Paper: GS – III, Subject: Environment, Ecology and Disaster Management, Topic: Global warming and climate change, Issue: Tackling climate change.
Context:
India aims to become a developed economy by 2047 and achieve net-zero emissions by 2070. However, the current Centre–State fiscal architecture inadequately accounts for climate vulnerabilities, creating inequities.
Key Highlights:
Climate Challenges for India:
Frequent Climate Shocks:
- Heatwaves, floods across Punjab and Delhi-NCR leading to coastal erosion, Himalayan fragility.
- Unequal distribution of risks across states.
Geographic & Structural Inequalities:
- Poorer and more climate-vulnerable states have lower revenues and limited adaptive capacity.
- Richer states enjoy greater fiscal space to invest in green innovation.
Economic Risks:
- Without investment, losses to GDP, competitiveness, and macro-financial stability will rise.
- Climate-induced losses impact productivity, jobs, and assets.
Limitations of Current Fiscal Devolution:
- Finance Commissions historically focused on population, income distance, efficiency (tax effort, fiscal discipline) and only later included forest cover (14th & 15th Finance Commissions).
- Gaps in Current Formula:
- No direct measure of climate action included.
- Metrics are reactive, reflecting climate shocks after they happen.
- Leads to erosion of equity and higher inequality.
Proposal for Reform:
Conclusion:
A climate-sensitive formula in the 16th Finance Commission would ensure equitable fiscal transfers, strengthen adaptation, and help India achieve clean growth pathways while safeguarding cooperative federalism.
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