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Cities in India experience unprecedented warming at an average rate of 0.53°C per decade, while temperature rises exceed 37.73% of non-urban areas[1]. This rapid temperature rise increases the possibility of more frequent and intense extreme weather events. Implementing strong urban adaptation measures to increase resilience is crucial. Local governments must promote these efforts and ensure sustainable urban development.
Urban Local Institutions (ULBs) are the first point of contact to openly provide social products. But, like in other regions in developing countries, India's ULB is often under-resourced to take appropriate climate action. There are no specific estimates for urban adaptation investment needs, but the available literature suggests insufficient financial flows of adaptation-related interventions in South Asian cities. For example, the 2024 Urban Climate Finance Report estimates that cities in emerging markets and developing economies need $147 billion a year until 2030, $165 billion a year, and adaptation is carried out until 2050. However, 4% of these needs were met in 2021/2022.[2] During the same period, urban areas in South Asia received only $700 million to fund adaptation-related interventions. This shortage underscores the urgent need to increase investments related to urban adaptation.
Challenges in India for expanding municipal financing for climate response
ULB in India faces functional and financial constraints when taking effective climate action. Since their powers are limited to their respective state governments relying on their powers, they encounter significant restrictions in solving local problems. So while ULBs in one state may be able to solve climate problems, ULBs in other different states may not. India's ULB is known to be the weakest in the world about fiscal autonomy, with limited capacity and the ability to increase revenue through taxes and user fees.[3] The current situation of municipal finance in India paints a grim picture. Since the late 2000s, municipal income/expenditure in India has stalled at around 1% of GDP, compared with countries with similar development levels (such as Brazil (7.5% of GDP) and South Africa (6% of GDP) ( 6%) countries, less than less than GDP.[4] The lack of buoyancy revenue streams has also led to excessive dependence on central and state governments for ULB to perform its mandatory functions.
In addition, due to poor reputation and insufficient institutional capabilities, ULB has limited opportunities to obtain the capital market due to poor reputation. In recent years, regulatory reforms (2015 Municipal Issuance Guide) and incentives engraved by the Department of Housing and Urban Affairs have enabled ULB to obtain financing from the capital market through issuing municipal bonds, including municipal green bonds. While certain ULBs, such as Ghaziabad Municipal Corporation, Indore Municipal Corporation, Vadodara Municipal Corporation and Pimpri-Chinchwad Municipal Corporation, have successfully raised funds through green bonds [5],,,,, [6],,,,, [7]these situations are rare and very different.
The lack of banking projects is also due to weak institutional capabilities that lead to the ability to incorporate climate resilience into planning and development. While large and financially sound ULBs such as Brihanmumbai Municipal Corporation and Solapur Municipal Corporation are leading the development of climate action plans, India still needs a great help to build this capacity. This institutional gap also hinders the exploration of innovative financing mechanisms, such as the Public-Private Partnership (PPP), which, although it has the potential to mobilize private financing, has not been created by municipalities.
Scaling the direction of city adaptation – Actions that need to be coordinated
The need for financing must be expanded in India, especially as the climate crisis develops rapidly. Addressing systemic barriers to building urban climate resilience involves innovative financing and strong governance structures. Therefore, bridging the urban adaptation financing gap in India requires coordinated efforts among various players, from national governments to local authorities and private investors.
To address functional and financial constraints, India can adopt the Urban Climate Financial Leadership Alliance (CCFLA) 4C The agenda, as described below.
1. promise: National and state-level climate action and agenda should reflect local adaptation priorities. Climate target planning should be planned from the bottom up, with cities identifying and planning their priorities. These plans can be developed like the “Gram Panchayat Development Program” (GPDP) to outline annual climate goals and financial requirements to achieve these goals. These should then inform the planning and implementation of action plans at the state and national level. Institutions such as the National Finance Commission should include climate vulnerability in determining decentralization and grants from local agencies.
2. cooperate: The state government shall cooperate with the local government when planning and implementing any plans within its jurisdiction. National and state governments can use their existing partnerships with DFI and MDB to work with ULB and develop pipelines of adaptation-related interventions.
3. Capacity building: Soft skills are needed among ULB staff to understand climate vulnerabilities, adaptation-oriented interventions, and mobilize finance from public and private sources. The state government can use its existing agencies, such as the State Urban Development Institute, to conduct regular training of ULB staff.
4. Capital Mobilization: ULBs need to identify their restrictions on access to private finance, such as good reputation and work with state governments and development financial institutions (DFIS) to improve these aspects. They must also use public-private partnerships to mobilize financial adaptation requirements. Learn from other ULB success stories that have developed climate action plans and budgets and increased funding through green bonds and carbon credits, which can help close the funding gap.
In summary, the 4C Agenda provides a framework to align efforts by all stakeholders in the public and private sectors and can help expand and enhance the effectiveness of urban adaptation financing.
[1] https://www.nature.com/articles/s44284-024-00074-0#fig2
[2] https://citiescitiescities-city-finance.org/publications/2024-state-of-cities-cities-city-finance
[3]https://rbidocs.rbi.org.in/rdocs/publications/pdfs/rmf1011212023a3a34c4f7023a4a9e999cb7f7f7f7f7f7f7f7f7fef6881d0.pdf
[4]https://rbidocs.rbi.org.in/rdocs/publications/pdfs/rmf1011212023a3a34c4f7023a4a9e999cb7f7f7f7f7f7f7f7f7fef6881d0.pdf
[5] https://www.climatebonds.net/resources/press-releases/2024/02/vadodara-municipal-corporation-initiates-initiates-initiates-india-india-andia-and-asias-first
[6] https://indianexpress.com/article/india/climate-change-mitigation-needs-funding-9564785/
[7] https://economictimes.indiatimes.com/markets/bonds/green-bonds-municipal-bodies-think-change-change-climate-change/articleshow/111500696.cms
