mission to incentivise fuel cells, batteries, and storage systems. E-mobility allocations also rose compared to the previous year.

However, independent assessments flagged important shortfalls. The Union environment ministry’s allocation rose to Rs 3,412.82 crore, with the National Mission for a Green India receiving Rs 220 crore, up from Rs 160 crore, and biodiversity conservation funding nearly tripling to Rs 10 crore, though experts argued the overall scale remained insufficient given India’s environmental challenges.

States leading the green budgeting conversation 🔗

While the Union government has not yet published a dedicated green budget statement, several states and a Union Territory have taken the lead. Odisha was the first to initiate a dedicated climate budget in 2019-20 using the Phased Climate Change Impact Appraisal method, followed by Bihar in 2020-21, with Assam, Meghalaya, and Pondicherry joining in the 2023-24 budget cycle. Each state has adopted a slightly different framework, reflecting local priorities and institutional capacity.

Delhi’s green budget experiment 🔗

Delhi’s 2018-19 budget introduced a 26-point green plan covering rooftop solar installations in government schools, tree plantation drives, and waste management initiatives. The Delhi Green Action Plan, coordinated by the Department of Forests and Wildlife with more than 20 other greening agencies, has helped increase the city’s green cover from 297.81 sq km in 2013 to around 342 sq km by 2021. More recently, the 2026-27 Delhi budget allocated Rs 130 crore for forest development, Rs 300 crore for pollution control and emergency measures, and announced a Carbon Credit Monetisation Scheme with a measurement, reporting, and verification system.

Karnataka’s climate-aligned planning 🔗

Karnataka prepared its State Action Plan on Climate Change with the Environmental Management and Policy Research Institute and TERI, focusing on agriculture, water, forestry, and energy. The revised KSAPCC, approved by the central government after a three-year delay, estimates that Karnataka requires Rs 52,827 crore between 2025 and 2030 to implement measures across agriculture, horticulture, forestry, rural development, and ten other sectors. Bengaluru, the state’s largest urban centre, has also developed a Climate Action and Resilience Plan targeting 40 per cent green cover and permeable surfaces by 2040, drawing inspiration from Mumbai’s climate budgeting model.

Other state-level innovations 🔗

Other states have experimented with different tagging frameworks. Assam categorises schemes into Green, Yellow, Grey, and Brown based on climate relevance across nine sectors. Meghalaya focuses on department-wise allocations for adaptation and mitigation. Bihar and Pondicherry use the Rio marker system to tag programmes by climate relevance. This diversity is valuable, but it also underscores the case for a harmonised national framework.

Key green initiatives anchoring fiscal policy 🔗

Several flagship programmes form the operational backbone of India’s green budgeting efforts. The National Afforestation Programme, aimed at regenerating degraded forest and adjoining areas, works alongside the Green India Mission, with supplementary afforestation activities funded through compensatory afforestation, MGNREGA, the National Agroforestry Policy, and the National Bamboo Mission. These complement clean energy programmes such as the National Solar Mission, the PLI scheme for solar modules, and the Green Hydrogen Mission.

On the fiscal instruments side, India has added sovereign green bonds, viability gap funding for battery storage, and targeted customs duty adjustments to the toolkit. These are small but important signals that markets can respond to, especially when combined with regulatory mechanisms like Renewable Purchase Obligations and the Perform Achieve Trade scheme.

The challenges holding back progress 🔗

Progress has been real but uneven. Several persistent challenges prevent green budgeting from delivering its full potential.

Underutilisation of earmarked funds. The history of the coal cess shows how even well-designed environmental levies can be diverted or underspent. Similar concerns surround the Green India Mission, where parliamentary committees have flagged under-utilisation of allocated funds.

Fossil fuel subsidies. Union budgets continue to support coal and petroleum subsidies alongside renewable energy expansion, creating an inconsistent sustainability roadmap. Until this contradiction is addressed, the net fiscal signal remains muddled.

Gaps in adaptation finance. India’s Initial Adaptation Communication to the UNFCCC highlights that agriculture, forestry, health, water resources, coastal and Himalayan regions are among the sectors most vulnerable to climate change, yet adaptation investment has not kept pace with mitigation spending. Research and development for advanced low-carbon technologies like carbon capture and storage also remains underfunded.

Absence of a Union-level green budget statement. Despite progress in states, India does not yet publish a consolidated green budget at the national level. This makes it harder to track cross-ministerial expenditure, attract international climate finance, and hold departments accountable.

Implementation capacity. Key sustainability indicators such as waste management, coastal resilience, and biodiversity have been missing from the Output Outcome Framework 2025-26, and the ministry’s allocation grew only 2.5 per cent while the overall budget expanded over 7 per cent. This points to deeper issues of capacity and political prioritisation.

What a stronger green budgeting framework could look like 🔗

Experts have suggested a few concrete reforms to make green budgeting more effective. First, a national green budget statement similar to the Gender Budget Statement would help harmonise state-level frameworks and provide comparable data. Second, moving beyond tagging to outcome-linked budgeting, where allocations are tied to measurable environmental results, would improve accountability. Third, strengthening carbon markets and transition finance mechanisms would help mobilise private capital alongside public funds.

There is also a case for aligning green budgeting with the Sustainable Development Goals more explicitly. This would embed environmental thinking into every sector, from rural development to urban infrastructure, rather than confining it to the environment ministry alone.

Why this matters for governance and growth 🔗

Green budgeting is not just an accounting exercise. It is a governance shift that forces the state to confront the ecological consequences of its spending choices. For a country growing as fast as India, with a population and economy of this scale, that shift is essential. The fiscal choices made today will shape the air people breathe, the water they drink, and the climate they inherit.

The direction of travel is unmistakable. Green growth has moved from the margins of fiscal policy to a stated national priority. The remaining work is about depth, consistency, and execution rather than intent.

What do you think? Should India introduce a dedicated Green Budget Statement at the Union level alongside the existing Gender Budget Statement? And in your view, what is the most effective fiscal instrument for driving India’s clean energy transition, direct budgetary allocations, carbon pricing, or sovereign green bonds?

References

1. https://greenbudgeting.teriin.org/about-green-budgeting.php
2. https://www.indiaspend.com/budget/how-india-budgets-for-changing-climate-940335
3. https://www.energypolicy.columbia.edu/unpacking-indias-green-growth-budget/
4. https://www.theclimategroup.org/our-work/news/climate-change-response-indias-union-budget-2025
5. https://www.policycircle.org/environment/budget-2025-26-clean-energy/
6. https://www.cbgaindia.org/blog/exploring-opportunities-offered-by-green-budgeting-statement/
7. https://forest.delhi.gov.in/forest/green-action-plan
8. https://www.downtoearth.org.in/climate-change/centre-finally-greenlights-karnataka-climate-action-plan-after-3-year-wait-but-implementation-is-key-96244
9. https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1897851
10. https://www.teriin.org/press-release/decoding-union-budget-2025-green-lens-energy-resilience-and-sustainable-development