Green Budgeting and Climate Change – with Special Focus on Subnational Governments in India

Abstract

The worsening environmental crisis and the increasingly visible impacts of climate change have made environmental conservation, climate change mitigation, and adaptation urgent priorities for governments around the world. However, fiscal constraints remain a significant barrier, as the scale of climate and green finance needs far exceeds the available public resources. In this context, ensuring efficient allocation of limited resources across green initiatives is critical to achieving environmental objectives while balancing developmental needs. Green Budgeting has emerged as a promising tool for aligning public financial management with environmental objectives. When designed and implemented effectively, it can help governments prioritize spending, enhance transparency, and integrate climate considerations into fiscal decision-making. This paper undertakes a four-pronged analysis. First, it reviews the major Green Budgeting frameworks adopted globally, highlighting their key features. Second, it examines the Green and Climate Budgeting approaches implemented by the Indian states and union territories, comparing them with the international best practices to identify gaps and areas for improvement. Third, it proposes the key elements that may be considered for the Green Budgeting framework in India—one that aligns with the country’s long-term environmental goals, considers the institutional and fiscal challenges faced by state governments, and provides guidance on integration across the budget cycle. Lastly, it proposes a Green Budgeting Index to assess the performance of Indian states in implementing Green Budgeting. The study seeks to offer practical insights into how Green Budgeting can be standardized, scaled, and made more effective in India and similar emerging economies. This study observes that Green Budgeting is largely absent in India at both national and subnational levels. The Union government of India has not yet adopted Green Budgeting and only 8 out of 36 states and UTs have adopted it so far. Moreover, in the absence of a uniform national framework, states have used diverse methodologies, leading to inconsistencies. SDG mapping and integration of gender dimensions are limited. Challenges such as inadequate technical knowledge, exclusion of environmentally harmful expenditures, and a narrow focus on only direct environmental benefits hinder comprehensive assessments. Additionally, states rely heavily on traditional climate finance sources. The absence of a national oversight mechanism further limits standardization and best practice adoption, highlighting the need for systemic reforms inspired by OECD models. Thus, the need to establish a standard Green Budgeting framework in India is imperative. In this context, the paper outlines key elements for developing a comprehensive Green Budgeting framework in India and proposes an assessment index that could serve as a reference for the Government of India.