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VOL. 9
FINANCING NEEDS
SCENARIOS TOWARDS VIKSIT BHARAT AND NET ZERO
VOL. 11
SOCIAL IMPLICATIONS
OF TRANSITION
SCENARIOS TOWARDS VIKSIT BHARAT AND NET ZERO Copyright © NITI Aayog, 2026
NITI Aayog
Government of India,
Sansad Marg, New Delhi–110001, India
Suggested Citation
NITI Aayog. (2026). Scenarios Towards Viksit Bharat and Net Zero - Financing Needs
(Vol. 9)
Available at: https://niti.gov.in/publications/division-reports
Disclaimer
1.This document is not a statement of policy by the National Institution for
Transforming India (hereinafter referred to as NITI Aayog). It has been prepared
by the Green Transition, Energy, Climate, and Environment Division of NITI Aayog
under various Inter-Ministerial Working Groups (IMWGs) constituted to develop
Net-Zero pathways for India.
2.Unless otherwise stated, NITI Aayog, in this regard, has not made any representation
or warranty, express or implied, as to the completeness or reliability of the
information, data, findings, or methodology presented in this document. While due
care has been taken by the author(s) in the preparation of this publication, the
content is based on independently procured information and analysis available at
the time of writing and may not reflect the most current policy developments or
datasets.
3.The assertions, interpretations, and conclusions expressed in this report are those
of the author(s) and do not necessarily reflect the views of NITI Aayog or the
Government of India, unless otherwise mentioned. As such, NITI Aayog does not
endorse or validate any of the specific views or policy suggestions made herein by
the author(s).
4.NITI Aayog shall not be liable under any circumstances, in law or equity, for any
loss, damage, liability, or expense incurred or suffered as a result of the use of or
reliance upon the contents of this document. Any reference to specific organisations,
products, services, or data sources does not constitute or imply an endorsement
by NITI Aayog. Readers are encouraged to independently verify the data and
conduct their analysis before forming conclusions or taking any policy, academic,
or commercial decisions. SCENARIOS TOWARDS
VIKSIT BHARAT AND NET ZERO
FINANCING NEEDS
(VOL. 9)
Copyright © NITI Aayog, 2026
NITI Aayog
Government of India,
Sansad Marg, New Delhi–110001, India
Suggested Citation
NITI Aayog. (2026). Scenarios Towards Viksit Bharat and Net Zero - Financing Needs
(Vol. 9)
Available at: https://niti.gov.in/publications/division-reports
Disclaimer
1.This document is not a statement of policy by the National Institution for
Transforming India (hereinafter referred to as NITI Aayog). It has been prepared
by the Green Transition, Energy, Climate, and Environment Division of NITI Aayog
under various Inter-Ministerial Working Groups (IMWGs) constituted to develop
Net-Zero pathways for India.
2.Unless otherwise stated, NITI Aayog, in this regard, has not made any representation
or warranty, express or implied, as to the completeness or reliability of the
information, data, findings, or methodology presented in this document. While due
care has been taken by the author(s) in the preparation of this publication, the
content is based on independently procured information and analysis available at
the time of writing and may not reflect the most current policy developments or
datasets.
3.The assertions, interpretations, and conclusions expressed in this report are those
of the author(s) and do not necessarily reflect the views of NITI Aayog or the
Government of India, unless otherwise mentioned. As such, NITI Aayog does not
endorse or validate any of the specific views or policy suggestions made herein by
the author(s).
4.NITI Aayog shall not be liable under any circumstances, in law or equity, for any
loss, damage, liability, or expense incurred or suffered as a result of the use of or
reliance upon the contents of this document. Any reference to specific organisations,
products, services, or data sources does not constitute or imply an endorsement
by NITI Aayog. Readers are encouraged to independently verify the data and
conduct their analysis before forming conclusions or taking any policy, academic,
or commercial decisions. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs v Scenarios Towards Viksit Bharat and Net Zero: Financing Needs vi Scenarios Towards Viksit Bharat and Net Zero: Financing Needs vii
Authors and
Acknowledgement
Chairperson
Sh. Suman Bery
Vice Chairman, NITI Aayog
Leadership
Sh. B.V.R. Subrahmanyam
CEO, NITI Aayog
Dr. V. Anantha Nageswaran
Chief Economic Advisor, Govt. of India
Dr. Anshu Bharadwaj
Programme Director, Green Transition,
Energy & Climate Change Division,
NITI Aayog
Energy Modeling Team
Mr. Venugopal Mothkoor
Energy and Climate Modelling Specialist,
NITI Aayog
Dr. Anjali Jain
Consultant G-II, NITI Aayog
Mr. Nitin Bajpai
Consultant, NITI Ayog
Authors
Mr. Venugopal Mothkoor
Energy and Climate Modelling Specialist,
NITI Aayog
Ms. Divya Midha
Consultant, NITI Aayog
Dr. Dhruba Purkayastha
Senior Adviser, CSI
Mr. Labanya Prakash Jena
Director, CSI
Dr. Jaspreet Kaur
Senior Analyst, CPI
Peer Reviewers
Dr. V. Anantha Nageswaran
Chief Economic Advisor, Govt. of India
Ms. Chandni Raina,
Advisor, Climate Change & Finance Unit,
DEA
Ms. Aditi Pathak,
Joint Director, Climate Change & Finance
Unit, DEA
Ms. Ritika Bansal,
Deputy Director, Climate Change & Finance
Unit, DEA
Ms. Shweta Kumar,
Director, Climate Change Division, MoEF&CC
Working Group Members
Sh. Ajay Seth
Former Secretary, DEA, Govt of India;
Chairperson, IRDAI
Dr. V. Anantha Nageswaran
Chief Economic Advisor, Govt. of India
Ms. Chandni Raina
Advisor, Climate Change & Finance Unit,
DEA
Mr. Neelesh Shah
Joint Secretary, MoEF&CC
Mr. Dharmendra Singh
Deputy Secretary, MEA
Dr. Jyoti Parikh
Executive Director, IRADe Scenarios Towards Viksit Bharat and Net Zero: Financing Needs viii
Authors and Acknowledgement
Mr. Ashwini Kumar Tewari
Managing Director, SBI
Dr. Angela Lusigi
Resident Representative, UNDP India
Dr. Deepak Mishra
Director and Chief Executive, ICRIER
Mr. Shalabh Tandon
Regional Head of Operations and Climate
Change (South Asia), IFC
Ms. Anjali Bansal
Founding Partner, Avaana Capital
Mr. Brij Mohan
Senior Climate Change Officer, ADB
Mr. Navneeraj Sharma
Consultant, ADB
Ms. Yeshika Malik
Climate Change Specialist, World Bank
Ms. Neha Kumar
Head, South Asia, CBI
Mr. Rajat Gupta
Senior Partner, McKinsey & Company
Mr. Ashish Kulkarni
Partner and Associate Director, BCG
Ms. Elizabeth Atwell
Development Counsellor, British High
Commission (India)
Mr. Mahek Mehta
Climate Finance Lead, British High
Commission (India)
Mr. Vaibhav Pratap Singh
Executive Director, CSI
Ms. Somya Bhatt
Project Specialist, UNDP
Ms. Kiran Raju Dhembre
Assistant Manager, SEBI
Dr. Suranjali Tandon
Associate Professor, NIPFP
Mr. Shubhashis Dey
Co-Founder, Solutions for Sustainable Living
(SoSuL)
Mr. Gagan Sidhu
Director, Green Finance Centre, CEEW
Dr. Dhruba Purkayastha
Senior Adviser, CSI
Mr. Vivek Sen
India Director, CPI
Mr. Labanya Prakash Jena
Director, CSI
Dr. Jaspreet Kaur
Senior Analyst, CPI
Ms. Srishti Dewan
YP, NITI Aayog
Technical Editor
Rishu Nigam
Communication Specialist (Independent)
Communication and Research &
Networking Division, NITI Aayog
Ms. Anna Roy
Programme Director, Research & Networking
Sh. Yugal Kishore Joshi
Lead, Communication
Ms. Keerti Tiwari
Director, Communication
Dr. Banusri Velpandian
Senior Specialist, Research and Networking
Ms. Sonia Sachdeva Sharma
Consultant, Communication
Sh. Sanchit Jindal
Assistant Section Officer, Research and
Networking
Sh. Souvik Chongder
Young Professional, Communication
NITI Design Team
NITI Maps & Charts Team Scenarios Towards Viksit Bharat and Net Zero: Financing Needs ix
Contents
List of Figures xi
List of Tables xii
List of Abbreviations xiii
Executive Summary xvii
1. Introduction.....................................................................................................................................1
2. Current Climate Finance Landscape.........................................................................................5
2.1 Evolution of Global Climate Finance Flows 6
2.1.1 Current Status and Trends 6
2.1.2
Regional Disparities and Uneven Flows 8
2.1.3 Sectoral Landscape 9
2.1.4 Global Progress on Climate Finance Architecture 11
2.2 India’s Climate Finance Landscape 12
2.2.1 Climate Finance Flows in India—Trends and Composition 14
2.2.2 Recent Initiatives Strengthening India’s Climate Finance Architecture 16
3. Modelling Methodology.............................................................................................................19
3.1 Estimation of Investment Requirements 20
3.2 Estimation of Supply of Finance 25
4. Results and Analysis...................................................................................................................37
4.1 Investment Requirement for Net Zero 38
4.1.1 Estimates of Investment Requirements 38
4.1.2 Estimates of Incremental Investment Requirements 39
4.1.3 Technology-wise Investment Requirements 41
4.2 Aggregate Flows Analysis 42
4.2.1 Instruments and Overall Sectoral Allocations 44
4.2.2 Sectoral Analysis 45
4.3 Assessing India’s Net Zero Financing Gap 48
4.3.1 Total Financing Gap 48
4.3.2 Sectoral Analysis 50 Scenarios Towards Viksit Bharat and Net Zero: Financing Needs x
Contents
5. Challenges & Policy Suggestions to Bridge the Financing Gap........................................55
5.1 Strengthen Data Transparency and Reporting to Build a Credible Climate Finance
Ecosystem56
5.2 Ensure Regulatory Coherence Across Financial Sector Institutions to Channel Climate
Finance Efficiently and at Scale57
5.3 Expand the Pipeline of Bankable, De-risked Projects to Accelerate Climate Investment 59
5.4 Bridge the Financing Gap Through Tailored Financial Architectures 67
5.5 Strengthen Transition Finance to Bridge the Brown-to-Green Gap 70
Annexures...........................................................................................................................................73
References..........................................................................................................................................95 Scenarios Towards Viksit Bharat and Net Zero: Financing Needs xi
List of Figures
Figure 2.1:Tracked climate, energy transition, and clean energy finance (annual average)7
Figure 2.2:Annual climate finance by regions9
Figure 2.3:Annual global energy investment by sector (2015-2025)10
Figure 2.4:Timeline of major initiatives in India on climate change and climate finance13
Figure 2.5:India’s clean energy flows (USD billion) estimated by two separate studies14
Figure 2.6:Composition of green finance flows in India, FY 2020–22 (annual average,
Billion INR)
15
Figure 3.1:Projected household financial savings allocations (2026-2070)26
Figure 3.2:Total supply of finance in the economy: Modelling framework27
Figure 3.3:Mitigation finance supply and gap: Modelling framework28
Figure 4.1: Sector-wise estimates of cumulative investment requirements for Net Zero
across various studies
39
Figure 4.2: Sector-wise estimates of cumulative and incremental investment requirements
for Net Zero
40
Figure 4.3:Technology-wise split of Cumulative Total Investment required till 2050 42
Figure 4.4:Technology-wise split of Cumulative Total Investment required till 2070 42
Figure 4.5: Projections of the sources and end use of finance supply for Net Zero (2026-
70, USD billion)
43
Figure 4.6:Projections of total needs, availability and gap (USD trillion) 49
Figure 4.7:Power sector: Projections of total needs, availability and gap (USD trillion)50
Figure 4.8:Transport sector: Projections of total needs, availability and gap (USD trillion)52
Figure 4.9:Industrial sector: Projections of total needs, availability and gap (USD trillion)53 Scenarios Towards Viksit Bharat and Net Zero: Financing Needs xii
List of Tables
Table 4.1:Total investment requirement (USD trillion)40
Table 4.2:Composition of Aggregate flows across Power, Transport, and Industry Sectors48 Scenarios Towards Viksit Bharat and Net Zero: Financing Needs xiii
ACVAsAccredited Carbon Verification Agencies
AIFsAlternative Investment Funds
AMFIAssociation of Mutual Funds in India
ASSETAccelerating Sustainable State Energy Transition
AT&CAggregate Technical and Commercial
AUCAssets Under Custody
AUMAssets Under Management
BaaSBattery-as-a-Service
BEEBureau of Energy Efficiency
BISBureau of Indian Standards
BF–BOF Blast Furnace–Basic Oxygen Furnace
BRSRBusiness Responsibility and Sustainability Reporting
CAPEXCapital Expenditure
CCFUClimate Change Finance Unit
CCSCarbon Capture and Storage
CCUSCarbon Capture, Utilisation, and Storage
CCTSCarbon Credit Trading Scheme
CESConstant Elasticity of Substitution
CGEComputable General Equilibrium
CKMCircuit Kilometer
CPIClimate Policy Initiative
CPSCurrent Policy Scenario
DACDirect Air Capture
DEADepartment of Economic Affairs
DFIsDevelopment Financial Institutions
DISCOM Distribution Company
DRIDirect Reduced Iron
EAFElectric Arc Furnace
ECBCEnergy Conservation Building Code
EESLEnergy Efficiency Services Limited
EMDEsEmerging Markets and Developing Economies
List of Abbreviations Scenarios Towards Viksit Bharat and Net Zero: Financing Needs xiv
List of Tables
EPDsEnvironmental Product Declarations
ESCOEnergy Service Company
ESGEnvironmental, Social, and Governance
ETSEmissions Trading System
EUEuropean Union
EVsElectric Vehicles
FCFEFree Cash Flow to Equity
FDIForeign Direct Investment
FPIForeign Portfolio Investment
FXForeign Exchange
GCFsGlobal Climate Funds
GEIGreenhouse Gas Emission Intensity
GGAGlobal Goal on Adaptation
GHGGreenhouse Gas
GIFT City Gujarat International Finance Tec-City
IAMIntegrated Assessment Modelling
ICEInternal Combustion Engine
IDFsInfrastructure Debt Funds
IESSIndia Energy Security Scenarios
IFInduction Furnace
IFSCAInternational Financial Services Centres Authority
IGBCIndian Green Building Council
IHLEGIndependent High-Level Expert Group on Climate Finance
InvITInfrastructure Investment Trust
IPPUIndustrial Process and Product Use
IREDAIndian Renewable Energy Development Agency
IRENAInternational Renewable Energy Agency
IRDAIInsurance Regulatory and Development Authority of India
LAFLiquidity Adjustment Facility
LCALife Cycle Analysis
LICLife Insurance Corporation of India
LPSLate Payment Surcharge
LTGMLong-Term Growth Model
LTVLoan-to-Value
MENAMiddle East and North Africa
MDBsMultilateral Development Banks
MoEFCC Ministry of Environment, Forest and Climate Change
MoSPIMinistry of Statistics and Programme Implementation
MPOMacro Poverty Outlook Scenarios Towards Viksit Bharat and Net Zero: Financing Needs xv
List of Tables
MRVMonitoring, Reporting, and Verification
MSMEsMicro, Small and Medium Enterprises
MTMillion Tonnes
NABFID National Bank for Financing Infrastructure and Development
NAPNational Adaptation Plan
NASNational Accounts Statistics
NBFCsNon-Banking Financial Companies
NDCNationally Determined Contribution
NDTLNet Demand and Time Liabilities
NGFINational Green Finance Institution
NIPNational Infrastructure Pipeline
NMPNational Monetisation Pipeline
NPSNational Pension System
NZSNet Zero Scenario
OEMsOriginal Equipment Manufacturers
PCMCPimpri-Chinchwad Municipal Corporation
PCIPublic Charging Infrastructure
PE/VCPrivate Equity and Venture Capital
PFCPower Finance Corporation
PFRDAPension Fund Regulatory and Development Authority
PLIProduction Linked Incentive
PPAsPower Purchase Agreements
PSMPayment Security Mechanism
R&DResearch and Development
RBIReserve Bank of India
RECRural Electrification Corporation
RERenewable Energy
REITsReal Estate Investment Trusts
RESCORenewable Energy Service Company
RDSSRevamped Distribution Sector Scheme
SAMSocial Accounting Matrix
SDGsSustainable Development Goals
SEBISecurities and Exchange Board of India
SECISolar Energy Corporation of India
SLRStatutory Liquidity Ratio
SMEsSmall and Medium-Sized Enterprises
SPVSpecial-Purpose Vehicle
SPTsSustainability Performance Targets
SROSelf-Regulatory Organisation Scenarios Towards Viksit Bharat and Net Zero: Financing Needs xvi
List of Tables
SUTSupply and Use Tables
SWFsSovereign Wealth Funds
T&DTransmission and Distribution
TFPTotal Factor Productivity
TODTransit-Oriented Development
TRLTechnology Readiness Level
TReDSTrade Receivables Discounting System
ULBsUrban Local Bodies
UNFCCC United Nations Framework Convention on Climate Change
VGFViability Gap Funding Scenarios Towards Viksit Bharat and Net Zero: Financing Needs xvii
Executive Summary
India’s pursuit of development and low-carbon transition will define both its own growth
trajectory and the global climate transition. Standing at a pivotal juncture, the country aims to
achieve developed economy status by 2047 (Viksit Bharat) while reaching Net Zero emissions
by 2070. It has already made strong progress, reducing emissions intensity by 36% over 2005
1

levels and achieving 50% non-fossil power capacity
2
five years ahead of Nationally Determined
Contribution (NDC) target. However, meeting long-term goals will require unprecedented
capital mobilisation of trillions required by 2070, compared to current annual flows of just
USD 135 billion (of which USD 80-90 billion supports clean energy)
3
. High capital costs, limited
concessional finance, and structural constraints continue to deter investment in emerging and
hard-to-abate sectors. India’s transition spans technologies at different maturity levels ranging
from mature renewables requiring scale-up capital, mid-stage options like storage and e-mobility
requiring concessional or structured finance, while frontier areas such as green hydrogen and
Carbon Capture, Utilisation, and Storage (CCUS) depends on grants and blended capital. A
stage-sensitive, technology-specific financing strategy is therefore essential.
Global financing gaps and india’s emerging green finance architecture: Globally, finance for
climate action has risen to about USD 1.9 trillion
4,5
annually in 2023, but remains well below the
USD 6–9 trillion required annually to stay on a 1.5°C trajectory
6,7,8
. Finance flows remain heavily
concentrated with 80% in East Asia, Western Europe, and North America, leaving South Asia and
Sub-Saharan Africa dependent on limited public sources
4
. Debt dominates global flows, while
adaptation and early-stage technologies continue to be underfunded. For India, these global
imbalances highlight both the urgency and opportunity to mobilise diversified finance through
concessional, blended, and risk-sharing instruments. The country’s emerging climate finance
ecosystem anchored in a national taxonomy, carbon market, Production-Linked Incentive (PLI)
schemes, green bonds, and strengthened disclosure frameworks provides a strong foundation.
A rigorous, India-specific modelling approach: The analysis adopts an Integrated Assessment
Modelling (IAM) framework to estimate India’s investment needs and financing capacity across
power, industry, and transport sectors. Macroeconomic projections from the Long-Term Growth
Model (LTGM) feed into energy models, TIMES and the India Energy Security Scenarios (IESS),
to simulate energy demand, technology adoption, and emissions trajectories under Current
Policy Scenario and Net Zero Scenario.
Technology-specific Capital Expenditure (CAPEX) assumptions are applied to quantify investment
requirements for generation, storage, transmission, mobility, and industrial decarbonisation. The
finance supply analysis adopts an asset-flow model to estimate the total capital that can be
mobilised domestically and from foreign sources. The asset flow model estimates flows from
banks, Non-Banking Financial Companies (NBFCs), institutional investors, and capital markets, Scenarios Towards Viksit Bharat and Net Zero: Financing Needs xviii
Executive Summary
alongside foreign inflows via Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI),
external borrowing, etc. Together, this framework captures both the scale of investment required
and the composition of capital available, revealing sectoral financing gaps and dependencies
between domestic mobilisation and global finance.
Key Modelling Insights
India’s Net Zero transition requires an unprecedented USD 22.7 trillion in cumulative
investment by 2070, underscoring the need for urgent, massive and long-term capital
mobilisation. The power sector dominates, accounting for nearly half of total investment needs
through large-scale deployment of renewables, storage, and transmission. The transport sector
represents roughly one-fifth of total investments, focused on Electric Vehicles (EVs), charging
networks, and hydrogen, while industry contributes about a quarter, reflecting capital-intensive
decarbonisation in steel, cement, and chemicals post 2045.
Transitioning from Current Policy Scenario to Net Zero Scenario requires an additional
USD 8.1 trillion in incremental investments by 2070. This incremental financing requirement
is estimated as the difference in investment between USD 22.7 trillion required in Net Zero
Scenario and USD 14.7 trillion in Current Policy Scenario. The incremental gap is led by the
power sector (USD 4.5 trillion), followed by industry (USD 2.7 trillion) and transport (USD 0.9
trillion). In terms of temporal requirement, the additional requirement sharply increases from
USD 2.25 trillion till 2050 to USD 8.1 trillion by 2070, emphasising the scale-up of technological
solutions such as Carbon Capture, Utilisation, and Storage (CCUS), Long Duration Storage,
Offshore wind, Hydrogen, Mobility, etc in the post-2050 period. Although finance needs peak in
later decades, the near term poses the toughest challenge, requiring rapid capital deployment
to accelerate clean infrastructure and energy independence.
Technology-wise, investment needs shift from mature renewables to emerging and hard-to-
abate technologies. While renewables and transmission infrastructure dominate mid-century
investments, by 2070 the focus shifts to EV Battery Storage, Grid Storage, and Charging
Infrastructure (nearly 40% of total), alongside major roles for Green Hydrogen (10%), Carbon
Capture, Utilisation and Storage (CCUS) and Direct Air Capture (DAC) (6%). This evolution
underscores a growing reliance on complex, capital-intensive technologies with lower Technology
Readiness Levels (TRLs) and higher financing risks.
India can mobilise approximately USD 16.2 trillion for its Net Zero transition by 2070 through
targeted reforms in its financial system and stronger integration with global capital markets.
On the domestic side this requires deeper capital markets, greater channeling of household
savings into productive assets, and a shift by institutions toward high-quality corporate and
green investments. Credible transition plans and a robust project pipeline can attract sustained
foreign capital. Together, these measures can significantly scale the financing available for
India’s Net Zero pathway.
In terms of sources, banks and Non-Banking Financial Companies (NBFCs) continue
to dominate, accounting for 42% of total flows, followed by institutional investors and
corporations (36%). In terms of instruments, the financing mix continues to be driven by equity
(49%) and loans (45%) with a complementary role played by bonds. Across sectors, capital
allocation continues to be concentrated in the power sector (43%), followed by industry and
transport. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs xix
Executive Summary
India faces a cumulative financing gap of USD 6.5 trillion by 2070, led by the power sector.
The analysis shows total investment needs of USD 22.7 trillion against USD 16.2 trillion in
available finance, leaving a gap of USD 6.5 trillion. Power constitutes 82% to this gap followed
by industry (13%) and transport (5%). The financing gap expands from USD 2.5 trillion by 2050
to USD 6.5 trillion by 2070 as the cost of full low-carbon transition rises in post-2050 period
with investment in hard-to-abate solutions along-side investments in large-scale renewable
integration, storage, and clean technology deployment.
International finance is expected to play a critical role in India’s Net Zero transition, potentially
meeting up to 42% of total investment needs by 2070. Limited domestic capital and the risk
of crowding out private investment make external financing essential for sustaining growth. This
marks a sharp rise from the 17% share of international flows in 2022–23. Concessional finance
and grants will be especially important for supporting currently unviable but essential Net Zero
technologies.
Sectoral financing patterns reflect both domestic dominance and emerging foreign
participation. The power sector attracts the largest share of available capital (43%), financed
primarily through domestic banks and Non-Banking Financial Companies (NBFCs), with rising
contributions from Foreign Direct Investment (FDI) and institutional equity. Industry and
transport follow, with increasing reliance on corporate bonds and institutional investors to
fund capital-intensive low-carbon transition. These shifts signal deeper financial intermediation,
growing market maturity, and stronger integration of domestic and global capital in India’s Net
Zero transition.
Priority Challenges and Policy Suggestions
ChallengesSuggestions
1. Data, Definitions, and Transparency — Build a Credible Climate Finance Data Backbone
Fragmented and inconsistent
climate finance data, limited
disclosures, and weak assurance
systems reduce investor
confidence and obscure real
financing gaps.
Establish a unified national climate-data platform integrating
Capital Expenditure (CAPEX) and finance-flow tracking, mandate
third-party assurance using harmonised standards, and create a
sectoral life-cycle analysis (LCA) repository to set science-based
baselines for project eligibility and investment due diligence.
2. Ensure Regulatory Coherence — Align to a Single Climate Finance Taxonomy
Multiple taxonomies and
inconsistent regulatory
frameworks risk overlap and
greenwashing weakening capital
formation.
Adopt the DEA Climate Finance Taxonomy as the single reference
framework across regulators (RBI, SEBI, IRDAI, PFRDA, IFSCA),
harmonise disclosure requirements and apply proportionality so
smaller institutions face calibrated yet credible obligations. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs xx
Executive Summary
3. Financing Gap, Sources, and Intermediation — Bridge Scale and Execution Deficits
Large financing gap of USD 6.5
trillion by 2070, combined with
shallow long-tenor markets,
asset–liability mismatches,
and high risk premia prevent
projects from reaching closure.
Deepen the corporate bond market from 16% in 2025 to 30%
of GDP by 2070, expand the role of instituitional players,
mobilise household savings, scale foreign direct investment and
foreign portfolio investment through standardised co-investment
platforms, technology partnerships and creation of bankable
pipeline.
Establish a National Green Finance Institution (NGFI)
i
,
complementing existing institutions to refinance, de-risk, and
aggregate green assets.
4. Fragmented Project Pipeline — De-risk and Deepen the Pool of Bankable Projects
Thin, fragmented project
pipelines with sector-specific
risks such as discom distress,
weak Power Purchase
Agreement (PPA) enforcement,
and Micro, Small and Medium
Enterprises (MSMEs) credit
constraints.
Leverage the Accelerating Sustainable State Energy Transition
(ASSET) platform launched by NITI Aayog to standardise project
preparation and prioritisation. Priority early win projects include
upgrading urban water pumping and industrial efficiency through
Energy Service Company (ESCO) and Renewable Energy Service
Company (RESCO) models, accelerating efficient cooling and
Electric Vehicle (EV) adoption through demand aggregation and
green finance, and electrifying municipal fleets through structured
risk mitigation. Transit systems can be financed through value
capture, while blended finance can support hard-to-abate
areas such as waste heat recovery and low-carbon industrial
electrification.
5. Transition Finance — Bridge Brown-to-Green Investments Credibly
Financing for hard-to-abate
sectors (steel, cement, heavy
transport) remains constrained
by weak frameworks and high
perceived risks.
Strengthen transition finance through credible sectoral roadmaps,
verified transition plans, and instruments such as transition and
sustainability-linked bonds; expand guarantees and blended
finance to de-risk investments; enhance disclosure through
Securities and Exchange Board of India’s (SEBI) Business
Responsibility and Sustainability Reporting (BRSR) and National
Climate Finance Taxonomy; and leverage Gujarat International
Finance Tec-City (GIFT City) to anchor transition debt markets,
bridging the brown-to-green financing gap.
Conclusion and Way Forward
India’s Net Zero journey represents a defining opportunity to align growth, sustainability, and
financial innovation. The analysis makes clear that while the investment challenge is immense,
the foundations of a robust climate finance ecosystem are already in place. The way forward
lies in translating this ecosystem into action, centred around reform pillars like data integrity,
regulatory alignment, financing innovation, project bankability, risk sharing, and credible
transition pathways. With coordinated policy action and global financial partnerships, India can
bridge its financing gap, unlock green jobs, and establish itself as a global leader in financing
sustainable development.
i A dedicated white paper is being developed through structured consultations with regulators, financial institutions,
industry, and investors to define NGFI’s operational design, mandate, governance, risk framework, and capitalisation. 1
INTRODUCTION Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 2
Introduction
India’s pursuit of development and Net Zero will shape its long-term growth
and transition pathway
India stands at a pivotal crossroads, aiming to become a developed economy by 2047 (Viksit
Bharat) while committing to Net Zero emissions by 2070. The policy and investment decisions
made in the next decade will shape the trajectories of prosperity and energy transition with
implications across the entire economy.
Over the past decade, India has made substantial progress on climate action. By 2020, the
country had reduced the emissions intensity of GDP by 36% from 2005
1
level, exceeding its first
Nationally Determined Contribution (NDC) target. In 2025, India achieved a major milestone by
reaching 50% of its installed electricity capacity from non-fossil fuel sources, five years ahead of
the 2030 target
2
, reflecting strong progress in renewable energy expansion. Meeting the 2070
Net Zero goal, however, will require a far-reaching transformation across the economy, including
in energy, industry, transport, land-use, buildings, agriculture, forestry, waste, and water systems,
alongside significant adaptation measures.
Emerging clean technologies need public support and blended finance to
bridge viability gaps
While commercial finance is increasingly flowing into mature sectors such as solar and onshore
wind, several critical technologies remain economically unviable without public support. Solutions
like solar-plus-storage systems, green hydrogen, etc., require targeted financial tools, including
subsidies, guarantees, and concessional capital. Frontier innovations, such as Carbon Capture,
Utilisation, and Storage (CCUS), Small Modular Reactors (SMR), etc., remain in their early
stages of development, necessitating public investment in research and development (R&D)
and demonstration projects. Each technology lies at a different stage of readiness, demanding
a customised mix of financing instruments to achieve scale effectively.
High capital costs remain a core barrier to clean investment in India’s
low-carbon transition
One of the most binding constraints in India’s low-carbon transition is the persistently high
cost of foreign capital due to distortionary credit ratings, which elevate perceived risk and
deter affordable capital inflows. While domestic interest rates are anchored by monetary policy
instruments such as repo and reverse repo rates, India’s sovereign and corporate credit ratings
often fail to reflect the country’s strong repayment record and macroeconomic fundamentals,
resulting in higher risk premiums for clean infrastructure projects. This disproportionately affects
1 Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 3
Introduction
capital-intensive and early-stage clean technologies that require long-tenor, patient capital.
Addressing these constraints will require greater use of credit enhancement mechanisms to
mitigate rating biases, along with concessional and blended finance solutions to reduce financing
costs and improve project bankability.
India’s climate goals demand trillions in finance, requiring systemic shifts
in capital mobilisation
Several studies have estimated India’s investment requirements to achieve Net Zero, with total
needs ranging between USD 10 to 20 trillion by 2070, translating to USD 250–450 billion annually,
against current flows of only about USD 135 billion, of which USD 87 billion is directed toward
clean energy (FY2023-24)
3
. Despite being among the most climate-vulnerable countries, the
majority of the current flows for climate action are focused on mitigation, leaving adaptation
critically underfunded.
Moreover, the financing mix remains heavily domestic, 83% of average flows in FY2020-22 period
were sourced internally, with just 17% from international sources
9
. Private capital continues to
concentrate in commercially viable sectors like utility-scale renewables and energy-efficient
appliances, while Micro, Small and Medium Enterprises (MSMEs), adaptation infrastructure, and
early-stage clean technologies remain underserved. Bridging this gap will require not only a
significant scaling up of finance but also greater use of concessional and blended finance, and
risk sharing mechanisms to channel capital into priority sectors.
India’s financial system faces structural barriers in mobilising capital at scale for the low-carbon
transition. These include the high cost of capital, heightened perceptions of macroeconomic
and sectoral risk, limited access to low-cost foreign capital, and institutional bottlenecks. Fiscal
space is constrained, and public finance is already under pressure from competing developmental
needs. While domestic reforms can alleviate some of these constraints, international public
finance and multilateral development banks (MDBs) must play a more active role in risk sharing,
deploying concessional capital, and market development.
India is building a stronger policy framework to channel flows for climate
action at scale
India is actively strengthening its climate finance ecosystem through a series of coordinated
policy and regulatory interventions. Recent initiatives include the development of a National
Climate Finance Taxonomy draft which provides clarity on climate supportive and transition
supportive activities, thereby reducing risks of greenwashing. In parallel, a domestic carbon
market is being established to support low-carbon transition in industrial sectors.
The government has also expanded its Production-Linked Incentive (PLI) schemes and
announced the National Manufacturing Mission to scale up domestic manufacturing of clean
energy technologies. To attract greater private and international capital, blended finance
platforms have been launched with support from sovereign and multilateral institutions
10
.
Meanwhile, the green bond market is gaining momentum, with both sovereign and corporate
issuances helping to channel long-term capital into clean infrastructure. India has also
strengthened sustainability-related financial disclosures through initiatives such as the Business
Responsibility and Sustainability Reporting (BRSR) framework, enhancing transparency and
investor confidence. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 4
Introduction
Against this backdrop, NITI Aayog launched a comprehensive initiative to frame a Net Zero-
aligned development vision. A set of inter-ministerial working groups were convened to assess
the impact of long-term transition pathways across key domains like macroeconomic aspects
of transition; sectoral low-carbon transition in transport, power, industry, buildings, waste and
agriculture; financing for climate action; critical minerals; R&D and manufacturing; and the social
implications of transition.
Within this effort, the Inter-Ministerial Working Group on Financing for Net Zero (IMWG3)
chaired by Vice Chairman, NITI Aayog was tasked with the following mandate:
a. Estimating India’s finance requirements to meet the Net Zero target in key mitigation
sectors.
b. Estimating the potential of various domestic and foreign finance sources and
instruments.
c. Estimating the financing shortfalls and barriers to capital mobilisation at lower than
market rates.
d. Recommending policy, regulatory, and institutional interventions to crowd in capital
at scale.
In this study, the assessment was deliberately scoped to estimate the finance required to achieve
India’s Net Zero goal, and did not include detailed costing of climate adaptation measures.
At the national level, the Ministry of Environment, Forest and Climate Change (MoEFCC) is
currently leading the preparation of India’s first comprehensive National Adaptation Plan (NAP)
which will provide a strategic framework for identifying adaptation priorities and estimating
financing needs for adaptation, consistent with Government of India and UNFCCC guidance.
Subsequent versions of NITI’s study will incorporate adaptation cost assessments to present a
more holistic view of financing requirements.
By integrating financing needs, potential sources of capital, and financing gaps into a unified
framework, the analysis will support policymakers in aligning financial flows with India’s Net
Zero goal, while balancing development priorities, fiscal considerations, and long-term economic
stability. 2
CURRENT CLIMATE
FINANCE LANDSCAPE Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 6
2
Current Climate
Finance Landscape
This chapter examines the status and trends of global climate-related finance, highlighting
regional disparities, sectoral landscape, and progress in the broader financing architecture. It
covers current flows, geographic distribution, sectoral allocation, financing instruments, and
the roles of public and private actors. The chapter also reviews emerging frameworks such as
taxonomies, carbon markets, and adaptation plans that are shaping the evolution of climate-
related financial architecture.
2.1 EVOLUTION OF GLOBAL CLIMATE FINANCE FLOWS
2.1.1 Current Status and Trends
Climate change is no longer a distant threat but a macroeconomic and
developmental disruptor
The escalating impacts of climate change, manifesting through extreme weather events,
biodiversity loss, and economic losses have prompted urgent calls for a paradigm shift in climate
action. If the world remains on its current trajectory, global temperatures are projected to rise
beyond 3°C, potentially resulting in economic losses of up to 18% of global GDP by 2050
11
and
nearly 20% by 2100
12
. This scenario highlights the scale and urgency of climate action and the
need for unprecedented capital mobilisation.
To remain aligned with a 1.5°C pathway, the world must mobilise an estimated
USD 5-9 trillion annually by 2030, with requirements rising further through mid-
century
6 ,7,8
.
The International Renewable Energy Agency (IRENA) projects average annual investment of
over USD 5 trillion between 2023 and 2030 to meet global energy transition goals
7
. Climate
Policy Initiative (CPI), in its Global Landscape of Climate Finance 2023 report, estimates an
annual climate finance need of USD 9 trillion through 2030
6
. The Independent High-Level
Expert Group on Climate Finance (IHLEG) estimates that between USD 6.3 and 6.7 trillion is
required annually by 2030 to achieve global climate targets, of which USD 2.3–2.5 trillion must
flow to Emerging Markets and Developing Economies (EMDEs), excluding China, to meet the
Paris Agreement goals and the Sustainable Development Goals (SDGs)
8
. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 7
Current Climate Finance Landscape
Global climate finance has grown, but it remains far below required levels.
In 2023, climate finance flows were estimated at about ~USD 1.9 trillion
4,5
compared to USD
0.6–1.2 trillion recorded in 2017 (Figure 2.1). While this represents significant progress, the gap
between actual flows and required levels remains stark.
0
0.5
1.0
1.5
2.0
IEACPIIRENA
USD Trillion
2017 2018 2019 2020 2021 2022 2023
Figure 2.1: Tracked climate, energy transition, and clean energy finance (annual average)
Source: Climate Policy Initiative (CPI), 2025, Global Landscape of Climate Finance
4
; International Energy Agency
(IEA) (2024), World Energy Investment
5
; International Renewable Energy Agency (IRENA), 2023, Global Landscape
of Renewable Energy Finance
13
.
Note: The CPI estimates include both mitigation and adaptation finance across sectors such as energy systems;
transport; industry; waste; water and wastewater; building and infrastructure; information and communication
technology; Agriculture, Forestry, Other Land Uses (AFOLU); and fisheries.
The IEA tracks investment in clean energy technologies and infrastructure, covering renewable power, grids and
storage, energy efficiency and end-use, nuclear and other clean power sources, and low-emission fuels.
IRENA provides estimates of global investment in energy transition technologies, including renewable energy, energy
efficiency, and electric transport and heating, energy storage, hydrogen, and Carbon Capture and Storage (Ccs). The
most recent figures are for 2022.
Divergent methodologies and coverage obscure actual finance flows,
complicating comparability and tracking.
Differences in sectoral scope, definitions, and estimation methods lead to significant variation in
reported figures. For instance, some frameworks include transitional or low-carbon investments,
while others adopt a broader lens that also captures adaptation-related finance. These diversions
underline the complexity of tracking and forecasting finance for climate action. While precise
figures differ, there is consensus that current flows are far below what is needed, and that
greater coordination, harmonisation, and scale are essential to bridge the gap. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 8
Current Climate Finance Landscape
2.1.2 Regional Disparities and Uneven Flows
Despite steady growth in global climate finance, regional flows remain highly uneven and
concentrated in a few markets.
Between 2018 to 2023, nearly 80% of global climate finance was mobilised in three regions-
East Asia and the Pacific, Western Europe, and the United States and Canada
4
(Figure 2.2).
By contrast, many Emerging Markets and Developing Economies (EMDEs), particularly in Sub-
Saharan Africa and parts of South Asia, remain heavily dependent on public finance, with
limited access to private capital due to high perceived risks and elevated cost of capital.
China’s Dominance in Global Clean Energy Investment
Reshapes Supply Chains
China remains the world’s largest energy investor, with its share of global clean energy
investment rising from one-quarter a decade ago to nearly one-third today
5
. The
country leads in solar PV, batteries, and clean manufacturing, with clean energy-related
technologies contributing over 10% to its GDP in 2024. Domestic climate finance in China,
driven primarily by households and commercial actors, has contributed significantly to
the global rise in climate-related flows. Internationally, China has also become a leading
investor in clean energy manufacturing in countries such as Indonesia, Türkiye, Brazil,
and Thailand.
However, this concentration of investment and manufacturing capacity has raised
concerns about the resilience of global clean energy supply chains. According to the
International Energy Association (IEA), Chinese exports of solar modules to developing
countries have surged. While these exports accelerate clean energy deployment in
capital-scarce regions, heavy concentration in upstream and midstream supply chains
poses future risks related to pricing, policy dependence, and potential trade restrictions.
Energy investment by region, 2025

300 600 900
China
United States
European Union
Middle East
Latin America
India
Africa
Southeast Asia
Billion USD (2024, MER)
Oil, natural gas and coal Renewables Nuclear
Grids and stroage Energy efciency and end use electriﬁcation
Source: International Energy Agency. World Energy Investment 2025. MER: Market Exchange Rate Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 9
Current Climate Finance Landscape
International climate finance to EMDEs was USD 196 billion in 2023
4
of which 78% came from
public actors. Cross-border private investment in EMDEs rose from USD 19 billion in 2018 to
USD 42 billion in 2023
4
, but this remains far below needs. While Latin America, Middle East
and North Africa (MENA), and parts of Central Asia have seen an recent uptick in private flows,
many of the least developed countries still lag significantly.
According to the IEA, Africa’s total energy investment in 2025 is projected to be 30% lower
than in 2015, and the continent captures just 2% of global clean energy investment despite
accounting for 20% of the world’s population. Currency risks, debt servicing challenges, and
shallow capital markets collectively hamper the ability of these regions to mobilise meaningful
private finance
3
.
0
500
1000
1500
2000
2017 2018 2019 2020 2021 2022 2023
USD Billion
East Asia and PaciﬁcWestern EuropeUS & Canada
Latin America & Caribbean South AsiaCentral Asia and Eastern Europe
Sub-Saharan AfricaMiddle East and North Africa Other Oceania
Transregional
Figure 2.2: Annual climate finance by regions
Source: Climate Policy Initiative (CPI) (2025), Global Landscape of Climate Finance
2.1.3 Sectoral Landscape: Energy Leads, But Gaps Persist
Clean energy dominates climate finance, but some sectors remain significantly
underfunded
Climate finance remains overwhelmingly skewed toward mitigation, primarily directed towards
the renewable energy and transport sectors. This reflects strong private sector interest,
supportive regulatory frameworks, and falling technology costs. By contrast, sectors such as
Agriculture, Forestry, and Other Land Use (AFOLU), along with waste and water systems, etc.,
continue to be severely underfunded, despite their high potential in enhancing resilience to
climate change. Despite elevated geopolitical tensions and economic uncertainty, global capital
flows to the energy sector are projected to rise to USD 3.3 trillion in 2025 (Figure 2.3), a
2% increase in real terms over 2024
3
. Of this, roughly USD 2.2 trillion will go collectively to Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 10
Current Climate Finance Landscape
renewables, nuclear, grids, storage, low-emissions fuels, energy efficiency and electrification,
twice the USD 1.1 trillion expected to be directed toward oil, natural gas, and coal
3
.
1
2
3
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025e
OilNatural gasCoalClean fuelsRenewables NuclearElectricityEnergy efciency Electriﬁcation
Trillion USD (2024, MER)
MER: Market Exchange Rate
Figure 2.3: Annual global energy investment by sector (2015-2025)
Source: International Energy Agency (2025), World Energy Investment 2025
Debt dominates climate finance instruments, while equity and guarantees
remain underutilised.
In terms of instruments, debt remains the primary channel for global climate finance, accounting
for around 61% of total flows from 2018 to 2023. Equity follows at roughly 33%, while grants
comprise just 4%
4.
Debt dominates in mature, commercially viable sectors such as energy,
transport, and buildings, where private capital participation is strong.
Energy systems and transport each received nearly equal shares of market-rate debt and equity,
while buildings relied heavily on debt (68%)
4
. In contrast, less commercially attractive sectors
such as waste, water, Agriculture, Forestry and Other Land Use (AFOLU), and fisheries, depend
primarily on public and concessional finance, reflecting long return periods and complex project
dynamics.
The high cost of capital continues to hinder the deployment of clean energy in
developing economies, despite falling technology costs.
Most technologies essential for achieving Net Zero such as solar, wind, green hydrogen, grid
infrastructure, etc., are highly capital-intensive, requiring substantial upfront investment. As a
result, the cost of capital plays a critical role in determining their commercial viability and
affordability.
In Emerging Markets and Developing Economies (EMDEs), the cost of capital is far higher than
in developed countries or China, driven by real and perceived risks
14
. This cost is further inflated
by currency volatility, which increases the cost of servicing foreign debt. When combined with
domestic borrowing costs and currency hedging, the total cost of capital becomes prohibitively
high for companies seeking international debt financing. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 11
Current Climate Finance Landscape
While domestic reforms can improve investment conditions, international public financial
institutions like Multilateral Development Banks (MDBs), Development Financial Institutions
(DFIs) and climate focused funds must play a larger role by offering credit - enhancement
tools and other risk-mitigation instruments to bring down the cost of capital in these markets.
Public vs. Private Flows: A balanced mix with divergent roles
The global climate finance landscape exhibits a relatively balanced contribution from private
and public actors, with private sources accounting for about 45-50% of total flows in 2023
4
.
Private funds are primarily concentrated in sectors such as energy, transportation, construction,
and infrastructure. In contrast, public finance plays a critical role in supporting underfunded
sectors, including industry, water and waste management, and Agriculture, Forestry, and Other
Land-Use (AFOLU).
Among private actors, commercial financial institutions, mainly banks, are the leading
contributors, providing around 45% of the private climate finance, followed by households. On
the public side, Development Financial Institutions (DFIs) played a pivotal role, accounting for
46% of total public climate finance.
4
2.1.4 Global Progress on Climate Finance Architecture: Taxonomies,
Carbon Markets, and Adaptation Plans
Global Taxonomy Developments
As of 2025, more than 50 national or regional Taxonomies are in use or under development to
align financial flows with climate and environmental goals
15
. The European Union (EU) Taxonomy
for sustainable activities, one of the earliest frameworks, classifies economic activities according
to their contribution to six environmental objectives, including climate change mitigation and
adaptation
16
. China’s green finance Taxonomy, updated in 2023, closely aligns with the EU’s
green list but includes clean coal and transition activities, reflecting domestic energy priorities.
Singapore’s Green Taxonomy, released in 2023 and updated in 2025, introduced a traffic-light
system (green, amber, red) to guide financial institutions in managing transition risks across
sectors
17
. South Africa’s 2022 green finance taxonomy addresses both climate and broader
sustainability outcomes.
India launched its draft National Climate Finance Taxonomy in 2025 to provide clarity on
climate supportive activities, transition supportive activities, and reduce risks of greenwashing.
Collectively, these efforts highlight a growing global consensus on the need for frameworks to
channel capital toward sustainable development.
Carbon Markets Across Countries
As of 2025, more than 75 jurisdictions have adopted or are developing carbon pricing
instruments, including Emissions Trading Systems (ETS) and carbon taxes
18
. China’s national
ETS, launched in 2021 for the power sector, expanded in 2025 to include steel, cement, and
aluminum
19
. Colombia and Indonesia have launched ETS pilots, while the EU ETS has broadened
its scope under the Green Deal to include, road transport, buildings and maritime transport.
Voluntary carbon markets are also growing, particularly in Africa and Latin America, though
concerns persist regarding credit quality and price volatility
20
. In a major 2025 update, India Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 12
Current Climate Finance Landscape
operationalised its Carbon Credit Trading Scheme (CCTS) by issuing sector-specific emission
intensity targets for four sectors – Aluminium, Cement, Chlor-Alkali, and Pulp & Paper, in October
2025 to accelerate domestic decarbonisation
21
.
Adaptation Plan Progress
Adaptation finance is being increasingly integrated into national policy frameworks, driven in
part by the Global Goal on Adaptation (GGA) under the United Nations Framework Convention
on Climate Change (UNFCCC), which calls for measurable progress in enhancing adaptive
capacity and resilience. As of 2025, more than 140 countries have initiated National Adaptation
Plan (NAP) processes aimed at integrating climate risks into national planning and budgeting
22
.
Despite this momentum, adaptation continues to be underfunded. India is preparing its first
NAP to be submitted to the UNFCCC, following multi-sectoral consultations and scientific
assessments across nine priority sectors, including agriculture, water, health, and infrastructure.
This effort builds on India’s Initial Adaptation Communication, submitted in December 2023
23
.
Even with rising climate finance flows and record investments in clean energy, current levels
remain well below what is needed to meet global climate goals. Deep regional disparities, high
capital costs in developing countries, and persistent underfunding of adaptation continue to
constrain progress. With a few economies dominating key technology supply chains and finance
flows, concentration risks are growing. Bridging these gaps will require coordinated global
action, scaling both public and private finance, enhancing regulatory tools such as taxonomies
and carbon markets, and ensuring equitable and affordable access to capital for developing
economies. The focus must now shift from commitments to implementation and scaled impact.
2.2 INDIA’S CLIMATE FINANCE LANDSCAPE
India’ s Climate Ambitions and the Centrality of Finance. India has set ambitious climate goals,
including achieving Net Zero greenhouse gas (GHG) emissions by 2070, reducing the emissions
intensity of its GDP by 45% by 2030 (relative to 2005 levels), and having 50% of installed
electricity capacity from non-fossil fuel sources by the end of this decade (achieved in 2025,
five years ahead of the 2030 target)
24
. These commitments are reflected in India’s updated first
NDC and supported by flagship national missions on renewable energy, electric mobility, and
green hydrogen.
As India strives to become a developed nation by 2047 under the Viksit Bharat vision, it faces
the unprecedented challenge of decarbonising a rapidly growing economy. This dual ambition
of development with decarbonisation demands large and sustained investment across sectors.
In this context, mobilising adequate, predictable, and concessional finance for climate action is
not only critical but foundational to delivering on both climate and development goals.
Policy and Regulatory Initiatives Driving Climate Finance. Indian policymakers and regulators
increasingly recognise the scale of capital required to achieve Net Zero. Over the past decade,
the government has introduced a range of public schemes, including grants, subsidies, and
incentives, aimed at accelerating deployment of clean energy, sustainable transportation, and
low-carbon transition across industries. Public finance has played a foundational role, with
institutions such as the Indian Renewable Energy Development Agency (IREDA), the Solar Energy
Corporation of India (SECI), and Energy Efficiency Services Limited (EESL) driving renewable Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 13
Current Climate Finance Landscape
energy and energy efficiency financing. The Climate Change Finance Unit (CCFU) under the
Ministry of Finance anchors India’s climate finance strategy and international engagement.
Regulatory institutions have also intensified efforts to enable finance for climate action. The
Reserve Bank of India (RBI) has introduced instruments such as green deposits, sovereign green
bonds, and priority sector lending for green projects, alongside disclosure frameworks on climate-
related financial risks. The Securities and Exchange Board of India (SEBI) has strengthened
Environmental, Social, and Governance (ESG) transparency through the Business Responsibility
and Sustainability Reporting (BRSR) framework, green bond guidelines, and the regulation of
ESG rating providers. To align capital flows with climate goals and curb greenwashing, the
government announced a National Climate Finance Taxonomy in the Union Budget 2024, with
the draft framework released by the Department of Economic Affairs (DEA) in 2025
25
. Figure
2.4 depicts major climate change and climate finance initiatives in India.
Despite this progress, the scale of private capital required demands deeper institutional and
regulatory reforms. Unlocking finance at scale will require structural measures to make climate-
aligned investments commercially viable and attractive to mainstream investors.
National Solar
Mission launched
(part of NAPCC)
SEBI mandates
BRR for top
100 listed
entities
India ratiﬁes the Paris
Agreement
SEBI develops
disclosure norms for
issuance and listing
of green bonds
SEBI mandates
BRSR for top 1000
listed entities
MNRE expanded PLI
Scheme to include
Solar PV module
manufacturing
RBI joins NGFS
RBI's Currency and
Finance Report
(Climate risks and
Green Finance)
SEBI develops BRSR
Core Framework
Launch of National
Green Hydrogen
Mission
Inaugural of Sovereign
Green Bonds
Launch of Green Credit
Programme
MSE GIFT Scheme to
support MSEs for
adopting clean/green
technologies
Draft
Framework for
India’s Climate
Finance
Taxonomy
Development of
Carbon Trading
Scheme
Announcement of
updated NDC and
Net-Zero targets
RBI’s Discussion
Paper on climate
risk and sustainable
ﬁnance
RBI (Draft)
Disclosure
framework on
Climate-related
Financial Risks
Green Deposit
Scheme launched
SECI set up by
Gol
RBI extends PSL
scheme to small RE
sectors
International Solar
Alliance launched by
India and France
20112015
201620212023202520102012
201720222024
Financial Regulation/lnitiatives Strategy/Policy Initiatives India Climate Leadership
• BRSR: Business Responsibility and Sustainability Reporting
• PLI: Production-Linked Incentive
• NGFS: Networks for Greening the Financial System
• RBI: Reserve Bank of India
• SECI: Solar Energy Corporation of India
• BRR: Business Responsibility Report
• PSL: Priority Sector Lending
• MSE: Micro and Small Enterprises
• GIFT: Green Investment and Financing for Transformation
• NAPCCNational Action Plan on Climate Change
Figure 2.4: Timeline of major initiatives in India on climate change and climate finance Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 14
Current Climate Finance Landscape
2.2.1 Climate Finance Flows in India—Trends and Composition
India’s finance flows for climate action have shown steady growth over the past decade (Figure
2.5). Climate Policy Initiative (CPI) estimates that tracked green investments rose from USD 17
billion in FY2016-17 to USD 57 billion in FY2021-22
9
, reflecting a compound annual growth rate
of 22.3%. IEA estimates that clean energy investment reached USD 87 billion in 2024, a 42%
increase over the annual average of USD 61 billion between 2021-2023
5
.
0
15
30
45
60
2016-17 2017-18 2018-19
CPI AssessmentIEA Assessment
2019-20 2020-21 2021-22
USD BillionUSD Billion
0
55
110
165
220
275
2016-20 2021-23 2024 2026-30
(APS)*
2026-30
(NZE)*
Figure 2.5: India’s clean energy flows (USD billion) estimated by two separate studies
Source: Left Hand Graph - Climate Policy Initiative (CPI), 2024, Landscape of Green Finance in India; Right Hand
Graph - International Energy Agency (IEA), 2024, World Energy Investment (annual average).
Note: The difference between the CPI and the IEA estimates of capital flows towards climate and clean energy
technologies arises from differing methodologies. CPI estimates include mitigation-related uses, such as clean energy,
clean transport, and energy efficiency. The IEA tracks India’s clean energy investments across low-emission electricity,
grid and storage, clean supply, and end-use sectors.
*APS = Announced Pledges Scenario; NZE = Net Zero Emissions by 2050 Scenario (as defined by IEA)
During FY 2020-22, tracked mitigation-related financial flows in India averaged INR 3,712 billion
per year (approximately USD 50 billion) marking a 20% increase from FY 2018-20 (Figure 2.6).
Domestic sources accounted for the vast majority, contributing nearly 83% of the total flows
9
.
Within this, private sector actors, including commercial financial institutions and corporations,
collectively provided about two-thirds. Public sources, comprising union and state budgets and
public sector undertakings, accounted for roughly one-third. International sources represent only
17% of total flows emphasizing that India’s climate finance flows are predominantly domestic.
In terms of sectoral allocation, clean energy attracted the largest share of 47% of total flows,
followed by energy efficiency (35%) and clean transport (18%). On the instruments side, debt
accounted for about 50% of total flows, followed by equity at nearly 29% and Government
budgetary expenditure at 16%. Within debt, balance-sheet financing continued to dominate
(64%) followed by low-cost project debt (24%) and project-level debt (12%). A similar pattern
was observed in equity, where balance sheet financing had majority of contribution (88%), with
the remainder coming from project-level equity
9
.
These trends highlight the concentration of finance in mature technologies and established
lending channels, with limited diversification across instruments or sectors. Flows towards early-
stage, innovative, and hard-to-abate industries remain limited.
Despite recent growth, current finance flows for climate action fall far short of India’s estimated
annual finance needs to meet its Nationally Determined Contribution (NDC) and Net Zero Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 15
Current Climate Finance Landscape
targets.
Figure 2.6: Composition of green finance flows in India, FY 2020–22 (annual average, Billion INR) Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 16
Current Climate Finance Landscape
Source : Landscape of Green Finance in India, CPI, 2024.
High Cost of Capital in India and the Role of De-risking for Climate Investments. India faces
a persistently high cost of capital for low-carbon projects, driven by its low sovereign credit
ratings and high technology and project risks. In 2025, S&P Global Ratings upgraded India’s
sovereign rating to BBB from BBB–
26
reflecting improvements in macroeconomic fundamentals.
However, the rating remains at the lower end of the investment-grade spectrum, continuing to
influence foreign debt financing costs for climate-related projects, despite strong underlying
credit fundamentals, including robust economic growth, improving fiscal metrics, and a stable
macroeconomic outlook, underscoring the disconnect between sovereign risk profile and
sovereign rating.
To address these challenges, blended finance approaches have become an essential tool. Public
capital, though limited, can be deployed strategically through grants, concessional loans, or
junior equity to absorb early-stage risks, offsetting perceived risks and enhancing project
credit profiles. Such approaches lower the overall cost of capital, making projects commercially
attractive especially for private institutional investors like Sovereign Wealth Fund (SWF), Pension
Fund (PF), Private Equity and Venture Capital (PE/VC), etc. Multilateral Development Banks
(MDBs) and Development Financial Institutions (DFIs) also play a crucial role in de-risking
climate investments. By offering risk-mitigation instruments such as partial credit guarantees
and subordinated equity, MDBs/DFIs strengthen investor confidence and mobilise private capital
at scale. These instruments provide downside protection without immediate capital outlay,
stabilise returns, and attract long-term financing from both domestic and foreign markets.
Going forward, scaling finance for climate action will require a combination of blended finance,
expanded de-risking mechanisms, stronger domestic institutions, and greater mobilisation of
international capital across instruments and sectors. These measures will be critical to closing
the financial gap and aligning investment flows with India’s long-term climate ambitions.
2.2.2 Recent Initiatives Strengthening India’s Climate Finance
Architecture
In May 2025, India’s Ministry of Finance released the draft National Climate Finance Taxonomy,
a dynamic framework that categorises economic activities into climate-supportive, adaptation,
and transition-aligned sectors, including power, mobility, buildings, agriculture, and hard-to-
abate industries
25
. Following a hybrid, phased approach, starting with qualitative principles and
gradually introducing quantitative technical screening criteria (TSC), the taxonomy emphasises
inclusivity, simplified reporting, and staggered thresholds for MSMEs, aiming to prevent
greenwashing while supporting India’s Net Zero and low-carbon transition goals.
The Carbon Credit Trading Scheme (CCTS) has progressed from policy design to regulatory
implementation, with the Ministry of Environment, Forest and Climate Change (MoEFCC) issuing
GHG Emission Intensity (GEI) targets for the first four sectors – Aluminium, Cement, Chlor-
Alkali, and Pulp & Paper in October 2025, covering 282 obligated entities. Obligated entities
must meet GEI targets or purchase carbon credits, with financial penalties for non-compliance,
creating a structured market that incentivises emission reductions and mobilises private capital.
India has also strengthened sustainability disclosures through SEBI’s Business Responsibility and
Sustainability Reporting
(BRSR) framework and the RBI’s Draft Disclosure Framework on Climate- Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 17
Current Climate Finance Landscape
related Financial Risks, which require reporting on governance, strategy, risk management, and
metrics. Complementing these measures, India’s first National Adaptation Plan
(NAP) targets
nine priority sectors, including agriculture, water, health, forests, and infrastructure resilience,
to enhance climate resilience, integrate adaptation into development planning, and promote a
science-based approach to strengthening adaptive capacity
27
.
In conclusion, India’s climate finance landscape reflects both strong ambition and proactive policy
action to bring down the substantial financing gaps across sectors. Ambitious national targets,
policy support in the form of subsidies, VGF, etc., and a growing suite of supportive instruments
like taxonomies, carbon markets, disclosure frameworks, etc., lay the institutional foundation for
mobilising capital for climate action at scale. Yet financial flows remain concentrated in mature
sectors through conventional instruments, with limited concessional and international finance to
offset high capital costs or support emerging technologies. Going forward, the priority will be
to expand de-risking mechanisms, diversify financial instruments, and strengthen institutional
capacity so that public and private finance can operate synergistically to deliver India’s climate
and development goals. 3
MODELLING
METHODOLOGY Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 20
3
Modelling
Methodology
The methodology is structured into two components:
1. Estimating investment requirements across key mitigation sectors, and
2. Projecting capital supply from domestic and foreign financial sources.
3.1 ESTIMATION OF INVESTMENT REQUIREMENTS
This study adopts an integrated assessment modelling (IAM) approach to develop Net Zero
pathways for India. As reported in India’s Biennial Update Reports (BURs), the analysis covers
Greenhouse Gas (GHG) emissions from energy, Industrial Process and Product Use (IPPU), waste,
agriculture, Land Use, Land-Use Change and Forestry (LULUCF). The methodology employs a
suite of analytical tools to project emissions and investment requirements across these sectors.
3.1.1 Macroeconomic Projections using the Long-Term Growth Model
(LTGM)
The process begins with macroeconomic projections generated using the World Bank’s Long-
Term Growth Model (LTGM)
28
, an Excel-based tool grounded in the Solow-Swan Growth
Model. The LTGM estimates GDP growth rates based on key economic drivers such as savings,
investment, and human capital productivity.
For this study, the LTGM model produces GDP growth trajectories and sectoral value-added
shares that align with the Viksit Bharat vision. These projections rest on the assumptions that
India’s human capital will converge with developed economy standards by 2047, and that Total
Factor Productivity (TFP) growth and investment rates will remain elevated until 2047 and
moderate thereafter.
The outputs from LTGM formed the foundation for sectoral Inter-Ministerial Working Groups
(IMWGs) to assess useful energy demand across various sectors of the economy. Further details
on the LTGM methodology are provided in a separate report on Scenarios towards Viksit Bharat
and Net Zero: Macroeconomic Implications (Vol. 2).
Energy system models
For the energy and IPPU sectors, emissions are estimated using two energy system models:
the TIMES model, an optimisation-based tool, and the India Energy Security Scenarios (IESS),
a scenario-building platform. In contrast, emissions from the agriculture and waste sectors are Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 21
Modelling Methodology
projected separately using an Excel-based model. Throughout the process, the methodological
approaches and input assumptions were refined in consultation with stakeholders from
government, industry, and academia to ensure analytical robustness and policy relevance.
Within the energy system models, the analysis starts with a detailed assessment of useful energy
demand. For example, in the transport sector, useful demand is expressed as billion passenger-
kilometres for passenger transport and billion tonne-kilometres for freight. These metrics are
derived from macroeconomic indicators such as GDP growth, sectoral value-added shares,
and population projections provided by the LTGM. Similarly, in the industrial sector, activity
levels such as steel production measured in million tonnes are projected using macroeconomic
parameters and form the basis for energy demand estimates. Sector-specific methodologies
and assumptions underlying these projections are detailed in the respective sectoral working
group reports.
Computable General Equilibrium (CGE) model
Once sectoral energy demand estimates are established, the results are integrated into a
Computable General Equilibrium (CGE) model to assess the macroeconomic implications of
India’s energy transition. The model used in this study is a recursive-dynamic, single-country
CGE framework, in which economic growth is driven by three key factors: capital accumulation,
labour force dynamics, and productivity growth. For each sector, production is represented
through a nested Constant Elasticity of Substitution (CES) structure, enabling the model to
capture varying degrees of substitutability among capital, labour, energy, and intermediate
inputs.
The model is underpinned by a Social Accounting Matrix (SAM) constructed using the latest 2019
Supply and Use Tables (SUT) from the Ministry of Statistics and Programme Implementation
(MoSPI). This SAM integrates current, fiscal, and debt accounts, populated with data from the
National Accounts Statistics (NAS) and cross-verified with the Macro Poverty Outlook (MPO)
Databank. It is subsequently macro-updated to 2022 using key macroeconomic indicators from
NAS.
To better represent GHG emission dynamics, the SAM has been expanded to include a
highly disaggregated energy sector. The resulting 251×251 SAM comprises 74 activities and
148 commodities, including seven distinct power generation sectors: coal, gas, solar, wind,
hydro, nuclear, and other sources. It distinguishes three primary factors of production (labour,
capital, and land) and four labour categories, differentiated by skill level and formal or informal
employment status.
On the household side, the SAM identifies 10 household types, segmented by rural and urban
areas across income quintiles. It also includes seven separate tax and subsidy categories
covering production taxes, commodity taxes, direct taxes, subsidies, and tariffs and accounts
for three types of investment: public gross fixed capital formation, private gross fixed capital
formation, and changes in inventories. Finally, it features a dedicated debt account to track the
government’s financing of its fiscal deficit.
Further details on the macroeconomic modelling framework are available in the report on
Scenarios towards Viksit Bharat and Net Zero: Macroeconomic Implications (Vol. 2) Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 22
Modelling Methodology
3.1.2 Scenario Framework for Investment Estimation
Investment requirements are estimated for two distinct scenarios in the energy system models:
Current Policy Scenario (CPS): The Current Policy Scenario represents a level of effort
that is realistically achievable based on historical trends and continuation of current
policies (as of 2023), thereby projecting ongoing trends in low-carbon technology
deployment.
Net Zero Scenario (NZS): The Net Zero Scenario reflects an ambitious pathway
aligned with India’s commitment to achieve Net Zero Greenhouse Gas (GHG) emissions
by 2070. It incorporates both existing and additional policy measures to accelerate
demand electrification, enhance circularity, improve energy efficiency, promote rapid
development of low-carbon technologies/fuels and encourage behavioural shifts.
The following section provides a detailed description of the methodology used to estimate the
investment requirements in the power, transport, and industry sectors.
Caveat: The study estimates India’s investment needs and projected capital availability across
three key mitigation sectors, namely power, transport, and industry. The estimates presented
are indicative in nature and are contingent on underlying assumptions and specific modelling
choices, including technology pathways, policy trajectories, and cost parameters. The results
should be interpreted as directional rather than definitive. Other mitigation-relevant sectors,
including buildings, waste, etc., are not included in the current investment estimation but are
included for energy and emission estimation. These sectors will be analysed and incorporated
in subsequent iterations of the study.
Transport
The capital investment requirements for decarbonising India’s transport sector can be broadly
grouped into three major components.
Investments by Original Equipment Manufacturers (OEMs): These cover capital
expenditure for expanding the manufacturing capacity of electric and alternative fuel
vehicles across all modes, including two-wheelers, three-wheelers, passenger cars,
buses, and trucks.
Investments in battery manufacturing: This includes capital outlays for establishing
domestic production facilities for lithium-ion and other advanced battery chemistries.
Investments in Public Charging Infrastructure (PCI): These cover the deployment of
both slow and fast chargers, with capacities determined by charger-to-vehicle density
targets for each vehicle segment.
Methodology and Assumptions
Investment projections are based on NITI Aayog’s India Energy Security Scenarios (IESS)
2070 and the TIMES model, particularly the projected vehicle sales for select milestone years.
Based on these projections, the following key assumptions inform the computation of sectoral
investment requirements:
i. Capital expenditure (CAPEX) per million vehicles by OEMs for manufacturing expansion.
ii. CAPEX per GWh of mobility-related battery storage capacity added.
iii. CAPEX per charger, specified separately for slow and fast charging points. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 23
Modelling Methodology
Total battery storage demand is calculated as the product of new vehicle sales and per-vehicle
battery capacity. Similarly, the required number of chargers is derived from vehicle-to-charger
density norms for each segment (All cost assumptions are detailed in Annexure 1).
Limitations
Exclusion of infrastructure investment costs: It is important to note that the estimated investment
cost includes vehicle costs in terms of cost to the automobile industry, and cost of batteries
and EV charging infrastructures. The cost of infrastructure for road/rail expansion, aviation,
metros, LNG facilities, and hydrogen filling stations is not included in the model, understating
total sectoral capital needs.
Industry
The investment demand for the industrial sector can be broadly categorised into three
components:
Investment required for expanding production capacity, needed to meet the growing
energy demand of India’s industrial sector. In estimating this requirement, the analysis
accounts for the technological configuration of new plants. For example, in the steel
sector, the model incorporates multiple technology pathways, including Blast Furnace–
Basic Oxygen Furnace (BF–BOF), coal-based Direct Reduced Iron (DRI)–Induction
Furnace (IF), coal-based DRI–Electric Arc Furnace (EAF), gas-based DRI–EAF, green
hydrogen-based DRI–EAF, and scrap-based EAF.
Investment required for green hydrogen production.
Investment required for establishing carbon capture facilities.
Investment required for captive fossil and non-fossil power plants.
Methodology and Assumptions
Investment projections are derived from outputs of NITI Aayog’s India Energy Security Scenarios
2070 and the TIMES model, with a focus on the projected demand for key industrial commodities.
For each industry considered namely steel, cement, aluminium, fertiliser, caustic soda, soda ash,
textiles, paper and pulp, refining, and petrochemicals, the projected demand is converted into
the required plant capacity, assuming an 80% utilisation rate. A uniform plant lifetime of 35
years is applied across all industrial sectors. The model also determines the technology mix
necessary to meet this demand.
Using these outputs, sectoral investment requirements are estimated based on the following
key assumptions:
CAPEX per million tonnes (MT) of industrial commodity demand met through each
technology pathway.
CAPEX per million tonnes (MT) of green hydrogen consumed in industrial applications.
Green hydrogen as fuel is considered for the steel, fertiliser, and refinery sectors.
CAPEX per million tonnes (MT) of CO₂ captured from industrial processes. Carbon
capture is considered for the steel, cement, and petrochemical sectors.
The CAPEX assumptions outlined above are detailed in Annexure-2. It is important to note Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 24
Modelling Methodology
that these investment estimates carry certain limitations. The current analysis does not include
investment for the utilisation of captured carbon. In addition, the estimates exclude costs
associated with efficiency upgrades within industrial facilities. Furthermore, no future changes,
either increases or decreases, in investment costs are assumed for the identified technologies;
all estimates are based on constant cost prices over the assessment period and adjusted to
2025 price levels.
Limitations
Technology cost trends: Cost trends for emerging technologies such as green hydrogen
electrolysers, Carbon Capture, Utilisation, and Storage (CCUS), and Limestone Calcined
Clay Cement (LC3) are derived based on current best knowledge and stakeholder
consultations. However, these estimates may vary significantly in the future as markets
evolve and economies shift due to factors like scale-up effects, policy incentives, and
supply chain maturation. Industry sector modelling thus faces limitations in projecting
long-term investment needs accurately.
Investment required for energy efficiency measures: In this study, detailed energy
efficiency improvements in a specific sector, identified via industry stakeholder
consultations, are accounted for to estimate future Specific Energy Consumption
(SEC). However, the related capital investments required for these measures are not
explicitly modelled.
Stranded assets non-accountability: With the transition in industry sectors, particularly
under Net Zero Scenario, certain assets may become stranded, including their capacity
and associated costs. This study does not account for such stranded assets or their
economic implications.
Power
The capital requirements in the power sector are broadly categorised into three categories:
CAPEX expenditure for various electricity generation technologies
CAPEX for stationary energy storage systems
CAPEX for Transmission and Distribution (T&D) infrastructure
Methodology and Assumptions
Capacity requirements for electricity generation are estimated using TIMES, an optimisation-
based energy system model. The optimisation balances cost while ensuring reliability, subject
to constraints such as renewable energy potential, build-out rates, technology lifetimes, and
operational flexibility.
The modelled technology portfolio covers a wide range of generation options, including:
Thermal: coal-based generation (subcritical, supercritical, and ultra-supercritical),
natural gas (open-cycle and combined-cycle),
Renewable and alternative sources: biomass, waste-to-energy, nuclear, hydropower
(large and small), and renewables (solar PV, onshore wind, and offshore wind).
To address renewable intermittency, the model explicitly incorporates battery storage and
pumped hydro, with cost trajectories for both technologies factored into the optimisation.
Per-megawatt (MW) cost trajectories for all generation technologies are provided in Annexure-3. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 25
Modelling Methodology
For estimating transmission expansion costs, this study applies a simplified rule of thumb
based on proportional cost allocation. Under typical conditions in a conventional power
system, transmission expansion costs are assumed to be half of the total generation cost, while
distribution expansion costs are taken as one-fourth of the generation cost. This results in a
cost ratio of Generation: Transmission: Distribution to be 4:2:1. The same assumption is applied
for infrastructure planning for future coal, nuclear, and hydropower generation. In contrast,
power systems with Variable Renewable Energy (VRE) require significantly higher transmission
costs. This is mainly due to the need for additional infrastructure such as Flexible Alternating
Current (AC) Transmission Systems (FACTS), DC-to-AC conversion equipment, harmonic filters,
and advanced systems for smart grid operation and management. To capture this added
complexity and cost, the ratio is adjusted to 4:3:1 for infrastructure expansion in solar and wind
power generation. This approach offers a practical estimation method for planning purposes,
particularly when detailed project-specific transmission routing and costing data are unavailable.
3.2 ESTIMATION OF SUPPLY OF FINANCE
The supply of finance is considered from both domestic and foreign sources to estimate the
capital available for India’s low-carbon energy transition. For projecting domestic capital supply,
a top-down approach is applied, beginning with financial savings in the economy, which are
intermediated through various financial institutions and subsequently allocated to different
sectors, including for financing low-carbon transition.
The methodology for projecting foreign capital supply mirrors that for domestic capital, except
that flows to low-carbon transition are estimated directly, without intermediation through
domestic financial institutions. The following subsections outline (i) the overall methodological
framework and (ii) the assumptions applied to domestic and foreign sources of capital.
3.2.1 Estimation of Domestic Financial Flows using the Asset Flow Model
The supply of finance for low-carbon transition sectors originates from key outputs of the CGE
model, specifically, GDP and gross savings, which serve as the base for estimating financial
flows within the economy.
Gross savings are divided into two components: households and corporations. Government
investment has been excluded from this analysis, as the government’s contribution occurs
through schemes and subsidies rather than direct capital allocation. Moreover, the government
is a net borrower in India’s financial system.
Domestic savings are expected to play a crucial role in meeting India’s investment needs
associated with Viksit Bharat 2047 vision. Gross domestic savings are projected to rise from
about 30% of GDP in 2023
29
to around 33% by 2035, driven by rising per capita income and
financial literacy. Beyond 2035, the savings rate is expected to gradually decline and reach 29%
of GDP by 2047 and 25% by 2070 as India transitions to a high-income status, consistent with
trends observed in other advanced economies (Annexure-4).
During FY2019-23, households have contributed an average of approximately 64% of total
gross savings, with the remaining share contributed by corporates
29
. For this analysis, household
contribution to total gross savings is assumed to remain constant at 64% till 2070. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 26
Modelling Methodology
Household Sector
Within total household savings, financial savings accounted for an average of around 60% during
FY2019-23
30
. This share is projected to rise to 68% in 2047 and further increase to 75% by 2070,
driven by the financialisation of the economy and the success of government-led financial
inclusion programs. A similar pattern is observed in advanced economies like the United States
31

and Japan
32
, where financial savings constitute 60-65% of total household savings.
Historically, bank deposits have been the dominant financial savings instrument for households.
Going forward, however, gradual diversification is expected as households allocate more savings
to insurance and mutual funds, which offer higher returns and diversified risk profiles. India’s
insurance penetration, currently around 4% of GDP in 2023
33
, remains below that of upper-
middle and high-income economies. As India moves towards high-income status, insurance
depth is expected to converge towards global average of 5-6% of GDP, with the OECD average
at ~6.2% (e.g., Germany ~6%, Sweden ~7%)
34
. For this analysis, we assume the share to rise to
6% by 2047 and increase gradually to 7% of GDP by 2070, converging with global benchmarks.
Despite this diversification, banks will remain the dominant source of capital throughout the
projection period (2026–2070). (Figure 3.1)
61%
64%
67%
70%
74%
0%
20%
40%
60%
80%
100%
2026-30 2030-40 2040-50 2050-60 2060-70
Claims on government (Govt. Securities)
Currency
Others
Provident and pension funds
Insurance funds
Mutual funds
Deposits (banks and others)
Household ﬁnancial savings
(% of household gross savings)
% of Household ﬁnancial savings
Figure 3.1: Projected household financial savings allocations (2026-2070)
Corporations
Corporations, comprising both non-financial firms and financial firms, invest their capital
through balance sheet financing to expand business operations, as well as in financial assets
such as bank deposits and mutual funds. Historically, during FY2019-23, the share of non-
financial corporations in total gross savings ranged between 34% and 37%
30
. For projections,
it is assumed that their share will remain close to the 5-year historical average (FY2019-23) of
36% through 2070. Similarly, the share of financial corporations in total gross savings is also
expected to remain steady at around 9%
ii
.
ii During FY2019–23, households, non-financial corporations, and financial corporations contributed an average
of 64%, 36%, and 9%, respectively, to gross savings. The total exceeds 100% because the government (which is
excluded from this analysis, as government’s contribution occurs through schemes and subsidies rather than direct
capital allocation) is a net borrower, accounting for an average of around 9% of gross savings. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 27
Modelling Methodology
It is assumed that 100% of corporate savings take the form of financial savings, reflecting the
sector’s stronger intermediation capacity and preference for reinvestment through financial
markets.
3.2.2 Capital Intermediation, Instruments, and Allocation
Capital from household savings and corporates can be channelled into the real economy, either
directly through corporate investment or indirectly via financial intermediaries such as banks,
Non-Banking Financial Companies (NBFCs), insurance companies, pension funds, and mutual
funds. Additional sources of finance include foreign investment : Foreign Portfolio Investment
(FPI), Foreign Direct Investment (FDI), multilateral and bilateral financial institutions, and private
equity funds. These financial intermediaries also reinvest the net returns on their existing capital
stock, thereby expanding the pool of investable funds.
Moreover, a portion of this existing capital can be reallocated toward low-carbon technologies,
supporting India’s goal of achieving Net Zero by 2070.
The following figure explains the modelling framework for capital intermediation.
Figure 3.2: Total supply of finance in the economy: Modelling framework
*Considering net household financial savings. Part of household savings held as currency, government securities, and
Public Provident Fund (PPF) are excluded.
Note: NBFCs = Non-Banking Financial Companies; EPFO = Employees’ Provident Fund Organisation; NPS = National
Pension Scheme; SLR = Statutory Liquidity Ratio; CAR = Capital Adequacy Ratio; G-Secs = Government Securities;
AIFs = Alternative Investment Funds; InvITs = Infrastructure Investment Trusts; IDFs = Infrastructure Debt Funds.
Financial intermediaries deploy capital through a range of financial instruments, including loans,
public and private equity, bonds, Alternative Investment Funds (AIFs), infrastructure investment
Trusts (Invits), and Infrastructure Debt Funds (IDFs).
Once the total capital available with each financial intermediary is estimated, it is allocated across
key sectors, namely power, transport, and industry through both debt and equity channels. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 28
Modelling Methodology
The sector-wise estimated capital availability is then compared with the capital requirements
for each sector to determine whether a financing shortfall or surplus exists. The bottom-up
approach calculates the gap (or surplus) for each sector individually, based on its specific capital
requirements and available finance, and then aggregates these to derive the total financing
shortfall or surplus for the economy (Figure 3.3) .
The financing gap thus represents the difference between the capital required and capital
available for climate mitigation.
(+)
(-)
(+)
(+)
Equity capital sources:
• Corporations
• Institutional Investors
• Foreign Direct Investment (FDI)
• Foreign Portfolio Investment (FPI)
• Private Equity/Venture
   Capital (PE/VC)
Debt capital sources:
• Banks
• Non-Banking Financial
   Companies (NBFCs)
• Institutional Investors (Bonds)
• External borrowings
• Foreign Portfolio Investment
Total ﬁnancing
available for
each sector
Total ﬁnancing
needs of each
sector
Financing gap or
surplus supply:
Power sector
Financing gap or
surplus supply:
Transport sector
Total ﬁnancing
gap or surplus
Total ﬁnancing
gap or surplus
Financing gap or
surplus supply:
Industry sector
Intermediation through
Figure 3.3: Mitigation finance supply and gap: Modelling framework
The methodology for capital mobilisation and intermediation, covering the roles of various
financial sources, intermediaries, and instruments, as well as the deployment of funds across
sectors, is outlined below.
Domestic Sources
Domestic sources and intermediaries that channel capital from households and corporations
include both debt and equity financing. Debt financing is primarily provided through banks,
Non-Banking Financial Companies (NBFCs), and corporate bonds, while equity financing comes
from institutional investors, corporations, and Private Equity/Venture Capital (PE/VC) funds.
1. Debt Capital
Banks
As India remains a bank-driven economy, banks and NBFCs are expected to play a central role
in financing India’s Net Zero transition. The methodology to project credit flows to low-carbon
transition sectors from banks is outlined below. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 29
Modelling Methodology
Capital Intermediation
The total bank credit outstanding is projected as a share of Net Demand and Time Liabilities
(NDTL) minus Statutory Liquidity Ratio (SLR). Detailed step-wise methodology is described
below:
Step 1: Calculation of NDTL
NDTL = Aggregate deposits + RBI borrowings + Inter-bank liabilities + Other
demand/time liabilities – RBI balances.
Step 2: Estimation of Deposits, Borrowings, and Liabilities
Bank deposits are projected based on their historical share (%) in household financial
savings. This share is expected to decline from current 37% in 2023
35
to 33% by 2070.
The decline reflects financialisation of household savings, as rising incomes and financial
literacy shift households away from low-yield bank deposits towards higher-return,
market-linked instruments like mutual funds, equities, bonds, sovereign securities, etc.
The remaining components of the equation, RBI borrowings, inter-bank liabilities, other
demand/time liabilities are projected using their five-year historical averages (FY2019-
23) as a share of bank deposits, at 0.9%, 1.9%, and 4.3% respectively.
Step 3: Estimation of Bank Credit
Total bank credit is projected as a percentage of NDTL, after adjusting for SLR, which
is computed as the historical average for the five-year period FY2019-23.
Bank Credit Outstanding = (Historical Bank Credit Outstanding / (NDTL - SLR)) x
(Projected NDTL - Projected SLR).
As of 2023, outstanding credit stood at INR 136 trillion
36
, or 104% of NDTL minus SLR. The
SLR, which stands at 28% as the historical average for the five-year period FY2019-23
37
, is
expected to gradually decline toward the RBI’s minimum requirement of 18% by 2070. As SLR
fall to RBI’s minimum requirement, banks holding government securities in excess of regulatory
requirements will gradually reallocate these funds toward corporate bonds and other market
instruments, supported by the deepening of Indian financial markets.
Credit Allocation
Allocation of bank credit to different sectors is estimated using total bank credit outstanding
and sectoral exposure. Repayments of outstanding bank loans are also incorporated to reflect
the net flow of credit, with total credit flows augmented by the principal repayments over time.
The projection of credit allocation to the sectors is carried out through the following steps.
Step 1: Estimate Credit Exposure
Bank credit exposure to the financing for low-carbon transition = Total bank credit
outstanding × Respective sector exposure (%)
Step 2: Repayment of Principal
Repayment of the principal amount is calculated assuming an average loan duration
for the respective sector with the principal amortised annually over the loan period. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 30
Modelling Methodology
Step 3: Annual Credit Flow to the Sector
Projected credit flow to the sector in a year = Annual change in sector credit exposure
(Current Year Sector Credit Outstanding – Last Year Sector Credit Outstanding) +
Repayment of sector credit principal amount
Details for each sector are provided in Annexure-5.
Non-Banking Financial Companies (NBFCs)
Non-Banking Financial Company (NBFC) credit is projected in relation to total bank credit.
NBFC lending over FY2019-23 stood at an average 24%
38
of total bank credit. This ratio is
assumed to remain the same till 2070 as no major change is expected in lending practices of
banks/NBFCs while absolute credit volumes are expected to expand. Hence, the formula:
NBFCs’ Credit Outstanding = Projected bank credit outstanding × Projected % of
NBFC credit to bank credit
The methodology for credit allocation across low-carbon transition sectors follows the same
approach used for banks and is elaborated in Annexure-6.
Corporate Bonds
Although India has a bank-driven credit market, corporate bonds will be crucial in providing
long-term debt capital for infrastructure and other capital-intensive sectors, including those
essential for achieving Net Zero emissions.
The projection of corporate bond issuance in this study follows a three-step methodology:
Step 1: Estimation of Corporate Bonds Outstanding
Corporate bonds outstanding are projected as a percentage of GDP. As of FY2023,
India’s outstanding stock stood at 15.7% of GDP
39
, well below other countries such as
China (~38%), Japan (~30%), etc.
40
With India’s growing economy, regulatory reforms, greater financialisation, and rising
institutional participation, the corporate bond market is expected to deepen gradually.
It is assumed that the stock of corporate bonds will rise to 30% of GDP by 2070.
Step 2: Estimation of Annual Corporate Bond Issuance
Annual bond issuance is calculated as the difference between the current year’s and
the previous year’s outstanding stock, accounting for maturities, assuming an average
bond maturity of five years.
Step 3: Sectoral Allocation of Corporate Bonds
Sectoral allocation of corporate bonds is projected based on sector’s percentage in
total annual issuance of corporate bonds. As of FY 2023, 4.4% of corporate bonds
were issued in the power sector, while transportation and industrial sector accounted
for much smaller shares of approximately 0.05% and 1.7%, respectively. These shares
are projected based on historical patterns and sector-specific assumptions (details are
provided in Annexure-7). Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 31
Modelling Methodology
2. Equity Capital
Institutional Investors (Equity)
Institutional investors, such as pension funds, insurance companies, and mutual funds, play a
pivotal role in providing long-term equity capital for India’s low-carbon transition. They primarily
invest in corporate bonds and equities, and their growing asset base represents a major potential
source of financing for low-carbon technologies.
The methodology for projecting institutional investors’ equity allocation to low-carbon transition
sectors involves three phases. The first phase estimates the Assets Under Management (AUM)
of institutional investors. The second phase explains the allocation of this projected AUM to
equity investments and the third phase further disaggregates the equity allocation across low-
carbon transition sectors, namely, power, transport, and industry.
Phase 1 – Projecting Assets Under Management (AUM)
Institutional investors manage large pools of AUM that can be mobilised towards financing
technologies for achieving India’s Net Zero goal. The projection of AUM is based on the following
steps:
Step 1: Projection of AUM
The AUM for each institutional investor is projected by using the following formula:
Projected AUM = Previous year’s AUM + Premiums/Contributions + Investment
Income – Benefits/Claims – Expenses
Step 2: Premiums and Contributions
Insurance companies: Premiums
iii
(life and general insurance) are modelled as a share
of GDP, increasing from 4% in 2023
33
to 7% in 2070, reflecting growing income levels
and deeper insurance penetration. This assumption is consistent with trends observed
in OECD countries averaging ~6.2% in 2024 (Germany ~6%, Sweden ~7%
34
).
Mutual funds: Fresh investments are projected as a share of household financial savings,
rising from 6% in 2023
35
to 12% in 2070, as households are expected to increasingly
shift towards instruments that offer higher returns than traditional bank deposits.
Pension and provident funds: Contributions are linked to household financial savings.
Approximately 19% of household financial savings in FY2023
35
were directed toward
provident and pension funds. This share is expected to rise to 21% by 2050 and gradually
decline to 19% by 2070, reflecting reduced propensity to save for pensions as India’s
population ages. (details on premium and contribution are provided in Annexure-8.1).
Step 3: Investment Income
The percentage of returns is applied to various asset classes in the portfolio, using
historical data from FY2019-23 (details on investment income are provided in Annexure
8.1).
iii The data on premium/contribution received is extracted from Annual Reports of Pension Fund Regulatory and
Development Authority (PFRDA), Employees’ Provident Fund Organisation (EPFO), Insurance Regulatory and
Development Authority of India (IRDAI), and various public and private insurance companies. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 32
Modelling Methodology
Portfolio allocations
iv
are assumed to gradually evolve over time. The share of
government securities is projected to decline from 55–60% at present to around 50%
by 2070 for most institutional investors.
For mutual funds, allocation to equity-oriented schemes is expected to increase in line
with the rising risk appetite of investors.
A higher allocation to corporate bonds and equity will enhance capital flows to sectors
and technologies critical for achieving India’s Net Zero goals.
Step 4: Benefits/Claims and Expenses
For all institutional investors, benefits and claims paid are projected based on the
historical data from FY2019-23 (calculated as Benefits or Claims ÷ Premiums or New
Funds Mobilised). (Benefits/claims and expenses projections are detailed in Annexure
8.1).
Operating expenses are estimated using historical data from the past five years
(FY2019-23), with the assumption that improved asset management efficiency and
economies of scale will gradually reduce costs over the long-term (Annexure-8.1).
Phase 2: Allocation to Equity
A portion of the AUM of institutional investors is allocated to public equity, projected based
on historical allocation patterns and also considering the potential for higher equity allocations
resulting from financial sector reforms and an increased risk appetite among these classes of
investors.
Capital allocation to public equity is projected as a percentage of AUM. In FY2023, the equity
allocation of AUM across institutional investors ranged from 15% to 20% (except for mutual
funds, which stood at 53%). The detailed breakdown of public equity allocation across different
institutional investors is given in Annexure-8.2.
Phase 3: Equity allocation to financing low-carbon transition in various sectors
Equity capital estimated in phase 2 is further allocated across sectors, including financing low-
carbon transition activities across power, transport, and industry. Since institutional investors
are typically passive investors, the NIFTY50 index is used as a proxy for their equity capital
allocation across sectors, with the historical trends of weights (% of total NIFTY50 market
capitalisation) of sectors forming the basis for projections.
The methodology for allocating equity capital to each low-carbon transition sector is outlined
below.
Step 1: Projection of sectoral allocation of total equity capital using the sectors’ weights
in the NIFTY50. The details of sectoral allocation are given in Annexure-8.2.
Step 2: Projection of equity capital flow for sectors in a particular year = Current year’s
AUM equity allocation in a sector - Previous year’s AUM equity allocation in a sector
iv The data on portfolio allocation is extracted from Annual Reports of Pension Fund Regulatory and Development
Authority (PFRDA), Employees’ Provident Fund Organisation (EPFO), Insurance Regulatory and Development
Authority of India (IRDAI), and various public and private insurance companies. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 33
Modelling Methodology
Corporate Equity
Corporate equity is another important source of capital for financing low-carbon technologies.
Corporations typically reinvest a significant portion of their retained earnings into capital
expenditure (CAPEX), acquisitions, and working capital. The following three-step approach is
used to estimate corporate equity that can be deployed in low-carbon transition.
Step 1: Estimation of Sectoral Capital Expenditure
The portion of retained earnings used for CAPEX by corporations is estimated for each
sector, i.e., power, transport, and industry. Data on free cash flow to equity (FCFE) and
CAPEX data
v
for power, transport, and industry corporations were analysed over the
past seven years.
Step 2: Projection of Future Sectoral Capital Expenditure
The historical (FY2017-23
vi
) allocation of total direct corporate investment (excluding
investments in financial assets) to CAPEX for each sector is calculated, i.e.,
CAPEX for each sector/total direct corporate investments (%). This ratio is used for
projecting future sectoral CAPEX
Step 3: Projection of Corporate Equity Investment in Sectors
Corporate equity investment is projected by multiplying the historical rate of CAPEX/
total direct corporate investments by total projected corporate direct investments
(details are provided in Annexure-9).
Private Equity and Venture Capital (PE/VC)
Private Equity and Venture Capital (PE/VC) play a significant role in financing technologies by
supporting start-ups and emerging businesses in enabling low-carbon transition across sectors.
For projecting PE/VC funding to these technologies, the following approach is adopted:
Step 1: Estimation of Total PE/VC Funding
Total PE/VC funding is projected as a percentage of GDP. The five-year historical
average for FY2019-23 stands at 2% of GDP
41
and this is assumed to remain constant
through 2070. The projections adopt a conservative approach, taking into account the
uncertainty related to the pace and magnitude of PE/VC ecosystem growth and lack
of credible long-term forecasts.
Step 2: Estimation of PE/VC funding for low-carbon transition sectors
PE/VC funding directed towards low-carbon transition sectors
vii
is approximately 2% of
total PE/VC funding in FY2023. This share is projected to rise to 6.5% by 2035, driven
by growing market opportunities and a favourable policy environment. This trajectory
mirrors trends in countries such as China, South Africa, the Philippines, and Brazil,
v The data for free cash flows to equity and capital expenditure has been extracted from the ProwessIQ/CMIE
database.
vi A seven-year period is considered for projecting percentages due to fluctuations observed in free cash flow to
equity caused by events such as COVID-19.
vii PE/VC funding directed toward enabling the low-carbon transition across sectors is calculated as the sum of PE/
VC funding to Energy, Transport, Industry and Building, based on data extracted from the Tracxn database. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 34
Modelling Methodology
which are also undergoing energy transitions. However, beyond 2035 PE/VC funding
for low-carbon transition sectors is expected to gradually decline to 2.5% of total PE/
VC funding by 2070 as the attractiveness of early-stage green technology investment
decreases once several technologies mature beyond the start-up phase.
Step 3: Sectoral Allocation of PE/VC Funding
Within technologies, PE/VC funding is allocated across power, transport, and industry
sectors using the following formula, guided by historical data and sector-specific
assumptions (details are provided in Annexure-10)
PE/VC funding in a sector = % of sectoral allocation x Total PE/VC for low-
carbon transition sectors as calculated in step 2
Foreign Sources
Foreign capital is invested directly into technologies that support the Net Zero transition, rather
than being channelled through domestic intermediaries. It is deployed through both debt and
equity, using instruments such as loans, bonds, and equity. The key tracked foreign sources,
along with the methodology used, are discussed below:
Foreign Direct Investment (FDI)
FDI in the form of direct equity is considered a key source of capital available for low-carbon
transition sectors.
Step 1: Estimation of FDI
FDI equity inflows are projected based on five-year (FY2019-23) historical trends of
FDI as a percentage of GDP. In FY2023, total FDI inflows into India stood at INR 5.7
trillion
42
, equivalent to 2.1% of GDP. For comparison, OECD average FDI-to-GDP ratio
stands at 2.2-2.4% with countries like Sweden at 3.1%, Canada at 1.9%
43
, indicating
potential for India to attract higher FDI inflows. Based on these benchmarks, the FDI-
to-GDP ratio is assumed to gradually increase to 3% by 2070.
Step 2: Sectoral Allocation of FDI
FDI equity inflows for each year are distributed across the power, transport, and
industry sectors (see Annexure-11 for details). The following approach is used:
Step 1: Project annual FDI inflows up to 2070 using the FDI-to-GDP ratio assumption
outlined above.
Step 2: Allocate FDI to low-carbon transition sectors based on historical sectoral
FDI patterns (FY2019-23) supplemented with sector-specific assumptions.
Foreign Portfolio Investment (FPI)
FPI, comprising both equity (stocks) and debt (bonds), is included in the overall capital
projections. FPI inflows are estimated using the year-on-year change in Assets Under Custody
(AUC). The methodology is outlined below: Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 35
Modelling Methodology
Step 1: Estimation of AUC
AUC is projected as the sum of the previous year’s AUC, net FPI investments during
the year, and returns on investment.
Step 2: Estimation of Net Investments and Return on Investment
Net investments are calculated as % of GDP. In FY2024, total net FPI investments
amounted to INR 3.4 trillion
44
, equivalent to 0.5% of GDP. This share is projected to
increase to 1.5% of GDP by 2047, after which it is assumed to remain constant as India
transitions into a developed economy. The return on investment is projected based on
the historical average (FY2019-23) of rates of return earned by institutional investors.
Step 3: AUC Allocation to Bonds and Equity
AUC allocation across financial instruments (bonds and equity) is projected based on
the five-year (FY2019-23) historical average asset allocation (Annexure-12).
Step 4: Sectoral Allocation of FPI
The sectoral allocation of Foreign Portfolio Investors’ (FPI) AUC (both debt and equity)
across the power, transport, and industry sectors is estimated as follows:
FPI equity allocation to power, transport, and industry is projected in proportion to
the sectoral weights of these sectors in the NIFTY50 Index (details are provided
in Annexure-12.1).
FPI debt portion allocation to power, transport, and industry is projected based on
the share of these sectors in total corporate bond issuance (details are provided
in Annexure-12.2).
The annual FPI inflow is estimated as the year-on-year change in sectoral equity
and debt investments.
External Borrowings
The estimation of India’s total external borrowings and the share of debt raised in low-carbon
transition sectors is carried out in three steps:
Step 1: Estimation of Total External Borrowing
Total external borrowings are estimated as a percentage of GDP. India’s external debt
stood at USD 664 billion at the end of FY2024
45
, equivalent to 17% of nominal GDP.
For projections, the external debt-to-GDP ratio is assumed to remain at the five-year
historical (FY2020-24) average of 18.5%, consistent with observed external debt shares
in peer emerging markets such as Brazil (~17% of GDP), China (~13% of GDP), and
Russia (~13% of GDP)
46
.
Step 2: Gross Debt Outstanding of Non-financial Corporations
The share of external debt held by non-financial corporations is estimated as a
proportion of total external outstanding debt, recorded at 10.5% in FY2024
47
, This ratio
is assumed to remain constant at historical four-year average (FY2021-24)
viii
of 10.7%.
viii Due to limited data availability, a four-year period has been used for estimation. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 36
Modelling Methodology
Gross debt outstanding of non-financial corporations is projected using the following
relationship:
Gross Debt outstanding (non-financial corporations) = Trailing four-year average share of
external debt held by non-financial corporations × Total external debt
Step 3: Gross Debt Issuance by Non-financial Corporations
Gross external debt issuance in a year by non-financial corporations is projected based
on their outstanding external debt (calculated in step 2), assuming an average five-
year maturity for external borrowings.
Total external debt issuance by non-financial corporations = Gross debt outstanding by non-
financial corporations/5
Step 4: Sectoral Allocation of External Borrowings
For projections of sectoral allocation of external debt of non-financial corporations,
the sectoral allocation percentages of FDI are used
ix
as proxy combined with sector-
specific assumptions (Annexure-13).
International Public and Private Climate Finance
Other international climate finance sources, such as Development Financial Institutions (DFIs),
Global Climate Funds (GCFs), and Sovereign Wealth Funds (SWFs), are also tracked
x
as part
of total foreign capital flows.
Estimation of International Public Finance Flows: According to Climate Policy Initiative’s (CPI)
India green finance tracking, international climate finance through bilateral and multilateral
institutions (including GCF flows) increased from USD 1.72 billion in FY2016–17 to USD 3.6
billion in FY2021–22
9
.
In line with the New Collective Quantified Goal (NCQG) objective of tripling global climate
finance flows by 2035 from public and private sources (COP29)
48
, it is assumed that bilateral
and multilateral public finance inflows to India also scale up proportionately over this period. As
India transitions to developed country status by 2047, these inflows are assumed to stabilise,
reflecting patterns observed in other developed economies, specifically China, which has now
emerged as a net provider of finance.
Estimating Finance Flows from Sovereign Wealth Funds (SWFs): As of FY2023, SWFs
collectively held USD 13.2 trillion in AUM, with USD 217 billion in annual deal activity. India
received approximately 8% of the deal value in FY2023
49
. SWF AUM is projected to grow to
USD 18 trillion by 2030
50
. India is well-positioned to attract a larger share of this expanding
capital pool, consistent with the share experienced in developed economies like UK (12%),
Italy (11%), etc.
49
. For allocation to low-carbon transition sectors, SWFs are expected to follow
patterns similar to FDI, owing to their shared long-term investment characteristics.
ix Due to the unavailability of sectoral data, sectoral allocation percentages of FDI are used as a proxy, considering it
to be a comparable foreign source.
x These sources do not form part of the analysis to estimate supply of finance (except SWF), as they currently
account for only a small share of total flows. 4
RESULTS AND
ANALYSIS Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 38
Results and
Analysis
4
This chapter presents estimates of India’s investment needs and projected capital availability
across key mitigation sectors, power, transport, and industry under Current Policy Scenario
(CPS) and Net Zero Scenario (NZS). It builds on modelling exercises that link macroeconomic
projections with sectoral energy demand, investment requirements, and domestic and foreign
financial flows until 2070. The results highlight the magnitude and timing of financial needs, the
role of domestic versus international capital, and potential financing gaps.
4.1 INVESTMENT REQUIREMENT FOR NET ZERO
4.1.1 Estimates of Investment Requirements
Several studies have estimated India’s investment requirements to achieve Net Zero by 2070,
with total needs ranging between USD 10 to 20 trillion, reflecting differences in scope, and
methodology. Similarly, certain estimates include only technology deployment costs, whereas
others also account for manufacturing capacity, system integration, and associated overheads.
These variations explain the spread across studies.
Despite the variation in absolute numbers, the sectoral pattern is broadly consistent: the
power sector dominates, accounting for more than 50% of investment, driven by renewables;
the transport sector accounts for roughly 20%, focused on electric vehicles (EVs), charging
infrastructure, and emerging hydrogen applications; and industry represents a quarter, with most
investments expected post-2045 in hard-to-abate sectors such as steel, cement, and chemicals.
The study estimates total mitigation sector investment at around USD 22.7 trillion for Net Zero
underscoring the need for urgent, massive, and long-term capital mobilisation (Figure 4.1). Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 39
Results and Analysis
12.3
4.3
6.1
22.7
8.4
0.2
1.5
10.1
9.0
7.8
2.8
19.6
0.0
7.5
15.0
22.5
30.0
Power sector Transport sector Industry Total
USD Trillion
NITI Aayog CEEW UBS
Figure 4.1: Sector-wise estimates of cumulative investment requirements for
Net Zero across various studies
Note: UBS estimates include Power–Renewable CAPEX for utilities, Solar PV Manufacturing, Storage CAPEX from
utilities, Transmission CAPEX, overheads; Transport – EV battery CAPEX from OEMs, EV battery manufacturing,
overheads; Industry – Storage battery manufacturing, Associated equipment and systems, Green hydrogen, Electrolysers
manufacturing, overheads.
Caveat: The study estimates India’s investment needs and projected capital availability across
three key mitigation sectors, power, transport, and industry. The estimates presented are
indicative in nature and are contingent on underlying assumptions and specific modelling
choices, including technology pathways, policy trajectories, and cost parameters. The results
should be interpreted as directional rather than definitive. Other mitigation-relevant sectors,
including buildings, waste, etc., are not included in the current investment estimation but are
included for energy and emission estimation. These sectors will be analysed and incorporated
in subsequent iterations of the study. The limitations of the study are further elaborated in the
methodology section (See section 3.1).
4.1.2 Estimates of Incremental Investment Requirements
Net Zero requires USD 8.1 trillion more than current policy trajectory through 2070: India’s
energy transition has been modelled under two scenarios, the Current Policy Scenario and the
Net Zero Scenario. Under Current Policy Scenario, assuming continuation of existing policies
and slower uptake of new clean technologies compared to Net Zero Scenario, total investment
needs are estimated at around USD 14.7 trillion. The Net Zero Scenario requires approximately
USD 22.7 trillion, underscoring the additional financing requirement of about USD 8.1 trillion
needed to achieve Net Zero emissions by 2070. This incremental capital reflects the cost
of accelerated low-carbon technology deployment, policy interventions, and system-level
investments essential for aligning with the Net Zero pathway.
At a sectoral level, the power sector dominates investment needs in both Current Policy and
Net Zero Scenarios, reflecting the centrality of renewables, transmission, and storage to low-
carbon transition. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 40
Results and Analysis
The power sector accounts for the largest share of the incremental investment demand (about
USD 4.5 trillion), followed by industry (USD 2.7 trillion), and transport (USD 0.9 trillion), (as
shown in Figure 4.2). This pattern indicates that while enabling low-carbon transition in heavy
industry and transport remains challenging, the bulk of India’s additional financing challenge lies
in front-loading power sector transformation, which will, in turn, enable low-carbon transition
in other sectors through electrification.
Current Policy Scenario Net Zero Scenario Incremental
7.79
3.44
3.42
14.66
12.33
4.30
6.11
22.74
4.54
0.86
2.69
8.08
0.0
7.5
15.0
22.5
30.0
Power sector Transport sector Industry Total
USD Trillion
Figure 4.2: Sector-wise estimates of cumulative and incremental investment
requirements for Net Zero
Over the course of India’s Net Zero transition, investment requirements rise sharply, reflecting
both the scale and urgency of low-carbon transition. In the near to medium term (2026-2050),
Current Policy Scenario calls for USD 5.8 trillion in investments, while the Net Zero pathway
demands USD 8.1 trillion (Table 4.1), reflecting an incremental gap of USD 2.3 trillion, about USD
90 billion annually, equivalent to about 2-2.5% of India’s GDP in 2025. These early years are the
most challenging, as investments must be front-loaded in renewable capacity, grid expansion,
and industrial decarbonisation technologies.
Table 4.1: Total investment requirement (USD trillion)
Current Policy Scenario Net Zero Scenario
Medium Term (2026-2050) 5.808.05
Long Term (2050-2070)8.8614.69
Total (2026-2070)14.6622.74
Over the long-term horizon (2050–2070), Current Policy Scenario investments total USD 8.9
trillion, compared with USD 14.7 trillion under Net Zero Scenario (Table 4.1). The incremental
gap widens to USD 5.8 trillion, with incremental annual needs climbing to around USD 290
billion during 2050-70. Although the absolute financing requirement peaks in this period, its Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 41
Results and Analysis
share of GDP becomes more manageable as India’s economy expands. The near term remains
the harder test, given the urgency of accelerating clean energy and enabling infrastructure.
After 2050, the Net Zero pathway shifts from scaling proven technologies to deploying risk-
heavy technologies. Green hydrogen becomes central for hard-to-abate sectors, while CCUS
and DAC, negligible before 2050, scale up. Although investments in renewables and T&D
continue, their relative share declines as frontier technologies absorb a larger portion of capital,
explaining the higher long-term investment requirement.
4.1.3 Technology-wise Investment Requirements
Up to 2050, India’s Net Zero Scenario (NZS) remains anchored in electrification and transmission
network build-out. The largest incremental differences with Current Policy Scenario arise from higher
investments in transport electrification, grid storage, and enabling infrastructure, reflecting the need
to scale charging networks and system flexibility earlier. By contrast, investment in frontier solutions
such as green hydrogen, Carbon Capture, Utilisation, and Storage (CCUS), Direct Air Capture (DAC),
offshore wind, and nuclear remains limited in Net Zero Scenario, underscoring that the near-term
transition is driven primarily by scaling proven technologies (Figure 4.3).
By 2070, the Net Zero Scenario investment profile diverges sharply from Current Policy Scenario,
marking a structural shift towards enabling low-carbon solutions. Green hydrogen (including
renewable capacity dedicated to electrolysers) emerges as a core pillar of the Net Zero pathway,
absorbing a materially larger share of capital than under Current Policy Scenario and signalling
its central role in promoting low-carbon transition in steel, refining, fertilisers, and long-distance
transport. Carbon Capture, Utilisation, and Storage (CCUS) and Direct Air Capture (DAC), negligible
before 2050, scale meaningfully only in the later decades, highlighting their role as backstop
solutions for residual emissions rather than early levers. While investments in mature renewables
and Transmission and Distribution (T&D) networks continue, their relative share declines as the
transition increasingly depends on technology and risk-heavy solutions, underscoring why post-
2050 financing challenges are fundamentally different from those of the near term (Figure 4.4).
The financing profile of these technologies mirrors their current Technology Readiness Level
(TRL) and risk-return dynamics. Mature renewables and Transmission and Distribution (T&D)
infrastructure, being high TRL and commercially proven, can access debt through green
bonds, infrastructure bonds, and bank lending. In contrast, low TRL solutions such as grid-
scale storage, hydrogen electrolysers, and CCUS face higher perceived risks, requiring blended
finance, concessional loans, strategic equity, and risk-sharing mechanisms to attract investment.
The sharp escalation in total investment in the Net Zero Scenario between 2050 and 2070
highlights the need for institutional mechanisms that can absorb technological and market risks
while maintaining cost efficiency. Ultimately, India’s Net Zero challenge is not just about scaling
mature renewables, it is about unlocking finance for next generation, high-impact technologies.
Achieving this will require a dual finance strategy:
Deploying low-cost debt for mature, bankable segments; and
Using equity, venture, and blended finance instruments to de-risk and scale emerging
technologies.
Mobilising both domestic and international capital will be essential to bridge the financing gap
and ensure timely deployment of transformative low-carbon technologies. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 42
Results and Analysis
0.00.20.40.60.81.0 1.2 1.4 1.6 1.8
Transport*
Industry (Including Captive)
CCUS/DAC
GH2 (RE+Electrolyser)
Utility RE (Excluding Of-shore Wind)
Utility Fossil
Grid Storage
Of-shore Wind
Nuclear
T&D
Net Zero Scenario Current Policy Scenario
USD trillion
Figure 4.3: Technology-wise split of Cumulative Total Investment required till 2050
* Transport CAPEX includes Charging Infrastructure, OEM investment and Battery. Industry CAPEX includes investment
by OEMs.
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Transport
Industry (Including Captive)
CCUS/DAC
GH2 (RE+Electrolyser)
Utility RE (Excluding Of-shore Wind)
Utility Fossil
Grid Storage
Of-shore Wind
Nuclear
T&D
USD trillion
Net Zero Scenario Current Policy Scenario
Figure 4.4: Technology-wise split of Cumulative Total Investment required till 2070
4.2 AGGREGATE FLOWS ANALYSIS
The previous sections estimated that India needs USD 22.7 trillion of investment for Net Zero
pathway by 2070. It also estimated that there is an incremental finance need of USD 8.1 Trillion
over the Current Policy Scenario. This section looks at the availability of finance from both
domestic and international sources. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 43
Results and Analysis
Figure 4.5: Projections of the sources and end use of finance supply
for Net Zero (2026-70, USD billion)
NBFCs: Non- Banking Financial Institutions
PE/VC: Private Equity and Venture Capital
FDI: Foreign Direct Investment
FPI: Foreign Portfolio Investment Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 44
Results and Analysis
With coordinated reforms across domestic and external fronts, this study estimates that India
can credibly mobilise around USD 16.2 trillion towards its Net Zero transition by structurally
expanding the scale, depth, and efficiency of capital. Domestically, this requires deepening the
corporate bond market from ~16% of GDP in 2023 to ~30% by 2070, increasing the financialisation
of household savings from about 60% in 2023 to 75% by 2070, and enabling institutional funds
such as pensions, Employee Provident Fund (EPF), and insurance to reduce their exposure to
government securities from 55–60% to around 50% by 2070 while protecting investor returns
through diversified, high-quality corporate and green assets. Externally, scaling Foreign Direct
Investment (FDI) to 3–4% of GDP and tripling Foreign Portfolio Investment (FPI) participation
by 2047, supported by credible transition roadmaps, a strong pipeline of bankable projects, and
deeper financial markets will anchor sustained foreign capital inflows, together enabling the
mobilisation of USD 16.2 trillion by 2070 for India’s Net Zero pathway.
The total capital available for technologies across the power, transport, and industry sectors
to achieve India’s Net Zero target is estimated at USD 5.5 trillion during 2026-50 and USD
10.7 trillion during 2050-70. The allocation of available capital from various sources and
financial intermediaries to the power, transport, and industry sectors through different financing
instruments is presented in Figure 4.5 and discussed in detail in the subsequent section.
4.2.1 Instruments and Overall Sectoral Allocations
Loans are projected to remain the primary financial instrument, followed by public equity.
Loans from banks, Non-Banking Financial Companies (NBFCs), and external borrowings together
account for approximately 45% of total capital available. Public equity led by institutional
investors and foreign portfolio investors, contributes around 37%, while private equity financing
through Foreign Direct Investment (FDI) and Private equity/Venture Capital (PE/VC) makes
up nearly 12%, adding to a total equity of 49%. Corporate bond financing remains the smallest
contributor at around 6%.
In terms of overall sectoral allocation, the power sector is expected to receive about 43% of
aggregate capital available for technologies aimed at achieving Net Zero, followed by industry
at 32% and transport at 25%. Given its higher investment requirements, the power sector
will remain the primary recipient of Net Zero capital. Renewable electricity and associated
technologies such as energy storage and transmission infrastructure have already reached
commercialisation. Consequently, they are likely to attract a larger share of capital inflows in
the near to medium term.
Capital flows to transport sector technologies are expected to accelerate over the next decade,
as several segments, particularly electric two-wheelers cars, and short-range trucks, approach
commercial readiness. In contrast, commercialisation of Carbon Capture, Utilisation, and Storage
(CCUS), Direct Air Capture (DAC) and other clean technologies in the industrial sector will take
longer, and the majority of capital mobilisation is expected between 2050-70.
Debt Capital
Banks and Non-Banking Financial Companies (NBFCs) will continue to dominate debt
financing for low-carbon transition technologies, though capital market reforms could unlock
significant new flows through bonds. Over the period FY2026-70, commercial banks (USD 4.5
trillion) and NBFCs (USD 2.4 trillion) are expected to remain the two largest providers of debt Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 45
Results and Analysis
capital for Net Zero aligned investments. Commercial banks are projected to account for ~55%
of total debt financing, followed by NBFCs (28%), and institutional investors (12%), including
pension funds, insurance companies, and mutual funds. This mirrors the current structure of
India’s debt market, dominated by banks and NBFCs (81%).
However, financial sector reforms could enable companies in the low-carbon transition sectors
to raise a larger share of debt directly from capital markets, particularly through green and
infrastructure bond issuances. As institutional investors gradually allocate a higher portion of their
portfolios to fixed-income securities, the availability of long-term debt for green technologies
is expected to expand substantially.
Equity Capital
Institutional investors are expected to be the largest source of equity capital, providing
around 42% of total equity financing, followed by Foreign Direct Investment (FDI) at 21%
and corporate balance-sheet financing at 20%, while Foreign Portfolio Investment (FPI)
and Private Equity/Venture Capital (PE/VC) funding contribute relatively smaller shares,
at approximately 13% and 4%, respectively. As institutional investors’ AUM expands, driven
by higher domestic savings being channelled through capital markets, they are expected to
become the dominant suppliers of equity capital. The long-term liability profile of pension
funds and insurance companies aligns well with the long-duration investment needs of Net Zero
technologies. However, higher allocations from these institutional actors need to be undertaken
with due consideration to the protection of pensioners’ and policyholders’ interests, including
fiduciary responsibilities, risk–return expectations, and prudent asset allocation norms.
These investors are expected to participate primarily through public equity markets, given their
preference for liquidity and lower exposure to private placements. By reorienting their portfolios
towards low-carbon sectors, institutional investors can also hedge climate-related transition
risks while supporting India’s Net Zero goals.
4.2.2 Sectoral Analysis
Power
Domestic sources hold the majority share of capital supply in the power sector. Around
86% of the finance available for the power sector is expected to come from domestic sources,
with banks and Non-Banking Financial Companies (NBFCs) expected to contribute nearly half,
followed by equity flows from institutional investors and corporations. Among international
sources, Foreign Direct Investment (FDI) is expected to play the most significant role, accounting
for about 53% of total foreign finance, followed by Foreign Portfolio Investment (FPI) (33%),
and the remaining coming from external borrowings (14%).
Bank and NBFCs dominate power sector financing. Debt capital for the power sector is heavily
reliant on banks and NBFCs, which together contributed 74% of total debt financing in FY2023.
Historically (FY2019-23), banks have allocated on average around 5% of their total credit
portfolios to the power sector, while NBFCs have maintained a significantly larger exposure,
around 27–30% of their overall lending. Key public sector NBFCs, including the Power Finance
Corporation (PFC), Rural Electrification Corporation (REC), and the Indian Renewable Energy
Development Agency (IREDA), remain the largest institutional lenders to the power sector. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 46
Results and Analysis
As the energy sector becomes increasingly electrified, credit flows to non-electric energy
segments (such as oil and gas, and thermal heat) are expected to decline, allowing a larger
share of debt capital to shift toward the power sector. Consequently, the share of bank credit
directed to the power sector is projected to rise gradually from the current average of 5% of
total credit outstanding to 8% in 2050 and 9% in 2070.
Corporate bonds and External Commercial Borrowings (ECBs) can play a larger role in
financing the power sector. As India’s capital markets deepen and mature, a greater range of
bond financing (rising from INR 769 billion in FY2023 to 23 trillion by 2070) is expected to be
channelled toward the power sector.
Institutional equity is poised to expand in line with the sector’s growing representation in
benchmark indices such as NIFTY50. Among the equity sources in the power sector, institutional
equity currently contributes the maximum (37%) and is expected to expand over time. In 2023,
institutional equity investment in the power sector totalled INR 152 billion.
The total institutional equity AUM is allocated across low-carbon transition sectors using
their relative weights in the NIFTY50 as a proxy. The power companies’ share in NIFTY50
ranges between 2-2.3% of total market capitalisation over FY2019-23, and assuming the share
gradually rises to 5% by 2070, driven by the ongoing electrification of the energy system and
benchmarking with countries that have more advanced electrification, investors could unlock
upto INR 49.8 trillion by 2070. (For context, the utilities sector accounts for approximately 4.8%
of the Shanghai Composite Index in China
51
and around 4.3% to 4.8% of the S&P/TSX Composite
Index in Canada
52
). Investments in renewable energy is also expected to increase steadily as
renewable energy’s share in the energy mix expands.
Corporate equity contributions to the power sector remain low but are set to grow significantly.
Corporate equity investment in the power sector has averaged at 3% (FY2017-23) of the total
financial savings of non-financial corporations. This share is projected to increase to around
5% by 2070, reflecting stronger participation by domestic firms in renewable and clean power
generation.
Foreign Direct Investment (FDI) inflows to the power sector are projected to increase
gradually. Currently, FDI inflows to the overall energy sector constitute about 5% (INR 173
billion in 2023) of total FDI, of which around 51% is directed toward non-conventional energy
sources. As global investors continue to expand their allocations to clean energy, FDI inflows
to the power sector are expected to rise to around 6% of total FDI flows by 2070, keeping in
consideration that banks and public sector NBFCs will be the major source of finance for the
sector (as observed in other countries, like China, where there is domestic capital dominance
in power sector and FDI flows in power sector are around 3-4% of total FDI flows
53
).
Private Equity and Venture Capital (PE/VC) funding in the energy sector is expected to
grow steadily. Historically, PE/VC investment activity in the energy sector has been expanding,
particularly in clean tech and emerging renewable energy solutions, reflecting growing investor
interest in innovation and new technologies. In FY2022-23, PE/VC investments in mitigation
sectors was around USD 868 million. As this channel plays a crucial role in financing early-stage,
tech-driven solutions, initial investments are expected to remain concentrated in the power
sector (around 50% of total PE/VC investments in mitigation sectors). Over time, however, PE/
VC funding is likely to diversify toward other emerging green technologies, such as Direct Air
Capture (DAC) and other carbon-removal solutions, as these areas mature and scale. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 47
Results and Analysis
Transport
Similar to the power sector, domestic sources are expected to provide the majority of capital in
the transport sector. Around 76% of total financing is projected to come from domestic sources
during FY2026-70, with banks and Non-Banking Financial Companies (NBFCs) accounting for
the largest share. On the international side, Foreign Direct Investment (FDI) is expected to be
the primary source of capital.
Banks and Non-Banking Financial Companies (NBFCs) dominate debt financing for transport,
while corporate bonds and external commercial borrowings (ECBs) represent untapped
potential. Banks and NBFCs together are expected to contribute over 95% of total debt capital
in the transport sector during FY2026-70. Historically (FY2019-23), an average of around 6% of
total bank credit was directed toward the sector (including both manufacturing and services).
This share is expected to increase to 8% by 2070 with the expansion of transport-related
lending.
Historically (FY2019-23), NBFCs had an exposure of around 15% of their total credit in the
transport sector, a share projected to increase gradually to 17% by 2070, resulting in capital
availability of INR 20.2 trillion.
Corporate bond represents an untapped potential and are expected to expand to mobilise
around INR 271 billion by 2070 (from INR 16 billion in 2023) and external borrowings expected
to unlock INR 3.4 trillion by 2070 (from INR 74 billion in 2023).
Given that clean transportation technologies have higher upfront capital requirements compared
to Internal Combustion Engine (ICE) vehicles, they will require a larger share of debt financing.
However, because the operating cost of EVs are lower, banks and NBFCs are expected to be
more comfortable extending larger loans per vehicle provided the issues with electrical vehicle
ecosystem are addressed, leading to higher allocation of debt capital to the transport sector
over time.
Institutional investors lead equity financing in the transport sector, while Foreign Direct
Investment (FDI) emerges as a growing secondary source. As of 2023, institutional equity
investment in transport sector stood at INR 224 billion. The total institutional equity AUM is
allocated across low-carbon transition sectors using their relative weights in the NIFTY50 as a
proxy. Based on transportation companies’ share in NIFTY50, which is on average 5.3% of total
market capitalisation during FY2019-23 and assuming it remains stable, investors could deploy
upto INR 52.8 trillion by 2070.
After institutional equity, FDI will be the second most important source of equity capital for the
transportation sector. FDI inflows are projected to rise from INR 198 billion in 2023 to INR 18.5
trillion by 2070, in line with broader growth in FDI equity flows.
Industry
Industry sector financing remains largely domestic, while Foreign Direct Investment (FDI)
anchors international capital inflows. The industry sector is also expected to raise the majority
of finance through domestic sources (77%), with banks and Non-Banking Financial Companies
(NBFCs) providing 39% of the domestic funds, complemented by significant contributions from
institutional investor equity. Among international sources, FDI is anticipated to be the dominant
channel, accounting for roughly half of all international finance mobilised for the sector. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 48
Results and Analysis
Banks and Non-Banking Financial Companies (NBFCs) lead industrial debt financing. Banks
and NBFCs accounted for about 80% of total debt flows to the sector in FY2023. Their combined
share is projected to decline to 74% by 2070, as other financing sources expand.
Corporate bond issuances in the sector currently make up only 1.7% of total corporate bond
issuance but are expected to rise modestly to about 2% by 2070, unlocking an estimated INR
11.6 trillion in additional capital. External borrowings, currently (FY2023) at INR 0.1 trillion are
expected to increase to approximately INR 6.3 trillion in 2070, accounting for nearly 10% of the
total debt capital over the 2026-70 period.
Institutional investors will anchor equity financing in the industry sector, supported by
corporates, Foreign Direct Investment (FDI) and Private Equity/Venture Capital (PE/VC). As
of 2023, institutional equity investment in the industry sector stood at INR 672 billion. The total
institutional equity AUM is allocated across low-carbon transition sectors using their relative
weights in the NIFTY50 as a proxy. Based on industry’s share in NIFTY50, which on average
stood at 6.2% of total market capitalisation in 2023, and assuming it remains stable, institutional
investors could deploy upto INR 62.7 trillion by 2070.
Corporate equity is expected to be the second largest equity source in the industry sector with
exposure of average 3% of total investment by corporations. It is expected to grow to 5.5% until
2047 before declining as India transitions to developed economy status. FDI inflows are also
expected to increase from INR 226 billion in FY2023 to INR 21 trillion by 2070.
PE/VC funding are projected to gain traction, increasing their share from 25% of total PE/VC
flows toward enabling the low-carbon transition across sectors in 2023 to about 45% by 2070,
reflecting growing investor appetite and industrial innovation and green manufacturing.
Table 4.1 summarises the split between domestic and foreign sources across the three low-
carbon transition sectors, Power, Transport, and Industry, highlighting the dominant sources of
finance and financial instruments deployed.
Table 4.2: Composition of Aggregate flows across Power, Transport, and Industry Sectors
Sector
Sectoral
Allocation
(USD Trillion)
Domestic vs
Foreign
Dominant source of
FinanceInstruments
Power $6.93 tn ~86% Domestic;
$5,980 bn
~14% Foreign;
$946 bn
Domestic: Banks and
NBFCs (58%); $3,462 bn
Foreign: FDI (53%);
$502 bnLoans (51%);
$3,557 bn
Equity (39%);
$2,664 bn
Bond (10%); $706 bn
Transport $4.01 tn ~76% Domestic;
$3,061 bn
~24% Foreign;
$945 bn
Domestic: Banks and
NBFCs (60%); $1,839 bn
Foreign: (55%) FDI; $523
bnEquity (51%); $2,059 bn
Loans (48%); $1,938 bn
Bonds (0.2%); $9 bn Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 49
Results and Analysis
Industry $5.28 tn ~77% Domestic;
$4,093 bn
~23% Foreign;
$1,190 bn
Domestic: Banks and
NBFCs (39%); $1,589 bn
followed by Institutional
Investors (38%);
$1,575 bn
Foreign: FDI (50%); $597
bn
Equity (60%); $3,182 bn

Loans (34%); $1,771 bn

Bonds (6%); $329 bn
Total 16.22 tn
4.3 ASSESSING INDIA ’S NET ZERO FINANCING GAP
4.3.1 Total Financing Gap
The Net Zero Scenario (NZS) reveals a USD 6.5 trillion financing gap; international sources
could account for 42%
xi
of total capital needs by 2070 if the gap is bridged externally.
India’s pathway to Net Zero by 2070, as per this study, requires unprecedented levels of capital
mobilisation, and the analysis shows that while reforms ease pressure, a sizeable financing gap
persists throughout. The overall financing gap is estimated at USD 6.5 trillion by 2070 with
the power sector accounting for the majority share of the financing gap (~82%), followed by
Industry (~13%), and Transport (~5%).
By 2050, the financing gap is estimated at USD 2.5 trillion or USD 100 billion per year. The
power sector remains the primary driver of this gap (~USD 80 billion per year), accounting
for the bulk of unmet investment requirements in renewable energy, transmission, and storage
infrastructure. Industry and transport sectors also contribute to the financing gap as they enter
more capital-intensive phases of low-carbon transition.
By 2070, the overall financing gap expands to USD 6.5 trillion or USD 145 billion per year
of additional investment needed (Figure 4.6), with total financing needs rising to USD 22.7
trillion against USD 16.2 trillion in available flows. Power sector financing gap rises from USD
~80 billion to 120 billion per year. The escalation reflects the intensification of low-carbon
transition efforts across all sectors, led by the power sector’s transition toward full renewable
integration and large-scale storage. Industry faces growing costs from advanced technologies
such as Carbon Capture, Utilisation, and Storage (CCUS) and green hydrogen, while transport’s
financing demand increases with the full rollout of EVs, clean freight, and sustainable fuels. The
scale of this gap highlights the need to mobilise additional large-scale domestic and foreign
investment through innovative instruments and deeper capital market participation to sustain
India’s Net Zero transition.
xi 42% is calculated by dividing the financing gap (USD 6.5 trillion ) and the expected capital available from
international sources during 2026-70 (USD 3.1 trillion) by the total capital requirement (USD 22.7 trillion). Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 50
Results and Analysis
-10
0
10
20
30
2026-502026-70
USD Trillion
Financing Available Financing Needs Financing Gap
5.56
8.05
-2.49
-6.52
16.22
22.74
Figure 4.6: Projections of total needs, availability and gap (USD trillion)
International climate finance will be crucial in bridging the financing gap for Net Zero. Against
the investment need of USD 22.7 trillion for the Net Zero Scenario and estimated aggregate
flows of USD 16.2 trillion, a financing gap emerges at USD 6.5 trillion, even with enabling
measures on both the domestic and foreign fronts. Given that domestic finance remains scarce
and that higher demand for domestic finance can crowd out investment and raise interest
rates, thereby impacting economic growth, this financing gap is expected to be bridged by
external sources, which raises the contribution of international sources to 42% of total capital
needs by 2070, compared to 17% of flows from international sources in FY2020–22
9
. Foreign
capital therefore has a crucial role to play in India’s Net Zero transition, especially in the form
of concessional capital and grants to support technologies which are needed for Net Zero but
remain commercially unviable.
4.3.2 Sectoral Analysis
Power
The clean power sector has already moved from an early-stage industry to a mainstream component
of the electricity system and has largely become commercially viable. Public capital support is now
limited and primarily needed in specific segments of the sector such as long-duration storage and
newer sources of renewable energy such as geothermal, ocean tidal, etc. However, commercially
viable renewable energy and its enabling technologies such as transmission and energy storage
require large-scale, long-term, and low-risk capital, as these are highly capital-intensive businesses
with long asset lives. Ensuring access to affordable, long-term debt is essential for maintaining
competitive tariffs and providing clean energy to all.
The analysis reveals a significant and widening financing gap in India’s power sector as the country
advances toward its net zero 2070 target. By 2050, financing needs for mitigation in the power Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 51
Results and Analysis
sector are estimated at USD 4.32 trillion, while available finance is projected at USD 2.34 trillion,
resulting in a funding shortfall of USD 1.98 trillion. This gap more than doubles by 2070, reaching
USD 5.4 trillion, as financing requirements rise sharply to USD 12.33 trillion against an availability of
USD 6.93 trillion (Figure 4.7). The expansion of this gap underscores both the scale of investment
required for the low-carbon transition and the structural challenges in mobilising long-term, low-
cost capital for renewable energy, grid modernisation, and storage technologies.
-10
-4
2
8
14
2.34
4.32
-1.98
-5.40
6.93
12.33
2026-502026-70
USD Trillion
Power
Financing Available Financing Needs Financing Gap
Figure 4.7: Power sector: Projections of total needs, availability and gap (USD trillion)
This substantial and growing gap highlights the sector’s heavy dependence on banks and Non-
Banking Financial Companies (NBFCs) for debt financing, which are likely to face their own
capital and exposure constraints over time. To meet its long-term financing needs, the power
sector will need to diversify funding sources and increasingly tap bond markets and other
capital market instruments to secure scalable, long-term debt capital. In addition, mobilising
external sources of patient capital such as global sovereign wealth funds, pension funds, and
other long-term institutional investors will also be critical to bridge the financing gap.
Transport
While EVs are becoming increasingly commercially viable, hydrogen based vehicles and
blended/low-carbon fuels vehicles (Flex fuel vehicles, range extended vehicles, etc.) are still
in an early stage of development. EVs involve higher upfront costs compared to fossil-fuel
vehicles but offer lower fuel and maintenance costs over their operational life (however, true
cost competitiveness depends on accounting for battery degradation, replacement, and end-of-
life recycling and disposal). Beyond vehicle purchases, capital investment is required for fuelling
infrastructure (charging, LNG/Ethanol dispensing stations, etc.), establishing EV and battery
manufacturing plants, and supply chain development. Establishing such infrastructure demands
large-scale, upfront capital, and many of these components, particularly charging networks and
standalone EV manufacturing units, are not yet commercially viable without policy or financial Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 52
Results and Analysis
support. Clean transportation technologies therefore require substantial investment to achieve
cost competitiveness, supported by financing mechanisms across the supply chain, including
technology development, fuelling/charging infrastructure, etc.
The transport sector shows a comparatively modest financing gap relative to other sectors, but
its magnitude and implications are still significant given the sector’s projected rapid growth
trajectory. By 2050, mitigation finance needs are projected at USD 1.54 trillion, against USD 1.32
trillion in available financing, implying a shortfall of USD 0.22 trillion. This gap widens slightly
by 2070, reaching USD 0.29 trillion, with financing needs increasing nearly threefold to USD 4.3
trillion, while available capital grows to USD 4.01 trillion (Figure 4.8). Although the proportional
gap narrows with time, the absolute financing requirements for low-carbon transition in India’s
transport system expands, reflecting the scale-up required in electric mobility, biofuels, hydrogen
infrastructure, and electrification.
-2
0
2
4
6
2026-502026-70
USD Trillion
Transport
Financing Available Financing Needs Financing Gap
1.32
1.54
-0.22-0.29
4.01
4.30
Figure 4.8: Transport sector: Projections of total needs, availability and gap (USD trillion)
Industry
The asset-heavy hard-to-abate industries such as iron, steel, cement, etc., have high sunk costs
in existing facilities and operate on long investment cycles, often extending up to 30 years.
The transition to enable low-carbon transition in these sectors involves significant capital
requirements to retrofit or replace existing plants improving energy efficiency or promote
electrification, and promote the use of green hydrogen where electrification is not possible.
Achieving this transformation will require large-scale investments in both capital expenditure
for infrastructure upgrades and Research and Development (R&D), for emerging technologies
like Carbon Capture, Utilisation, and Storage (CCUS), Direct Air Capture (DAC), etc.
The industrial sector exhibits a growing financing shortfall as the low-carbon transition intensifies.
By 2050, financing requirements are estimated at USD 2.19 trillion, compared with USD 1.9 trillion
in available finance, implying a financing gap of USD 0.29 trillion. However, by 2070, financing
needs rise sharply to USD 6.11 trillion, while available capital reaches USD 5.28 trillion, widening Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 53
Results and Analysis
the gap to USD 0.83 trillion (Figure 4.9). This increasing shortfall reflects the mounting costs
of transitioning India’s hard-to-abate industries such as steel, cement, chemicals, etc., toward
low-carbon technologies like green hydrogen, Carbon Capture, Utilisation and Storage (CCUS),
Direct Air Capture (DAC) and electrified industrial processes.
-2
0
2
4
6
8
2026-502026-70
USD Trillion
Industry
Financing Available Financing Needs Financing Gap
1.90
2.19
-0.29
-0.83
5.28
6.11
Figure 4.9: Industrial sector: Projections of total needs, availability and gap (USD trillion)
The key challenges in mobilising both domestic and international finance, along with actionable
suggestions to bridge the gap and accelerate India’s Net Zero transition are discussed in detail
in the next chapter. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 55
Results and Analysis
5
CHALLENGES &
POLICY SUGGESTIONS
TO BRIDGE THE
FINANCING GAP Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 56
5
Challenges and Policy
Suggestions to Bridge the
Financing Gap
5.1 STRENGTHEN DATA TRANSPARENCY AND REPORTING TO BUILD
A CREDIBLE CLIMATE FINANCE ECOSYSTEM
Tracking finance flows for climate action, establishing emissions baselines, and capturing life-
cycle impacts continue to depend on transparent, accurate, and verifiable financial and emissions
data.
On the corporate side, SEBI has strengthened disclosure requirements through the Business
Responsibility and Sustainability Reporting (BRSR) framework
54
, now mandated for the top
1,000 listed companies. The framework requires reporting across nine Environmental, Social and
Governance (ESG) dimensions, including emissions, energy use, circularity, and diversity. The
introduction of BRSR Core, which mandates third-party assurance for about 150 companies in
FY2023–24 (expanding to all 1,000 by FY2026–27), enhances data credibility.
Similarly, the Carbon Credit Trading Scheme (CCTS) represents a major advance in
institutionalising emissions transparency. The scheme establishes a domestic compliance carbon
market across four emission-intensive sectors: Aluminium, Cement, Chlor-Alkali, and Pulp &
Paper, using FY2023–24 data to set baselines. It relies on robust Monitoring, Reporting, and
Verification (MRV) system, overseen by Accredited Carbon Verification Agencies (ACVAs), to
ensure independent third-party validation
55
.
Complementing these measures, India is advancing a Climate Finance Taxonomy
56
as a ‘living
framework’ to guide capital flows toward mitigation and adaptation. Its tiered structure maps
economic activities across power, mobility, buildings, agriculture, food and water security, and
hard-to-abate industries. By setting clear criteria and transition thresholds, the taxonomy aims
to reduce greenwashing and direct finance towards verifiable, sustainable investments.
Together, these initiatives signal important progress. A unified and verifiable data backbone
is essential to strengthen transparency and improve investor confidence. However, analytical
reviews reveal inconsistencies in reporting quality, particularly in areas such as water and energy
use, underscoring the need for consistency within national frameworks and rigorous verification
57
.
Key suggestions:
i. Establish a unified national climate finance data platform that tracks SEBI BRSR
disclosures, CCTS registry entries, and public & private flows for climate action. This will
enable coherent tracking, facilitate cross-verification, and close persistent information
gaps.
ii. Mandate independent third-party assurance at scale by expanding the BRSR Core Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 57
Challenges and Policy Suggestions to Bridge the Financing Gap
verification framework, enforcing high-quality Monitoring, Reporting, and Verification
(MRV) protocols under the CCTS, and encouraging external audits for Climate Finance
Taxonomy compliance.
iii. Develop a robust sectoral life cycle analysis (LCA) repository to establish science-
based emission baselines for key industries, support taxonomy thresholds, and reinforce
CCTS reporting credibility.
By closing these data and disclosure gaps, India can build transparent and credible climate
finance architecture, one that attracts larger pools of green capital, and supports evidence-
based policymaking for a resilient and finance-driven transition. The proposed climate finance
data platform should be anchored by DEA, supported by an inter-ministerial working group
comprising relevant line ministries and NITI Aayog to ensure methodological rigour, enable
cross-agency coordination, and provide timely updates.
5.2 ENSURE REGULATORY COHERENCE ACROSS FINANCIAL SECTOR
INSTITUTIONS TO CHANNEL CLIMATE FINANCE EFFICIENTLY
AND AT SCALE
While India’s Climate Finance Taxonomy is under development, achieving regulatory coherence
across financial sector institutions is essential to channel climate finance efficiently and at speed
to meet the 2070 Net Zero target.
India’s financial sector is regulated by several autonomous bodies, each responsible for a specific
domain of the financial market: the Reserve Bank of India (RBI), Securities and Exchange Board
of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), Pension Fund
Regulatory and Development Authority (PFRDA), and International Financial Services Centres
Authority (IFSCA).
All these institutions, in varying capacities, contribute to advancing finance for climate action.
However, they have largely operated in silos, creating a fragmented and sometimes inefficient
regulatory environment that poses systemic risks. A unified strategy would ensure consistency,
provide clear signals to the market, and help mobilise the large volumes of capital required for
India’s transition to a low-carbon economy by 2070.
Currently, each regulator is addressing climate change from its own perspective, which creates
several challenges in harnessing available finance from domestic and international sources. A
lack of alignment can lead to regulatory arbitrage, where financial institutions choose to operate
in sectors with less stringent climate norms, thereby undermining the overall effectiveness of the
regulatory framework. This fragmentation also contributes to data and disclosure inconsistencies,
for example, SEBI mandates ESG-related disclosures for listed entities and the RBI is developing
guidelines for banks. The absence of harmonised data and reporting standards limits a system-
wide assessment of climate-related risks and opportunities.
Fragmentation further extends to capital mobilisation. Domestic sources account for 81% of
India’s total climate finance flows expected during FY2026-70, with the balance coming from
international sources. Further these domestic flows are heavily dominated by banks, NBFCs,
together representing 52% of total domestic flows, while corporate bond market and institutional
investors, account for 33%. Within institutional investors, domestic pension funds and insurance Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 58
Challenges and Policy Suggestions to Bridge the Financing Gap
companies contribute a minimal in domestic capital flows, at 0.9–1.2% and 2.5–3.1%, respectively,
despite holding large asset bases that could be channelled toward climate-aligned investments.
As of 2025, the Life Insurance Corporation of India (LIC), reported AUM of INR 54.52 lakh
crore
58
(USD 654 billion), while private insurers collectively hold an additional INR 14 lakh
crore (USD 168 billion). The National Pension System (NPS) alone manages INR 13.98 lakh
crore (USD 168 billion), with other pension funds, including those managed by mutual funds,
adding INR 31,973 crore (USD 3.8 billion). Combined, insurance and pension funds represent
an AUM of nearly USD 990 billion, which is expected to surpass USD 1 trillion in the coming
years due to demographic and technological shifts, increased financial literacy, and the growing
financialisation of household savings. Harnessing this vast pool of long-term capital can ease
the burden on banks and NBFCs and accelerate India’s Net Zero transition.
To ensure a coherent and effective climate finance ecosystem, Indian financial regulators must
align around a shared vision for financing climate action.
Key suggestions:
i. Manage Systemic Financial Risk: Climate change poses a systemic risk across all
financial sectors. A severe climate event such as floods or cyclones can affect banks’
lending portfolios, reduce insurers’ asset values, and erode listed companies’ market
capitalisation. A shared regulatory vision would enable data exchange, coordinated
stress testing, and unified risk frameworks to prevent spillover effects and safeguard
financial stability.
ii. Enable Efficient Capital Mobilisation: India requires trillions of dollars to meet its Net
Zero targets. A coordinated regulatory environment would build investor confidence,
reduce uncertainty, and prevent regulatory arbitrage. Joint action by regulators would
also help create a seamless ecosystem for domestic and international investors to fund
green projects.
iii. Harmonise Data and Disclosure Standards: While some regulators, such as SEBI,
already mandate climate-related disclosures (for example, through BRSR reports), the
quality and format of reporting vary significantly across sectors. A common vision
among regulators would help establish consistent data and disclosure standards,
improving the collection, evaluation, and comparison of climate risk exposure across
financial institutions and companies. Such consistency is essential for policymakers to
make informed decisions and for investors to accurately assess climate-related risks
and opportunities.
As a starting point, the draft Climate Finance Taxonomy prepared by the Department
of Economic Affairs (DEA) may be adopted as the common reference framework,
aligning rules, disclosures, and prudential treatment across all regulators such as RBI,
SEBI, IRDAI, PFRDA, and IFSCA. However, given the taxonomy’s evolving nature, its
adoption should be gradual and phased, with appropriate transition timelines and
periodic updates. This harmonised approach must also be aligned with the capacities of
domestic players, particularly Micro, Small and Medium Enterprises (MSMEs), ensuring
proportionality through phased compliance, simplified templates, and materiality-
based reporting where appropriate. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 59
Challenges and Policy Suggestions to Bridge the Financing Gap
iv. Enable a Just Transition in the Indian Context: A ‘just transition’ ensures that the
shift to a low-carbon economy does not unfairly affect vulnerable communities
or industries that are difficult to decarbonise. Regulators with a shared vision can
collaborate to develop policies that support this shift, for example, by designing
financing mechanisms for Small and Medium-sized Enterprises (SMEs) in high-emission
sectors. Such measures would help these businesses transition smoothly without major
economic disruption. This coordinated approach makes the transition both green and
fair, promoting inclusion and long-term resilience.
The existing working group mechanisms such as Finance Stability and Development Council
(FSDC) and Sustainable Finance Group housed in RBI can be strengthened to address climate
change and climate finance issues. Leveraging these established platforms would support
coordinated actions, improve data sharing, and strengthen policy coherence. These platforms
would provide a structured mechanism for collaboration across regulators and institutions,
ensuring a unified, efficient, and resilient financial response to India’s Net Zero transition.
5.3 EXPAND THE PIPELINE OF BANKABLE, DE-RISKED PROJECTS TO
ACCELERATE CLIMATE INVESTMENT
India’s climate goals call for a significant expansion in the pipeline of investment-ready projects.
Strengthening project preparation, aggregation, and risk management mechanisms will be critical
to improving investor confidence, crowding in private finance, and accelerating implementation.
In many countries, particularly for mature clean technologies such as solar and wind, the main
constraint is not the availability of finance but the bankability of projects
59
. Investors classify a
project as ‘‘bankable’’ when it demonstrates clear and predictable revenue streams, operates
under a stable regulatory framework, and offers attractive risk-adjusted returns. Without these
elements, even large pools of climate capital remain underutilised.
This concern has also been echoed domestically by the RBI Governor, who observed that “one
of the oft-cited constraints to adequate flow of climate-related finance has been the lack of
bankable projects
60
”. Limited appraisal capacity and the short operational track record of many
green technologies amplify perceived risks around reliability and efficiency.
For emerging economies like India, the challenge is compounded by sovereign credit ratings
that systematically understate repayment capacity. The Economic Survey 2024-25
61
highlights
that global rating methodologies often penalise countries on narrow parameters, overlooking
strong fundamentals and a consistent record of external debt servicing. This distortion inflates
the cost of capital. Climate Policy Intiative (CPI) estimates that investors expect returns of
nearly 17.2% on clean energy projects in India, almost double the 8.3% in Germany
62
.
Yet India does not need to look elsewhere for solutions. Its own infrastructure financing models
offer valuable lessons. The National Infrastructure Pipeline (NIP), a first-of-its-kind, whole-of-
government initiative with a projected investment of around INR 111 lakh crore during FY 2020–
25, provided a transparent, forward-looking pipeline of greenfield and brownfield infrastructure
projects each costing over INR 100 crore
63
. In parallel, the National Monetisation Pipeline (NMP)
operationalised the principle of “asset creation through monetisation,” unlocking private capital
worth INR 6 trillion by leveraging existing government assets
64
. Both initiatives demonstrate
that structured pipelines and project preparation facilities can attract scaled capital, lower risk, Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 60
Challenges and Policy Suggestions to Bridge the Financing Gap
and accelerate implementation.
In the energy sector, the Solar Energy Corporation of India (SECI), through instruments such as
the Payment Security Mechanism (PSM), has played a pivotal role in de-risking renewable energy
projects. SECI’s function as an aggregator and off-taker has been central to investor confidence.
PSM addresses counterparty risks linked to power distribution companies (DISCOMs). SECI’s
adoption of hybrid annuity models in solar parks has become an international reference point
for de-risking and scaling renewable investments.
Building on this playbook, NITI Aayog’s ASSET (Accelerating Sustainable State Energy
Transition) platform seeks to prioritise, prepare, and structure green infrastructure projects
for financing. Extending ASSET to climate mitigation sectors such as clean energy, storage,
grids, EV infrastructure, and hard-to-abate industries, can replicate the success of India’s
infrastructure models to mobilise global climate capital. However, since ASSET is a recent
initiative, its expansion should be phased, with ASSET targetting early wins in areas where
aggregation and standardised contracting can quickly improve bankability such as Urban Local
Bodies (ULB) water pumping efficiency upgrades, high-efficiency cooling programmes, and
electrification of municipal fleets (which are discussed below). Any scale-up should be guided
by a clear performance assessment framework and follow-on actionable recommendations, to
avoid premature expansion and strengthen credibility with financiers.
i. Urban Local Bodies (ULB) Water Pumping Upgrades: Electricity is often the second-
largest expense in municipal budgets after staff salaries, with 30–60% of energy bills
attributed to water pumping operations
65
. Rising electricity costs strain local finances,
delay payments to DISCOMs, and affect service reliability. ASSET can intervene through:
a. Promoting demand aggregation via audits: Standardised energy audits across
municipalities to identify inefficiencies and pool demand for efficient pump-sets,
lowering procurement costs.
b. Energy Service Companies (ESCO)/Renewable Energy Service Companies
(RESCO)-led financing: Energy Service Companies (ESCO) can replace and
operate efficient pumps without upfront municipal investment. To mitigate payment
risks, ASSET could establish a PSM (e.g., pooled fund or escrow) to ensure timely
payments and attract private participation.
ii. Scaling Air-Conditioner Efficiency through Replacement & Real Estate Integration: Air
conditioning is emerging as India’s largest driver of incremental residential electricity
demand. With only 8% household penetration today, cooling needs are expected to
rise tenfold by 2050, straining grids and driving up peak demand. In Andhra Pradesh,
summer cooling loads are projected to reach 245 million kWh per day, requiring costly
new generation and transmission capacity
66
. This presents a dual opportunity:
a. Legacy stock: Replacing inefficient ACs with 5-star inverter models can reduce
energy use by upto 60%
67
. ASSET can aggregate demand across housing societies
and states for bulk procurement, with incremental costs recovered through tariff
innovations such as differential pricing.
b. New housing stock: Developers can integrate efficient appliances at the
construction stage, locking in long-term energy savings at minimal incremental
cost. ASSET could scale this through: Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 61
Challenges and Policy Suggestions to Bridge the Financing Gap
Incentives such as green/concessional finance or property tax rebates for
builders;
Regulatory nudges, including improved adoption of efficiency codes;
Green mortgages offering lower EMIs for buyers in certified energy-efficient
housing.
Together, these measures can reduce peak load pressures, lower consumer bills,
and catalyse private investment in efficiency.
iii. Electrification of Municipal Garbage Truck Fleets: Municipal waste fleets are diesel-
intensive, high-Operating Expense (OPEX) assets. The national Municipal Solid Waste
(MSW) guidelines identify collection and transport as a major cost driver for cities,
with efficiency upgrades a key priority under Swachh Bharat Mission (Urban) (SBM-
U)
68
. Yet, the shift to electric trucks has been slow due to high upfront cost of heavy-
duty electrification. A NITI Aayog’s report highlights the reasons for adoption lag:
e-trucks cost 2–3 times that of diesel trucks and elevated financing rates (~15–18% vs.
10–12%) due to technology and resale risks.
69
Pilots projects demonstrate viability: Indore Municipal Corporation has added electric
waste-collection vehicles to its fleet for door-to-door garbage collection, replacing diesel
trucks in its sanitation operations, showing one pathway for municipal electrification.
70

Under ASSET, scale-up can be achieved through demand aggregation and General
Conditions of Contract (GCC) style contracts where operators invest in vehicles and
charging infrastructure and ULBs pay per kilometer or per hour backed by a Payment
Security Mechanism (PSM) modelled on PM-eBus Sewa. This approach mitigates
counterparty risk and creates a replicable pipeline for municipal fleet decarbonisation.
These illustrations are not exhaustive. They are intended as demonstrators of a broader point:
India’s transition will not be financed through volume alone, but through sector-specific financing
architectures that match the risk profile and revenue model of each segment. The next section
focuses on specific financing hurdles in four major pillars of India’s growth and emissions profile
namely transport, industry, power, and buildings and sets out targeted instruments, risk-sharing
mechanisms, and institutional reforms needed to make investments bankable and scalable.
Transport
India’s transport transition requires mode-specific financing architectures from Transit-Oriented
Development (TOD) driven metros and InvIT-backed rail assets to fleet-anchored EV finance
rather than one-size-fits-all subsidies. Transport contributes over 10.9% of India’s total emissions
71
,
dominated by road sector, but financing barriers vary sharply across modes. The proposed
measures to increase financing for climate action include:
i. Financing Metro Systems through TOD and Value Capture: Despite more than 900
km in operation and another 900 km under construction
72
, most metro systems remain
dependent on public funds and multilateral loans. Early ridership levels often fail to
justify a heavy capital cost, while TOD and other value-capture mechanisms remain
underutilised. The way forward is to de-risk early revenues through anchor ridership
commitments and systematically integrate value-capture financing, allowing private
capital to participate in expansion. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 62
Challenges and Policy Suggestions to Bridge the Financing Gap
ii. Unlocking Private Capital in Railways: India’s rail network is key to shifting freight and
passengers to low-carbon transport, yet financing remains dominated by budgetary
allocations. Private operators remain locked out due to legacy procurement and risk-
sharing structures. Public-Private Partnership (PPP) concessions for operations and
pooling freight assets into InvITs could unlock long-term institutional capital while
improving operational efficiency.
iii. Scaling Electric Mobility through Innovative Financing Models (Buses, Trucks, EVs):
Electrification in road transport is advancing through PM E-Drive (FAME-III) and
state EV policies, but high upfront costs, absence of secondary markets for batteries,
and fragmented demand deter private finance. Battery-as-a-service (BaaS) models,
anchor fleet contracts with logistics and e-commerce firms, and route-based project
aggregation can generate predictable revenue streams, making these assets bankable
for blended finance.
iv. Decarbonising Shipping and Maritime Infrastructure: The maritime sector, India’s
trade backbone remains largely overlooked. Retrofitting vessels and building bunkering
infrastructure for green fuels face steep costs and limited financing. Blended finance
models supported by anchor fuel buyers, alongside PPP-led Green Maritime InvITs, can
help crowd in institutional investors. The National Green Hydrogen Mission
73
explicitly
includes pilot projects for green shipping fuel, positioning India to develop early
bunkering and retrofitting pathways for green ammonia and hydrogen, directly linking
transition finance to India’s trade backbone.
Industry
The industrial sector contributes nearly 24% of India’s GHG emissions (2020)
74
, excluding
emissions from electricity use. Energy transition in these hard-to-abate segments is central to
India’s Net Zero ambitions. Yet, the financing landscape remains underdeveloped characterised
by high upfront technology costs, uncertain price signals, and limited institutional engagement.
A key barrier is that many industrial decarbonisation projects such as green hydrogen pilots, or
Carbon Capture, Utilisation, and Storage (CCUS) are capital-intensive with long and uncertain
payback periods.
Micro, Small and Medium Enterprises (MSMEs), which form the backbone of Indian industry,
face even steeper challenges: weak balance sheets, dependence on informal credit, and limited
capacity to navigate complex financing instruments. As a result, viable technologies often
remain under-deployed despite clear climate and productivity benefits. Possible solutions to
finance transition measures in industry sector include:
i. Scaling Energy Service Company (ESCO) and Renewable Energy Service Company
(RESCO) Models: One solution is to scale Energy Service Company and Renewable
Energy Service Company models, which allow industries to adopt efficiency or
renewable solutions without upfront capital expenditure. However, small contract sizes
and uncertain cash flows deter lenders. Pooling multiple contracts under a special-
purpose vehicle (SPV), combined with partial risk guarantees from public institutions
or Multilateral Development Banks (MDBs), can create bankable project pipelines that
attract blended finance. Fast-track dispute resolution and annuity-style repayment
models would further improve investor confidence. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 63
Challenges and Policy Suggestions to Bridge the Financing Gap
ii. Expanding Access to Working Capital for MSMEs: For MSMEs, access to working
capital is as critical as project finance. A promising innovation is green bill discounting,
where verified ‘green invoices’ for instance, for efficiency equipment or renewable
procurement, are financed through platforms like the Trade Receivables Discounting
System (TReDS) regulated by the RBI. Between FY2020 and FY2024, TReDS enabled
over INR 75,000 crore in SME financing; embedding a green certification layer could
extend this mechanism to low-carbon projects at scale.
iii. De-Risking Industrial low-carbon Investments: Blended finance platforms also
hold strong potential for waste heat recovery, low-carbon process electrification,
and energy-efficient motors, where credit and performance risks currently deter
mainstream investors. Carefully designed credit guarantees, Viability Gap Funding
(VGF), and performance-linked incentives can lower perceived risks and unlock
institutional capital.
iv. Financing the Circular Economy and Carbon Aggregation: Finally, scaling the circular
economy in industrial sectors such as metals, plastics, electronics, and construction
remains largely untapped. Aggregation platforms that pool projects and tie payments
to verified outcomes (e.g., tonnes recycled, emissions avoided) can make recycling
and material efficiency investable at scale. Similarly, India’s emerging carbon credit
framework can be leveraged through an Industrial Carbon Aggregation Platform
housed under the BEE to pool carbon credits from MSMEs and offer forward-offtake
agreements with buyers.
Power
The power sector is both the engine of India’s Net Zero pathway and its most investment
intensive link. Accounting for over 40% of total GHG emissions (2020)
75
and nearly half of the
USD 22.7 trillion investment requirement, it will determine whether India can triple electricity’s
share in final energy demand from 21% in 2025 to nearly 60% by 2070, in line with deep
electrification pathways. Despite rapid growth in renewable capacity and achievement of 50%
non-fossil capacity target
76
, financing bottlenecks persist, threatening to slow progress. The
proposed measures to increase financing for climate action include:
i. Strengthening DISCOM Finances and Reducing Counterparty Risk: The most persistent
challenge lies with DISCOMs. Many DISCOMs remain financially distressed despite the
Revamped Distribution Sector Scheme (RDSS), which provides INR 3.04 trillion in
performance-linked grants
77
. Structural inefficiencies such as high Aggregate Technical
and Commercial (AT&C) losses and weak billing and collection systems continue to
erode balance sheets.
Even with the Late Payment Surcharge (LPS) Rules reducing legacy dues, contractual
insecurity remains a deterrent for investors in power generation projects. Without
deeper market reforms such as privatisation or franchise models for loss-making
utilities, and stronger legal enforcement of Power Purchase Agreements (PPAs),
DISCOM fragility will continue to raise the cost of capital for the sector.
ii. Financing Emerging Technologies and Diversifying beyond Solar: While solar and
wind have achieved cost competitiveness, offshore wind, green hydrogen, and battery
storage continue to face financing constraints due to limited operational track records Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 64
Challenges and Policy Suggestions to Bridge the Financing Gap
and commodity price volatility. Banks remain hesitant to underwrite these projects,
restricting the flow of mainstream commercial finance precisely when diversification
is critical.
To address this, risk-mitigation facilities, including partial risk guarantees and first-loss
cover, and credit enhancement instruments supported by Multilateral Development
Banks (MDBs) and Development Financial Institutions (DFI), can be offered to reduce
perceived risks and enable banks to extend credit at lower provisioning requirements.
iii. Building Market Mechanisms and New Revenue Streams: The sector currently
lacks mature market mechanisms for ancillary services such as frequency balancing
and ramping reserves, which limits revenue opportunities for storage and flexible
generation assets. Establishing a structured ancillary services market similar to U.S.,
which generated around USD 8.24 billion in 2024
78
, would enable storage operators to
earn a significant share of revenues from grid services, improving project bankability.
Similarly, Green Open Access reforms are beginning to unlock corporate renewable
demand, but harmonised tariffs, banking provisions, and uniform regulatory
implementation across states are needed to make bilateral PPAs a robust driver of
renewable expansion.
iv. Mobilising Capital for Frontier Technologies: Emerging technologies such as offshore
wind, and hydrogen electrolysers require long-term, low-cost capital that is currently
unavailable at scale in India. With one of the highest costs of capital in the world
for infrastructure, the deployment of concessional climate finance, blended finance
structures, and VGF will be indispensable to make these technologies investable until
commercial maturity is achieved. The government’s VGF scheme for 4,000 MWh of
battery storage capacity is a step in the right direction, providing an example of how
targeted financial innovation can accelerate deployment.
Buildings
The buildings sector already consumes nearly one-third of India’s electricity
79
and will be the
fastest-growing demand segment as appliance penetration and urbanisation rise. With above 80%
(considering demolition and retrofitting) of India’s 2050 building stock yet to be constructed,
this sector represents not just a major climate challenge but a once-in-a-century opportunity
to lock in energy-efficient growth. Yet, financing remains the Achilles heel: fragmented, small-
ticket projects, long payback horizons, split incentives between builders and occupants, and
weak enforcement of codes keep efficiency upgrades and retrofits far from mainstream finance.
The proposed measures to increase financing for climate action include:
i. Unlocking Retail Finance through Green Mortgages and Securitisation: The Indian
Green Building Council (IGBC) has registered over 15,410 projects spanning 13.26
billion sq ft.
80
, demonstrating clear water and energy savings. But to move beyond
isolated success stories, incentives should be provided to bring low-carbon lending
into mainstream retail finance.
Housing loans represent nearly 16.5% of total bank advances in India, with outstanding
amounts of around INR 30.6 lakh crore (June 2025), making them a foundational
component of retail credit
81
. Embedding focused lending towards low-carbon buildings
through preferential interest rates or higher loan-to-value (LTV) ratios for certified Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 65
Challenges and Policy Suggestions to Bridge the Financing Gap
low-carbon buildings can turn this vast retail finance engine into a purposeful lever
of energy-efficient growth. Lower operating costs of Net Zero buildings also enhance
repayment capacity, reducing lenders’ credit risk
82
.
Beyond individual loans, securitisation and Real Estate Investment Trusts (REITs) offer
scalable models. Bundling pools of low-carbon housing loans or commercial mortgages
into low-carbon asset-backed securities can attract ESG-aligned investors. Likewise,
REITs already managing over INR 1.5 lakh crore in India’s commercial real estate
can evolve to include portfolios of certified low-carbon buildings, offering investors
exposure to sustainable projects while recycling capital for developers
83
. Together,
low-carbon mortgages, securitisation, and REITs can transform retail lending into a
systemic driver of the transition.
ii. Scaling Building Retrofits through Energy Service Company (ESCO) and Renewable
Energy Service Company (RESCO) Models: Energy Service Company and Renewable
Energy Service Company can finance retrofits through performance-based contracts,
repaid from verified energy savings. Globally, ESCOs have channeled billions into
building retrofits, but uptake in India remains limited due to weak contract enforcement,
small project sizes, and low awareness among financiers and clients
84
. To move from
niche to mainstream, India needs:
a. Standardised contracts and dispute-resolution mechanisms, ensuring lender
confidence in performance-based repayment structures.
b. Aggregation platforms to pool retrofit projects into SPVs large enough to attract
institutional capital.
c. Credit enhancement from DFIs and multilaterals to mitigate first-loss risks.
If designed well, ESCOs and RESCOs can unlock a multi-billion dollar retrofit market,
bridging the gap between fragmented demand and large-scale institutional finance
85
.
iii. Financing Urban Efficiency through Green Municipal Bonds: Municipal green bonds
are emerging as powerful tools for financing urban sustainable infrastructure including
efficient buildings, lighting and waste systems, and efficiency improvements. According
to Council on Energy, Environment and Water - Green Finance Centre (CEEW‑GFC),
green-labelled bonds enjoy coupon spreads around 50 basis points lower than
conventional issuances (1.11% vs. 1.63%)
86
. Despite this, only about 40% of eligible
municipal projects have been labelled green representing a major missed opportunity
for accessing low-cost climate-aligned capital. Trailblazing examples include:
a. Pimpri-Chinchwad Municipal Corporation (PCMC): Raised INR 200 crore for
sustainable mobility, that was oversubscribed fivefold, earning a 25% central
grant
87
.
b. Vadodara Municipal Corporation: Issued Asia’s first certified green municipal bond
to fund wastewater treatment
88
.
c. Ahmedabad, Indore, and Ghaziabad: Issued bonds for solar and resilience projects.
With reforms in municipal accounting, credit ratings, and bond structuring, this market
could mobilise USD 2.5–6.9 billion over the next decade, strengthening financing for
low-carbon urban infrastructure
86
. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 66
Challenges and Policy Suggestions to Bridge the Financing Gap
iv. Strengthening Code-to-Capital Linkages: India’s Energy Conservation Building Code
(ECBC), introduced in 2007, has proven capable of cutting energy use by up to 50%
in compliant buildings. Yet, the adoption of ECBC remains patchy, 13 states and UTs
have not yet notified it, and enforcement remains weak across others.
Innovative state models offer replicable solutions. Telangana’s online ECBC compliance
portal conducts audits at both design and occupancy stages, while Madhya Pradesh
ties permanent electricity connections to ECBC certification. Linking such compliance
frameworks with preferential green finance can create a powerful “comply to qualify”
incentive loop.
v. Promoting Product Transparency through Environmental Product Declarations:
Energy-efficient buildings depend not just on design but also on the materials used.
Yet India currently lacks a unified framework for assessing embodied carbon or lifecycle
environmental performance of building materials. Developing a national framework for
Environmental Product Declarations (EPDs) would enable investors and builders to
assess, compare, and reward low-carbon materials.
EPDs disclose environmental performance metrics such as thermal properties,
embodied carbon, recycled content, and circularity potential. International frameworks
such as EN 15804 in the EU already use EPDs to align procurement decisions with
climate goals. Establishing a national EPD methodology, with material-specific rules,
would enable: i) Investors to assess lifecycle carbon footprints across construction
portfolios ii) Builders to make informed, competitive choices in favour of low-carbon
alternatives and iii) Green finance taxonomies to reward projects using certified low-
carbon materials. By linking EPD-backed materials to preferential green lending and
municipal procurement, India could accelerate both low-carbon transition and market
transformation in construction supply chains.
Taken together, these sectoral stories reveal a common thread: India’s energy transition
is constrained not by the absence of technology but by the financial architecture
that supports it. Transport requires mode-specific financing structures that can de-risk
demand and attract long-term capital; industry needs pooled mechanisms to make
hard-to-abate sectors investable; the power sector depends on discom creditworthiness,
risk-mitigation facilities, and new market instruments to channel institutional funds; and
buildings demand a blend of retail housing loans, REITs, ESCO contracts, municipal
green bonds, and building code standards such as ECBC and EPDs to scale efficiency.
Beyond project pipelines, India must also strengthen the financial sector’s capacity
to mainstream climate lending. Many banks, NBFCs, and institutional investors lack
the technical expertise to appraise emerging technologies, assess transition risks, or
structure blended finance instruments. This limits their ability to scale proven pilots.
Targeted capacity-building programmes delivered through the RBI, SEBI, IFSCA, and
MDB partnerships can equip financiers with skills in climate risk assessment, sectoral
transition pathways, and sustainability-linked instruments. Building this knowledge
base is essential to ensure that once projects are prepared, finance can flow at the
speed and scale required. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 67
Challenges and Policy Suggestions to Bridge the Financing Gap
5.4 BRIDGE THE FINANCING GAP THROUGH TAILORED FINANCIAL
ARCHITECTURES
Current financial flows towards India’s energy transition fall well short of the scale required to
meet future demand. The present study estimates that India will need approximately USD 22.7
trillion
xii
in cumulative investment to achieve a successful transition covering both fossil and non-
fossil sources. Of this, about USD 20 trillion is required specifically for the low-carbon transition,
translating to USD 450 billion annually, almost nine times higher than the current flow of around
USD 50 billion (annual average of FY2020-22)
9
.
These estimates align broadly with other benchmarks. A UBS study projects USD 19.6 trillion
89

of investment is required between 2022 and 2070, though it excludes capital requirements from
OEMs in the transport and industrial sectors. Similarly, McKinsey & Company’s analysis, which
runs to 2050, estimates investment needs of USD 7.2 trillion
90
, closely aligned with this study’s
projection of USD 8.05 trillion for the same period.
The power sector alone accounts for nearly half of total investment requirements, underscoring
the need for large-scale investment not only in generation but also in transmission, distribution,
and energy storage. This concentration highlights both the challenge and the opportunity:
India’s ability to finance its transition will depend on mobilising long-tenor, capital-intensive
flows far beyond current trajectories.
This becomes even more significant when viewed against India’s energy demand trajectory.
Under a Net Zero scenario, electricity’s share in final energy demand is expected to triple from
21% in 2025 to nearly 60% by 2070. Such deep electrification makes large-scale investment in
the power sector unavoidable. However, not all technologies require the same financing profile.
Renewable energy generation typically demands high upfront capital but low operating costs,
whereas efficiency measures, grid upgrades, and demand-side technologies require sustained
credit access and policy-driven incentives.
To translate these high-level requirements into an actionable view of the financing challenge,
Inter-Ministerial Working Group 3 (INWG3) developed an asset–flow model to estimate the
likely availability of climate finance across sectors under a plausible set of enabling reforms.
This helps distinguish between (i) what can be mobilised through market deepening and policy
improvements, and (ii) the residual gap that will require additional institutional mechanisms.
Mobilising USD 16.2 trillion will require several enabling reforms across domestic and external
sources of finance, summarised below:
Boosting Domestic Capital
i. Deepen the corporate bond market from ~16% of GDP today to ~25% by 2047 and
~30% by 2070, driven by:
a. Lower primary-market friction: streamline regulatory processes, harmonise
disclosures, and digitise issuance/listing/compliance to cut time and cost.
b. Build liquidity: expand bank participation through Held-to-Maturity (HTM) flexibility
(with calibrated eligibility below AAA credit ratings), scale corporate bond market
while institutionalising market-makers.
xii Investment for Climate action is estimated only for three sectors namely power, industry, and transport. The detailed
assumptions and limitations may be referred to in the methodology section. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 68
Challenges and Policy Suggestions to Bridge the Financing Gap
c. Broaden investors + credibility: grow insurers/pensions and retail investors via
demat access, bond savings accounts/pooled products, and financial literacy,
while extending issuance beyond AA/AAA using credit enhancement and stronger
CRA discipline.
ii. Reorient long-term institutional portfolios toward green assets: Reduce insurers’ and
pension funds’ G-Sec concentration from ~55-60% today to ~50% by 2047, redirecting
allocations into high-quality corporate and green debt through suitable vehicles, credit-
enhanced green bonds, pooled/guaranteed structures, Green InvITs, and securitised
green assets.
iii. Mobilise household savings through transparent, low-risk products digitally linked to
infrastructure/green assets turning thrift into investment without overheating bank
balance sheets.
iv. Gradually glide the Statutory Liquidity Ratio (SLR) back toward the 18% norm by 2070
and maintain it thereafter, freeing bank balance sheets and risk appetite to expand
green and transition lending.
Boosting External Capital
i. Increase FDI from about 2.3% today to 3–4% by 2047 by combining stronger investor
confidence with clear project pipelines and stable long-term policy certainity. This
requires i) strategic technology partnerships with global leaders (EVs, batteries,
green hydrogen, grid technologies, CCUS) to bring not just funding but technology
transfer and manufacturing depth ii) credible, time-bound transition roadmaps (akin
to China’s Five-Year Plans) with clear targets for renewables, EV penetration, storage,
and industrial decarbonisation to anchor investor expectations and iii) a sustained
pipeline of bankable projects built through standardised contracts, faster permitting,
stronger offtake structures, and clearer risk allocation so foreign capital can deploy at
scale without execution bottlenecks.
ii. Increase foreign portfolio capital (FPI) participation from ~0.5% to ~1.5% by 2047 by
reducing currency risk through FX hedging and supportive regulatory access. Channel
a larger share of these flows through GIFT City/IFSCA as a co-investment hub, offering
standardised, taxonomy-aligned platforms where global investors can partner with
domestic institutions in pooled green assets under consistent governance, disclosure,
and risk-sharing structures.
Financing gap: Even with these domestic and external reforms, it is expected that
India will be able to mobilise ~USD 16.2 trillion only, leaving a ~USD 6.5 trillion shortfall
by 2070. If this financing gap is expected to be bridged from external sources, then
the mix of domestic and international finance needed is 58% domestic and 42%
international.
National Green Finance Institution:
India’s financing gap is stark. This financing gap is not simply about the volume of
capital but about channelling diverse financial pools into investable, risk-adjusted
opportunities. Banks and NBFCs face asset–liability mismatches; institutional investors Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 69
Challenges and Policy Suggestions to Bridge the Financing Gap
are limited by regulatory caps; corporate bond markets are not deep; and high-risk
premia deter foreign capital. At the same time, existing institutions show limited
capacity for innovative instruments such as credit enhancement, FX hedging, and
performance-based financing, and bankable project pipelines and blended finance
mechanisms remain underdeveloped. Bridging these barriers requires a purpose-built
institutional mechanism to crowd in private capital, de-risk emerging technologies, and
coordinate fragmented financial actors. This is the role envisaged for a National Green
Finance Institution (NGFI). NGFI is not intended to replace existing institutions, but to
complement them by providing complementary measures such as credit enhancement,
blended finance structuring, aggregation, and risk management at scale.
Comparable global models, such as Germany’s KfW, the UK Infrastructure Bank, and
Australia’s the Green Investment Bank demonstrate how public financial institutions
can mobilise private capital, mitigate risk, and accelerate technology diffusion. NGFI
can serve as India’s counterpart.
Core Objectives of NGFI:
Scale up capital for commercially viable technologies: Provide refinancing windows,
green credit lines, and aggregation facilities for established technologies such as solar
and wind. These mechanisms can help projects move from bankable to scalable by
easing capital bottlenecks.
De-risk emerging technologies: Deploy concessional finance, Viability Gap Funding
(VGF), and first-loss instruments to lower risk for offshore wind, hydrogen, and energy
storage. By absorbing early-stage risks, NGFI can enable banks and institutional
investors to step in at scale.
Support early-stage green innovation: Incubate and channel venture capital into frontier
technologies, preventing a ‘valley-of-death’ and maintaining India’s competitiveness in
next-generation green industries.
Strategic Value of NGFI:
Acts as a central hub connecting diverse sources of capital, including banks, bond
markets, institutional investors, and foreign capital, with sector-specific financing needs
across transport, industry, power, and buildings.
Brings standardisation and credibility, aligning domestic and international finance and
setting benchmarks for climate-aligned investments.
Serves as India’s counterpart to global climate finance initiatives, enhancing investor
confidence and signalling credibility to MDBs, DFIs, and private investors.
A dedicated white paper developed through structured consultation with regulators,
financial institutions, industry, and investors should set out the NGFI’s mandate,
governance, eligible instruments, risk framework, and capitalisation plan. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 70
Challenges and Policy Suggestions to Bridge the Financing Gap
5.5 STRENGTHEN TRANSITION FINANCE TO BRIDGE THE BROWN-
TO-GREEN GAP
India’s transition challenge is not limited to scaling “pure green” assets. The harder task lies in
enabling transition in carbon-intensive incumbents: steel, cement, coal-linked power, refineries,
and heavy transport without undermining growth. This is the purpose of transition finance: to
fund credible, time-bound transition plan for emissions-intensive firms and assets.
Two complementary lenses illustrate the magnitude of India’s financing need:
The Green/Low-Carbon Lens (Narrow). CPI tracks flows into clean energy, transport
and energy efficiency sectors. Its latest estimate for India is around USD 50 billion per
year during FY2020–22
9
, a useful indicator of “green plumbing,” but one that excludes
brown-to-green corporate CAPEX.
The Total Energy Lens (Broad). IEA estimates that in 2024
3
, clean energy investment
in India was about USD 87 billion, while fossil energy investment stood around USD
48 billion, totalling USD 135 billion.
The message is clear: even as clean investment rises, a large share of emissions is embedded in
long-lived, captial-intensive fossil systems that cannot be replaced overnight. Transition finance is
the bridge: refinancing or retrofitting high-emitting assets against pre-committed retirement or
transition plans; funding process shifts like clinker substitution, Hydrogen-based Direct Reduced
Iron (DRI-H₂) pilots, and waste-heat recovery; and tying capital to science-based, independently
verified pathways with penalties for non-performance.
A Regulatory Architecture Taking Shape: India has begun laying the foundation
for credible transition finance, aligning with global practices while recognising its domestic
context:
i. International Financial Services Centres Authority’s (IFSCA) draft Framework for
Transition Finance (2023)
91
: Defines the conditions for credibility wherein companies
must publish time-bound transition plans, prove that financing is tied to emissions-
reducing activities (not asset life-extension), and undergo third-party verification.
ii. SEBI’s green debt framework
92
: Now explicitly recognises Sustainability-Linked Bonds
(SLBs) and Transition Bonds tied to measurable Sustainability Performance Targets
(SPTs), with step-up coupons if targets are missed, a direct way to align capital with
entity-level decarbonisation plans (e.g., a steel producer modernising blast furnaces).
iii. Draft Indian Climate Finance Taxonomy (2025)
93
: Released by the Ministry of Finance
Task Force, this is the first national taxonomy to formally recognise transition activities
alongside green. By distinguishing between ‘climate-supportive’ and ‘transition-
supportive’ activities, it legitimises investor participation in hard-to-abate sectors while
guarding against greenwashing.
From Rules to Plumbing: Making Transition Finance Work Having rules
and labels is necessary, but not sufficient. Transition finance will only scale if the ‘financial
plumbing’ connects policy ambition with investable pipelines:
i. Credible pathways: NITI Aayog has launched sectoral roadmaps for the cement, Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 71
Challenges and Policy Suggestions to Bridge the Financing Gap
aluminium, and freight transport sectors. The Ministry of Steel has published both a
decarbonisation roadmap and a dedicated steel taxonomy. These provide examples
of credible pathways-benchmarks financiers can use to distinguish genuine transition
from greenwashing.
ii. Tailored instruments: Transition bonds and Sustainability-Linked Bonds (SLBs) can
channel capital into brown-to-green shifts at both asset and entity level, for instance,
a cement producer issuing a transition bond to fund clinker substitution, or a freight
operator issuing an SLB tied to fleet emissions intensity. Scaling these instruments
requires robust verification frameworks and meaningful penalties for non-performance.
iii. Risk-sharing mechanisms: Transition assets often carry first-of-kind risks. Credit
guarantees, first-loss capital, and foreign exchange (FX) hedging can catalyse
private investment by improving risk–return profiles. Given limited fiscal space and
competing development priorities, these mechanisms should be deployed selectively
and supported by strong governance, transparency, and risk-management frameworks
to monitor and manage contingent liabilities. Where feasible, MDB/DFI participation
should be used to share risk and reduce pressure on domestic public balance sheets.
iv. Monitoring and verification: Transition finance depends on trust. Strengthening SEBI’s
BRSR framework to cover entity-level transition plans and post-issuance reporting
would enhance transparency and provide investors with the confidence needed to scale
participation. Any inclusion of Scope 3 disclosures should be phased and proportional
starting with large entities in high-impact sectors to avoid disproportionate compliance
burdens on MSMEs and smaller suppliers.
v. Market infrastructure: Deepening market liquidity and price discovery will be critical.
Listing transition bonds on IFSC exchanges (GIFT City), developing repo facilities for
green and transition debt, and piloting sovereign transition issuances could anchor
credibility and attract institutional investors at scale.
Done right, transition finance is not a sidecar to green finance, it is the missing bridge between
India’s current emission trajectory economy and its Net Zero future. It is the channel through
which trillions can flow to decarbonise incumbents, build investor confidence, and make India’s
energy transition both credible and inclusive. ANNEXURES Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 74
Annexure-1: Assumptions
for Transport Sector
Investment Sizing
Capital costs for Vehicular Manufacturing: Capital expenditure (CAPEX) estimates are drawn
from the Centre for Social Innovation (CSI) report
94
. CSI estimates the CAPEX required for
producing one million vehicles as follows:
Two-wheelers (2W): USD 11.7 million
Three-wheelers (3W): USD 9.95 million
Cars: USD 232 million
Buses and Trucks: USD 394 million
The costs are projected to increase by 2.5% annually by 2040 and by 1.2% annually thereafter
until 2070.
i. Battery Life and Capacity: Battery life is assumed to be 10 years, while average battery
capacities are summarised in the table below.
Average Battery Capacity across Vehicle Segment
Vehicle segmentAverage battery capacity (kW)
Bus200
Omni-bus80
Car40
2 Wheeler3
3
Wheeler5
Taxi40
Vehicles’ payload up to 3.5 tons100
Vehicles’ payload 3.5–12 tons 200
Vehicles with a payload above 12 tons300 Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 75
Annexure-1: Assumptions for Transport Sector Investment Sizing
ii. Battery cost per kWh: The cost of batteries is projected to decline from INR 21,700
per kWh to INR 10,800 per kWh by 2050, after which it is expected to stabilise.
iii. Charging infrastructure: The penetration of slow and fast charging stations, along with
charger density across vehicular segments, is summarised in the table below:
Penetration of Slow and Fast Charging Stations and Charger Density
across Vehicular Segments
Vehicular segment
Penetration of charging
infrastructure
Charger density
(No. of chargers
per million
vehicles)
Slow Charger
(Life-12 years)
Fast Charger
(Life-8 years)
Bus10%90%40,000
Omni-Bus20%80%30,000
Car50%50%25,000
2 Wheeler80%20%10,000
3 Wheeler75%25%15,000
Taxi50%50%20,000
Light Commercial Vehicle 30%70%25,000
Medium Commercial Vehicle 20%80%30,000
Heavy Commercial Vehicle 10%90%40,000
Cost per Slow and Fast Charger (in INR Lakh) across Vehivular Segment
Vehicle segmentSlow Charger Fast Charger
Bus17.540
Omni-Bus 12.525
Car412.5
2 Wheeler0.752.5
3 Wheeler14
Taxi 412.5
Light Commercial Vehicle7.517.5
Medium Commercial Vehicle12.525
Heavy Commercial Vehicle 17.540 Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 76
Annexure-2:
CAPEX Assumptions for
Industrial Sectors
Investment cost – Million INR/Million tonnes – 2025 prices
Steel
Blast Furnace - Basic Oxygen Furnace (BF-BOF)73,385
Coal-based Direct Reduced Iron - Electric Arc
Furnace (DRI-EAF)
69,750
Natural Gas-based DRI-EAF69,750
Coal-based DRI Direct Reduced Iron – Induction
Furnace (DRI-IF)
10,000
100% Scrap Electric Arc Furnace (EAF)6,000
Hydrogen-based DRI-EAF69,750
Aluminium
Integrated Aluminium Plant2,75,000
Scrap-Based Aluminium Plant12,000
Cement7,500
Fertiliser
Urea Fertiliser Production6,800
DAP Fertiliser Production6,800
Complex Fertiliser Production6,800
Textile19,000
Chemicals
Naphtha-based Ethylene Production1,80,000
Natural Gas-based Ethylene Production4,00,000
Paper & Pulp
Wood-Based Paper Production1,20,000
Agro-Based Paper Production1,50,000
RCF-Based Paper Production80,000
Chlor-Alkali
Membrane-Based Caustic Soda Production 75,000
Solvay process for Soda Ash Production 65,000
Refinery14,000
Source: Literature & Industry consultations Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 77
Annexure-2: CAPEX Assumptions for Industrial Sectors
Investment Cost – INR Million/ Million tonnes
CO
2
Capture
Steel12,960
Cement11,000
Petrochemicals16,670
Pipeline transport1,360
Pure storage3,330
Source: NITI Aayog CCUS report & Industry consultations Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 78
Annexure-3:
Assumptions for Power
Sector Investment Sizing
Investment Cost - INR Crore / MW
S.No.
Technology2030 2040 2050 2070
1 Coal (Supercritical)11.5 11.5 11.5
11.5
2 Gas6666
3 Biomass plant6 5.9 5.85.7
4 Onshore Wind7.6 7.0 6.66.4
5 Offshore Wind15.4 14.8 14.013.7
6 Solar PV4.2 4.0 3.753.5
7 Hydro RoR11.3 11.1 11.111.5
8 Hydro RoR (P)12.3 12.2 12.212.5
9 Hydro Storage14 13.9 13.914.5
10 Nuclear14 14 14 14
11
Pumped Storage Plant
(PSP) (on river)
6.4 6.3 6.3
6.7
12 PSP (closed loop)6.2 6.1 6.16.5
13 Battery storage (6 Hr) 7.2 6.6 5.64.9 Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 79
Annexure-4: Gross Savings
(% of GDP) – Upper-
middle-income, and High-
income Countries
Gross Savings (% of GDP)
0
5
10
15
20
25
30
35
Percentage
40
45
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Upper Middle Income CountriesHigh Income Countries
India’s current gross savings stand at 30% of GDP
29
.
Following trends observed in upper-middle-income economies and high-income
economies
95
, India’s gross savings (% of GDP) is expected to rise (33% by 2035) as it
transitions to an upper-middle-income category and gradually decline post-2045 (29%
by 2047 and then 25% by 2070) as it moves towards high-income status. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 80
Annexure-5:
Assumptions for
Sectoral Allocation of
Bank Credit
Total bank credit outstanding is allocated to power, transport, and industry sectors using the
following approach and assumptions:
ParticularsPowerTransportIndustry
Computation
of bank credit
outstanding
to low-carbon
transition sectors
Total bank credit
outstanding × Power
sector exposure (%)
Total bank credit
outstanding ×
Transportation sector
exposure (including
manufacturing and
services (%)
Total bank credit
outstanding × Industrial
sector exposure (%)
Total bank credit
outstanding
As outlined in the methodology section, total bank credit outstanding is
estimated as a share of Net Demand and Time Liabilities (NDTL) minus
Statutory Liquidity Ratio (SLR), using the formula:
Bank Credit Outstanding = (Historical Bank Credit Outstanding / (NDTL -
SLR))* (Projected NDTL - Projected SLR)
Sectoral exposure
(FY2023)
~4.5%
96,36
of total bank
credit outstanding
Transport manufacturing:
~0.8%
97,36
of total credit
outstanding
Transport services: ~
5%
97,36
of total credit
outstanding
~6.3%
97,36
of total bank
credit outstanding
Projection
assumption (up
to 2070)
Gradually increases to
~9% by 2070, mainly
due to the expected
increase in renewable
energy capacity
Transport manufacturing
assumed constant at
0.8%;
Transport services
share expected to
increase to ~7% by
2070
Assumed to remain
constant at five-year
(FY2019-23) trailing
average of 6.4% Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 81
Annexure-5: Assumptions for Sectoral Allocation of Bank Credit
ParticularsPowerTransportIndustry
Credit flow in a
year
Annual credit flow
to the power sector
=Annual change in
power sector credit
exposure (Current Year
Power Sector Credit
Outstanding – Last
Year Power Sector
Credit Outstanding) +
Annual repayment of
principal
Annual credit flow to
the transport sector
= Annual change in
transportation sector
credit exposure +
Annual repayment of
principal
Annual credit flow to the
industrial sector = Annual
change in industrial
sector credit exposure
+
Annual repayment of
principal
Repayment of
principal
Calculated assuming an
average loan duration
of 18 years
xiii
, with the
principal amortised
annually over the loan
period
Calculated assuming
an average loan tenure
of 10 years
xiv
, with the
principal amortised
annually over the loan
period.
Calculated assuming an
average loan tenure of 25
years
xv
, with the principal
amount amortised
annually over the loan
period.
xiii The average loan duration of 18 years for power sector is based on: Central Electricity Regulatory Commission.
(2020, June 23). Central Electricity Regulatory Commission (Terms and Conditions for Tariff determination from
Renewable Energy Sources) Regulations, 2020. https://cercind.gov.in/2020/regulation/159_reg.pdf
xiv The average loan duration of 10 years for transport sector is based on: Bank of Maharashtra. Maha MSME Project
Loan Scheme. https://bankofmaharashtra.in/maha-msme-project-loan-scheme
xv Loans with a 25-year tenure are generally reserved for large-scale, long-gestation industrial infrastructure and
public sector projects, where the repayment schedule is tied to the extended revenue-generation cycle of the asset.
India Infrastructure Publishing Ltd. (2025, January 7). Project financing: Industry players discuss the changing
funding landscape. India Infrastructure. https://indianinfrastructure.com/2025/01/07/project-financing-industry-
players-discuss-the-changing-funding-landscape/ Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 82
Annexure-6:
Assumptions for
Sectoral Allocation of
NBFCs Credit
Total NBFC credit exposure to power, transport, and industrial sector is calculated using the
following approach and assumptions:
ParticularsPowerTransportIndustry
Computation of NBFCs
credit exposure to
low-carbon transition
sectors
Total NBFC credit
outstanding × Industry
exposure (%) × Power
sector exposure (%
within the industry)
Total NBFC credit
outstanding ×
Transportation
sector exposure
(%) (including
manufacturing and
retail loans)
Total NBFC credit
outstanding ×
Industrial sector
exposure (%)
Total NBFC credit
outstanding
As explained in the methodology section, NBFC credit is projected in
relation to total bank credit:
NBFCs’ Credit Outstanding = Projected bank credit outstanding ×
Projected % of NBFC credit to bank credit
Sector share in
total NBFC credit
outstanding (FY2023)
Industry share: ~37%
38

Within Industry, power
sector exposure: ~75%
38
Transport
manufacturing loans
share: ~ 1%
97
Transport Retail loans
share: ~14%
98
Industry share: ~10%
38

(industry exposure
excluding power
sector exposure)
Projection assumption
(up to 2070)
Industry share to
decline to 30% by 2030
and stabilise thereafter,
as many large NBFCs
are structurally oriented
toward supporting the
industrial sector.
Within the industry,
the power sector is
expected to remain
stable at 75% till 2070
Manufacturing:
Assumed to remain
constant at 1%
Retail: Projected to
increase to 17% by
2070. This is due to
the improved credit
potential of EV
segment compared to
combustion vehicles
Projected to decline
gradually, reaching 7%
by 2070, as NBFCs
exposure will be
mainly concentrated
in the renewable
power sector Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 83
ParticularsPowerTransportIndustry
Annual Credit flow
Annual change in
NBFC credit exposure
to the power sector
(Current year Power
sector NBFC credit
outstanding - Last year
Power sector NBFC
credit outstanding) +
Annual repayment of
principal
Annual change in
transportation sector
(manufacturing and
retail) NBFC credit
exposure + Annual
repayment of principalAnnual change in
industrial sector
NBFC credit exposure
+
Annual repayment
of principal
Repayment of
principal
Calculated assuming an
average loan duration
of 18 years
xvi
, with the
principal amortised
annually over the loan
period
Calculated assuming
an average loan tenure
of 10 years
xvii
, with the
principal amortised
annually over the loan
period.
Calculated assuming
an average loan
tenure of 25 years
xviii
,
with the principal
amount amortised
annually over the loan
period.
xvi The average loan duration of 18 years for power sector is based on: Central Electricity Regulatory Commission.
(2020, June 23). Central Electricity Regulatory Commission (Terms and Conditions for Tariff determination from
Renewable Energy Sources) Regulations, 2020. https://cercind.gov.in/2020/regulation/159_reg.pdf
xvii The average loan duration of 10 years for transport sector is based on: Bank of Maharashtra. Maha MSME Project
Loan Scheme. https://bankofmaharashtra.in/maha-msme-project-loan-scheme
xviii Loans with a 25-year tenure are generally reserved for large-scale, long-gestation industrial infrastructure and
public sector projects, where the repayment schedule is tied to the extended revenue-generation cycle of the asset.
India Infrastructure Publishing Ltd.. (2025, January 7). Project financing: Industry players discuss the changing
funding landscape. India Infrastructure. https://indianinfrastructure.com/2025/01/07/project-financing-industry-
players-discuss-the-changing-funding-landscape/ Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 84
Annexure-7:
Assumptions for
Sectoral Exposure
of Corporation Bond
Issuance
The total corporate bond issuance in a year is allocated to power, transport, and industrial
sectors using the following approach and assumptions:
ParticularsPowerTransportIndustry
Computation of
total corporate bond
issuance to low-
carbon transition
secotr
Total corporate bond
issuance × Electricity
sector’s bond share (%)
Total corporate
bond issuance ×
Transportation
sector’s bond share
(%)
Total corporate bond
issuance × Industrial
sector’s bond share
(%)
Total corporate bond
issuance
As outlined in the methodology section, total corporate bond issuance is
derived from the year-on-year difference in corporate bond outstanding,
which is calculated as a % of GDP: The following formula is used:
Annual bond issuance = Current year’s corporate bond outstanding -
Previous year’s corporate bond outstanding
Sector share in total
corporate bond
issuance in FY2023
xix
~4.4%~0.05%~1.7%
Projection assumption
(up to 2070)
Assumed at 4.6%, in
line with the historical
five-year average
(FY2019-23)
Assumed at 0.05%, as
the historical five-year
average (FY2019-23)
Assumed at 2%, in line
with the historical five-
year average (FY2019-
23)
xix Bloomberg database is used to extract the sectoral composition of corporate bond issuance in India. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 85
Annexure-8: Assumptions
for Institutional Investors’
AUM calculation and sectoral
allocation
ANNEXURE-8.1: COMPUTATION OF AUM OF INSTITUTIONAL
INVESTORS
Calculation of Asset Under Management (AUM) of each institutional investor is discussed below:
Particulars Life Insurance General Insurance Pension Fund
Employee Provident
Fund
Mutual Fund
AUM Formula
AUM
t
= AUM
t–1

+ Premiums
+ Investment
Income −
Benefits −
Expenses
AUM
t
= AUM
t–1

+ Premiums
+ Investment
Income −
Benefits −
Expenses
AUM t
= AUM
t–1

+ Contributions
+ Investment
Income −
Benefits
AUM
t
= AUM
t–1
+
Contributions +
Investment Income
− Benefits
AUM
t
= AUM
t–1
+ Net
Fund Mobilised +
Investment Income
− Expenses
Premium/
Contribution
Mobilisation
Calculated
as % of GDP.
In FY2023,
life insurance
premium stood
at 3% of GDP
98
.
Assumed to
increase to 4%
of GDP by 2070.
Calculated as
% of GDP.In
FY2023, general
insurance
premium stood
at 0.97% of
GDP
98
.
Assumed to
increase to
2.9% of GDP by
2070.
For pension fund and provident fund,
total contribution is linked to the
portion of household financial savings
directed toward pension fund and
provident fund.
In FY2023, out of the total household
savings directed to pension and
provident funds, 75% is toward pension
fund with Pension Fund Regulatory and
Development Authority (PFRDA) (after
excluding other schemes like NPS and
Sukanya Samriddhi Yojna) and 25% is
toward employee provident fund with
EPFO.
Historically (FY2019-23), household
financial savings directed to PFRDA
accounted for an average of 60% of the
total contribution received by PFRDA
99
.
For projections, this ratio is assumed
remain constant till 2070.
For EPFO, household financial savings
directed to EPFO historically (FY2019-
23) accounted for 45% of the total
contribution received by EPFO
100
. It is
assumed to remain constant till 2070.
Linked to portion
of the household
financial savings in
mutual fund, which
is expected to rise
from current 6% in
FY2023 to 12% by
2070
In FY 2023,
household savings
directed to mutual
fund are 32% of
the total fund
mobilised
101
.
For projections, the
five-year historical
(FY2019-23) average
of 36% is used
and is projected to
increase to ~50% till
2070. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 86
Particulars Life Insurance General Insurance Pension Fund
Employee Provident
Fund
Mutual Fund
AUM
investment
allocation
AUM allocation
in FY2023
xx
:
Govt
securities - 60%
Corporate
bonds - 2%
Equity - 19%
Others - 19%
Assumed
allocation till
2070:
Govt. Securities
- gradually
decrease to 52%
Corporate bonds
- Increase to 5%
(expected more
allocation to
debt securities)
Equity -
Constant at 19%
Others -
Increase to 24%
AUM allocation
in FY2023
xii
:
Govt
securities - 53%
Corporate
bonds - 6%
Equity - 19%
Others - 22%
Assumed allo-
cation till 2070:
Govt. Securities
- gradually
decrease to 51%
Corporate
bonds - In-
crease to 8%
Equity - Con-
stant at 19%
Others - Con-
stant at 22%
AUM allocation
in FY2023
100
:
Govt. securities
- 52%
Corporate
bonds - 27%
Equity - 17%
Others - 4%.
Projected
allocation till
2070:
Govt. Securities
- remain
constant at five-
year average of
51% (FY2019-
23)
Corporate
bonds -
Constant at an
average of 34%
(FY2019-23)
Equity -
Constant at an
average of 14%
(FY2019-23)
Others -
Constant at 1%
AUM allocation in
FY2023
101
:
Govt. securities -
70%
Corporate bonds -
21%
Equity - 9%
Others - 3%.
Assumed allocation
till 2070:
Govt. securities -
gradually decrease
to 65%
Corporate bonds -
increase to 23%
Equity - Remain
constant at 9%;
Others constant at
3%
AUM allocation in
FY2023
102
:
Debt - 34%
Equity - 53%
Others - 13%

Assumed allocation
till 2070:
Equity increases to
58%;
Debt decreases to
34%;
Others decrease to
8%.
Interest on
Investment
Government securities: 5% (until 2047: Inflation + 1%), 4% (2047-2070)
Corporate bonds: 8% (until 2047 – return on govt. securities + 3% risk
premium), 7% (2047-2070)
Equity: 11-13% (Corporate bond return% + 5% equity premium till 2040, 4%
between 2040-2050, and then 3.5% thereafter)
Debt: 8% (until
2047) and 7%
(2047–2070). Equity:
11–13% (Corporate
bond return% + 5%
equity premium
till 2040, 4% from
2040 to 2050, and
3.5% thereafter).
Benefits
(Calculated
as % of
premium/
contribution)
FY2023:
63%
98
of the
premium
Assumed to
remain constant
till 2070
FY2023:
58%
98
of the
premium
Assumed to
remain constant
till 2070
FY2023:
53%
100
of the
contribution
Assumed
to gradually
increase to
57% by 2070
with the ageing
population
FY2023:
50%
100
of the
contribution
Assumed to
gradually increase to
57% by 2070
Not applicable
xx Portfolio allocation data is extracted from annual reports of Insurance Regulatory and Development Authority
of India (IRDAI) and various public and pri
vate insurance companies. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 87
Particulars Life Insurance General Insurance Pension Fund
Employee Provident
Fund
Mutual Fund
Expenses
(calculated
as % of
premium/
contribution)
FY2023:
17%
98
of the
total premium
Projected
to gradually
decline to 10%
by 2070
FY2023:
29%
98
of total
premium
Projected
to gradually
decline to 18%
by 2070
Distribution
and AUM fees
are almost
negligible, so it
is not included
Expenses are
minimal. Not
included in the
model
FY2023:
0.5%
102
of the
previous year’s AUM
Assumed to remain
constant till 2070
ANNEXURE-8.2: ASSUMPTIONS FOR SECTORAL ALLOCATION OF
INSTITUTIONAL INVESTORS EQUITY INVESTMENT
The institutional equity investment is allocated to power, transport, and industry based on
their sectoral weights in the NIFTY50 index. The following table explains the approach and
assumptions:
ParticularsPowerTransportIndustry
Computation of
institutional equity
investment to low-
carbon transition
sectors
Total equity investment
of institutional investor
× % weight of sector in
NIFTY50
Total equity investment
of institutional investor
× % weight of sector in
NIFTY50
Total equity investment
of institutional investor
× % weight of sector in
NIFTY50
Total equity
investment of
the institutional
investor
As outlined in the annex above (8.1), equity allocation as % of AUM is:
Life insurance: 19%; General insurance: 19%; Pension Fund: 17%; Employee
Provident Fund: 9%; Mutual Fund: 53%
The sum of all these equity investments gives the total equity investment by
the institutional investors:
Total equity investment of institutional investors = Life insurance AUM equity
allocation + General insurance AUM Equity allocation + Pension Fund AUM
equity allocation + Employee Provident Fund AUM equity allocation + Mutual
Fund equity allocation.
Sectoral weight in
NIFTY50 Index
103
Power sector weightage
in NIFTY50 market
capitalisation ranged
between 2-3% during
FY2019-23
Transportation sector
weightage in NIFTY50
market capitalisation
ranged between 4.5-7%
during FY2019-23
Industrial sector
weightage in NIFTY50
market capitalisation
ranged between 5-6.5%
during FY2019-23
Projection
assumption (up to
2070)
Historical five year
average (FY2019-23)
of 3% is assumed to
increase to 5% by
2070 due to expected
increase in renewable
energy capacity
Assumed to remain
constant at 5.3% as
the historical five-year
average (FY2019-23)
Assumed to remain
constant at 6.3% as
the historical five-year
average (FY2019-23)
Equity capital flow
in a year
Annual change in power
sector equity investment
Annual change in
transport sector equity
investment
Annual change in
industrial sector equity
investment Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 88
Annexure-9: Assumptions
for Sectoral Exposure
of Corporate Equity
Investment
Capital investment made by corporations in the power, transport and industry sectors is used
to estimate corporate equity investment. The sectoral approach is explained as follows:
ParticularsPowerTransportIndustry
Computation of
corporate equity
investment
Total direct
investments by non-
financial corporations
× % share of power
sector CAPEX
Total investments
by non-financial
corporations × %
share of transport
sector CAPEX
Total investments by non-
financial corporations × %
share of industry sector
CAPEX
Total investment
by non-financial
corporations
Represents the financial savings of non-financial corporations, excluding
allocations towards bank deposits, insurance, pension funds, and provident
funds.
Sectoral CAPEX
in total direct
investment by
corporations
(i.e., CAPEX in a
sector/total direct
investment)
xxi
Ranged between 1% to
6% during FY2017-23
Ranged between 1% to
2% during FY2017-23
Ranged between 1% to
7% during FY2017-23
Projection
assumption (up to
2070)
Historical seven-year
average
xxii
of 3% is
taken and assumed
to rise to 5% by 2070
due to expected
increase in renewable
energy capacity
Assumed to remain
broadly stable at
historical seven-year
average of 1% over the
projection period
From a historical seven-
year average of 4.3%,
projected to increase
to 6% by 2047, then
moderate to 3.5% by
2070
xxi For sectoral CAPEX, companies operating in the sector are considered, and their retained earnings used in capital
expenditure are tracked. The data has been extracted from the ProwessIQ/CMIE database.
xxii A seven-year period is considered for projecting percentages due to fluctuations observed in free cash flow to
equity caused by events such as COVID-19. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 89
Annexure-10: Assumptions
for Sectoral Exposure of
PE/VC investment
PE/VC Investment in power, transport, and industrial sector is estimated based on the following
approach and assumptions :
ParticularsPowerTransportIndustry
Computation of PE/
VC investment in
sectors
Total PE/VC funding in
enabling the low-carbon
transition across sectors
× % share of power
sector
Total PE/VC funding
in enabling the low-
carbon transition
across sectors × %
share of transport
sector
Total PE/VC funding
in enabling the low-
carbon transition across
sectors × % share of
industrial sector
Total PE/VC funding
toward enabling the
low-carbon transition
across sectors
xxiii
Total PE/VC funding toward enabling the low-carbon transition across
sectors is 2% of total PE/VC funding in FY2023. Projected to rise to 6.5% by
2035 and decline thereafter to 2.5% by 2070. Hence,
Total PE/VC funding toward enabling low-carbon transition sectors =
Projected PE/VC funding (as % of GDP) x Projected share of enabling the
low-carbon transition across sectors in PE/VC funding
Sectoral share in PE/
VC funding toward
enabling the low-
carbon transition
across sectors (FY
2023)
~50% (reflecting growing
focus on the energy
sector)
~20%
~25%
Projection
assumption (up to
2070)
Gradually decline to 30%
by 2070, as funding
shifts toward emerging
Net Zero technologies
such as direct air
capture
Gradually decline to
3% by 2070, with
EV and charging
infrastructure reaching
maturity
Gradually increases to
45% by 2070, driven
by investment in
emerging low-carbon
technologies such as
green hydrogen and
carbon capture
xxiii PE/VC funding toward enabling the low-carbon transition across sectors is calculated as the sum of PE/VC funding
to energy, transport, industry, and building, based on data extracted from the Tracxn database. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 90
Annexure-11: Assumptions for
Sectoral Exposure of Foreign
Direct Investment (FDI)
FDI equity inflows allocation to power, transport, and industrial sector are estimated based on
following approach and assumptions:
ParticularsPowerTransportIndustry
Computation of FDI
allocation to sectors
Total FDI equity inflows ×
% share of power sector
Total FDI equity
inflows × % share of
transport sector
Total FDI equity
inflows × % share of
industrial sector
Total FDI equity
inflows
As outlined in the methodology section, FDI equity inflows are estimated
based on GDP:
FDI equity inflows = Projected share of FDI in GDP x Projected GDP
Sectoral share in FDI
equity inflows (FY
2023)
41
~5% ~6%~10%
Projection
assumption (up to
2070)
Expected to increase
gradually to 6% as
foreign capital flows
in power sector are
expected to rise due to
attractiveness of the RE
sector
Assumed to be
constant at 6% till
2070
Assumed to be
constant at 10% till
2070 Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 91
Annexure-12: Assumptions
for Sectoral Exposure of
Foreign Portfolio Investment
(FPI)
ANNEXURE-12.1: FOREIGN PORTFOLIO EQUITY INVESTMENT
The foreign portfolio equity investment is allocated to power, transport, and industry based
on the sectoral weights of the sectors in the NIFTY50 index. The following table explains the
approach and assumptions:
ParticularsPowerTransportIndustry
Computation of FPI
equity investment
allocation to sectors
Total FPI equity flows
× % share of power
sector
Total FPI equity flows
× % share of transport
sector
Total FPI equity flows
× % share of industrial
sector
Foreign portfolio
equity investment
Total FPI Investment is calculated as:
Current year’s Asset Under Custody - Previous year’s Assets Under Custody
This total FPI investment is allocated to equity, debt, and hybrid assets.
Based on historical data, foreign portfolio investment in equity is estimated
at 60%
Sectoral share in
foreign portfolio
equity investment
(based on sectoral
weight in NIFTY50
Index)
103
Power sector
weightage in NIFTY50
market capitalisation
ranged between 2-3%
during FY2019-23
Transportation sector
weightage in NIFTY50
market capitalisation
ranged between 4.5-7%
during FY2019-23
Industrial sector
weightage in NIFTY50
market capitalisation
ranged between 5-6.5%
during FY2019-23
Projection
assumption (up to
2070)
Historical five year
average (FY2019-23)
of 3% is assumed to
increase to 5% by
2070 due to expected
increase in renewable
energy capacity
Assumed to remain
constant at 5.3% as
the historical five-year
average (FY2019-23)
Assumed to remain
constant at 6.3% as
the historical five-year
average (FY2019-23)
Foreign portfolio
equity investment in
a year
Annual change in
power sector equity
investment
Annual change in
transport sector equity
investment
Annual change in
industrial sector equity
investment Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 92
Annexure-12: Assumptions for Sectoral Exposure of Foreign Portfolio Investment (FPI)
ANNEXURE-12.2: FOREIGN PORTFOLIO DEBT INVESTMENT
The foreign portfolio debt investment is allocated to power, transport, and industry based on
the sectoral exposure of corporate bonds in India. The following table explains the approach
and assumptions:
ParticularsPowerTransportIndustry
Computation of
foreign portfolio
debt investment
allocation to sectors
Total FPI debt
investment × % share
of power sector
Total FPI debt
investment × % share
of transport sector
Total FPI debt
investment × % share of
industrial sector
Foreign portfolio
debt investment
Total FPI Investment is calculated as:
Current year’s Asset Under Custody - Previous year’s Assets Under Custody
This total FPI investment is allocated to equity, debt, and hybrid assets.
Based on historical data, debt accounts for approximately 35% of total FPI
flows
Sectoral share in
foreign portfolio
debt investment
in FY2023 (based
on corporate bond
sectoral exposure
xxiv
)
~4.4%~0.05%~1.7%
Projection
assumption (up to
2070)
Assumed at 4.6%, in
line with the historical
five-year average
(FY2019-23)
Assumed at 0.05%, as
the historical five-year
average (FY2019-23)
Assumed at 2%, in line
with the historical five-
year average (FY2019-
23)
Foreign portfolio
debt investment in a
year
Annual change in
power sector debt
investment
Annual change in
transport sector debt
investment
Annual change in
industrial sector debt
investment
xxiv Bloomberg database is used to extract the sectoral composition of corporate bond issuance in India. Scenarios Towards Viksit Bharat and Net Zero: Financing Needs 93
Annexure-13: Assumptions
for Sectoral Allocation of
External Borrowings
The sectoral allocation of external borrowings to different sectors is based on the share of these
sectors in FDI. The assumptions are explained below:
ParticularsPowerTransportIndustry
Computation of
External borrowings
allocation to sectors
Total debt issuance
by non-financial
corporation × % share
of power sector
Total debt issuance
by non-financial
corporation × % share
of transport sector
Total debt issuance by
non-financial corporation
× % share of industrial
sector
Total external
debt issuance
by non-financial
corporations
As outlined in the methodology section, external debt issuance by non-
financial corporations is estimated based on their historical share in total
external outstanding debt, assuming an average five-year maturity for
external borrowings:
Total external debt issuance by non-financial corporations = Gross debt
outstanding by non-financial corporations / 5
Sectoral share
in debt issuance
by non-financial
corporation in
FY2023 (using FDI
sectoral allocation
42

as proxy
xxv
)
~5% ~6%~10%
Projection
assumption (up to
2070)
Expected to increase
gradually to 6%
Assumed to remain
constant at 6% till
2070
Assumed to remain
constant at 10% till 2070
xxv Due to the unavailability of sectoral data, sectoral allocation percentages of FDI are used as a proxy, considering it
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monthly-reports VOL. 9
SECTORAL INSIGHTS:
FINANCING NEEDS
SCENARIOS TOWARDS VIKSIT BHARAT AND NET ZERO

Scenarios towards Viksit Bharat and Net Zero: Financing Needs (Vol. 9)