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Green and Climate sensitive financing is critical to achieve national and international goals on climate change and sustainable development. India will require huge financial resources to meet requirements of mitigation, adaptation, and disaster management related interventions. It needs to arrange new investments estimated to be in the range of $44 billion to $170 billion per year to meet the requirements.¹ Public finance is a critical source for green financing in India with 41 per cent share in total green financing.²

Government finance despite being a key contributor to the green finance landscape, public spending on climate change and related issues remains under reported in India. There is a need to establish adequate finances are available at national and state level for climate actions. A consistent reporting template needs to be put in place to record and monitor climate-related expenditures. Green Budget offers this opportunity of reporting climate related expenditure along with actions envisaged, in a monitorable format. It can be published as a supplement to the annual budget to bring more transparency and accountability in government actions. The process of green budgeting contributes to institutionalisation and integration of the environment across departments and sectors. Green and climate sensitive budgeting can go beyond tagging and can be adopted widely as a self-assessment tool by countries and sub-national units and their underlying ministries/departments. It can be mapped with sustainable development goals, international conventions, national goals, activities mapping positive and negative impacts to the environment.

Green budgeting presents numerous opportunities for fostering environmental sustainability and driving positive change. Offered opportunities varies from encouraging sectoral participation, setting accountability to informing revenue to leveraging climate financing.

Green budgeting offers opportunity to states to self -appraise their capabilities in fostering environmentally sustainable activities and improving competitiveness amongst states. Publication of information in form of dedicated green budget gives transparency on available allocations from public expenditure and make government more accountable

It encourages sectoral participation by linking SDG goals, and other inclusiveness indicators like gender and children related climate vulnerability with climate programmes and schemes and their budget in the green budget report. Bihar Green budget has been made as an attempt to link SDG goals with identified green schemes.

Green budgets can be used to inform revenue aspects and can trigger the implementation of carbon pricing policies, such as carbon taxes or cap-and-trade systems. By incorporating the cost of carbon emissions into the budgeting process, the green budget can create an economic incentive for implementing departments/ sectors to reduce their carbon footprint.

It can assist in securing finances through new climate mechanisms like Green Bonds. Indonesia raised Green Bonds (Sukuk) using their published green budgets

Starting with the first climate budget published by Nepal in 2013, several countries have followed suit, including Bangladesh, Indonesia, Moldova, Kenya, Norway, Sweden, and France (Petrie, 2021).³ Though, India does not have a green budget at the Union Government level. However, five states and a Union Territory- Odisha, Bihar, Assam, Meghalaya, and Pondicherry, have adopted Green / Climate Budget and presented a Special Statement on Green Budget with their Annual budget release. Odisha is the first one to initiate a dedicated climate budget in the year 2019-20 and followed by Bihar releasing the Green Budget in 2020-21. Assam, Meghalaya, and Pondicherry followed the league with the last FY 2023-24 budget.

Currently, states are using different frameworks for estimating green relevance in their budgets depending on the local context. Adoption of Green budgeting at national level can help in harmonising these frameworks. Odisha initiated its dedicated climate budget using Phased Climate Change Impact Appraisal (CCIA) method to prioritize programs and enhance climate readiness. Assam followed a framework in categorizing schemes into Green, Yellow, Grey, and Brown based on climate relevance in nine sectors and climate change adaptation/mitigation/ Environment Sustainability. Meghalaya climate budget is focusing on department-wise allocation for climate change adaptation and mitigation activities. Bihar and Pondicherry’ green budgets adopted a framework based on Rio marker definition where programmes/ activities are tagged to various categories defined on their relevance. The green budget of the states specified schemes involving environmental sustainability components, and estimated the quantity of public expenditure in the state budget for these purposes. Tagging exercise helps in identifying green schemes and seeking international finances.

Green budgeting tools that are being employed by various state governments in India, with a reasonably good degree of success. Substantial change can be seen in the share of green expenditure and Identified Scheme’s Green Budget Components in states. Budget estimates for Identified Scheme’s Green Budget Components in Bihar had increased 74 per cent in 2023-24 in comparison to launch year:2020-21. Number of identified schemes also increased over the years indicating participation and addition of new innovations. Similarly, in the case of Odisha there has been a steady increase in climate relevant expenditure in 2023-24 from the previous year by around 2 per cent.

Table 1: Analysis of Bihar’s Green budget

Source: Bihar Green Budget 2023-24

Table 2: Analysis of Odisha’s Climate budget

Source: Compiled from Odisha Climate Budget

Bihar and Odisha 's success demonstrates the positive impact of such initiatives, supporting the call for a national level "National Inclusive Climate Responsive Budgeting" with an active government involvement at all levels.

With these encouraging numbers, green budgeting seems to be a promising budgetary policy-making mechanism that can help in leveraging climate finance in India. However, the green budgeting process is a means and not an end. With this resourceful tool available, it remains to be seen how green budgeting evolves with forthcoming annual budget announcements by Union and State Governments.

¹ Report on Currency and Finance (RCF) for the year 2022-23
² Landscape of Green Finance in India - CPI (climatepolicyinitiative.org) According to CPI report, around 29 percent of available green finance is percolating through programmatic budgets (18 %) and bilateral and multilateral funds routed through budgets(11 %) . Besides that, around 12 percent is disbursed through government public sector undertaking for climate mitigation activities. This constituted around 41 percent share of public finances in green finance in India.
³Petrie, M. (2021). Environmental governance and the greening of fiscal policy. In Environmental Governance and Greening Fiscal Policy. Palgrave Macmillan