India’s commitment to achieve net-zero emissions by 2070 is one of the most consequential transitions the country has ever embarked upon. But ambition alone is not enough. According to a recent report, NITI Aayog estimates India will need $21 trillion in cumulative investments to meet its target. Of this, nearly $7 trillion is still unaccounted for — a financing gap that could determine whether India’s green transition succeeds or stalls.

Bridging this gap is not just about finding more money. It’s about rethinking how we mobilise, direct, and de-risk capital across the financial system — from rural banks to capital markets, from domestic savings to global investors. India does not lack capital. What we lack is a coherent financial strategy for climate transition.

Let’s start with the banks. Today, many green technologies — from battery storage to hydrogen to sustainable agriculture — are seen as risky, which drives up borrowing costs. Interest subsidies can help, but only go so far. What’s needed is a systemic push — green investments must become as integral to banking as agriculture or MSMEs. One way to do that is by updating the Priority Sector Lending framework to explicitly include climate-positive sectors. Banks respond to mandates — and a clear one is overdue.

But mandates alone aren’t enough if risk remains high. This is where credit guarantees come in. With regulatory backing, credit guarantee instruments can lower the perceived risk of new green technologies and help banks lend more confidently. They can also correct for market failures like information asymmetry and lack of collateral, which currently hold back many viable projects.

Then there’s the power of public institutions. India already has a strong track record of targeted financial institutions—SIDBI, NABARD, IIFCL—created to support key sectors. A dedicated green public financial institution could do the same for net-zero technologies: raise large-scale capital, blend concessional and commercial funding, and lend to projects that private players still find too risky. Alternatively, an existing institution could be given a green mandate, modelled on earlier policy successes.

Blended finance is another underused tool. By design, blended finance accepts lower returns on public capital to attract private investment. Yet in India, its scale remains limited due to high structuring costs and fragmented capital sources. A potential solution? Create state-owned blended finance platforms at the subnational level—bringing together government, private, and philanthropic capital under one roof.

Beyond banks and public institutions, India must also learn to recycle capital more efficiently. Most green investments today are funded by banks, but these loans are often locked up as static assets. Through securitisation and structured credit instruments, these loans can be packaged and sold to investors—freeing up capital for new projects and allowing risk-sharing across the system. This is how we increase the velocity of green finance.

The central bank and financial regulators have a key role too. While corporate sustainability disclosures have improved, financed emissions remain largely invisible. Regulators must begin requiring banks and institutional investors to disclose the carbon intensity of their portfolios. This alone would shift capital allocation dramatically. Even more pragmatically, banks currently hold surplus statutory liquidity beyond mandated levels. If just a portion of this excess could be directed into green investments, it would inject significant credit into the climate economy.

India’s vast pools of long-term capital — pension funds, insurance companies, mutual funds — must also be part of the solution. Regulators like PFRDA, IRDAI, and SEBI should require these institutions to integrate climate risk into investment decisions. Over time, this will lead to a natural shift away from high-emitting sectors and towards net-zero technologies. A minimum green allocation could help accelerate that shift.

But we cannot rely on domestic capital alone. Foreign investment — both concessional and commercial — will be vital. India should use the GIFT City IFSC as a climate finance hub: with a supportive regulatory framework, dedicated lending platforms, and a de-risking facility backed by multilateral development banks. One practical step? Provide concessional foreign exchange hedging to reduce currency risk, making it more attractive for domestic borrowers to tap global capital.

Lastly, India must look inward — to its non-financial savings. India is a high-savings economy, with an average savings rate of 30% of GDP, yet, only about 15-18% of that is in financial instruments. The rest sits in land and gold. Unlocking even a fraction of this value could be transformative. Unproductive government land can be monetised for green infrastructure. Similarly, India’s estimated 28,000 tonnes of privately held gold — worth $3 trillion — represents a largely idle asset base. With smart instruments, even a small share could be channelled toward net-zero investments.

India’s green transition is not just a technological challenge. It’s a financial one. To meet our net-zero target, we need a strategy that matches the scale of the challenge — bold in policy, smart in risk-sharing, and inclusive in capital mobilisation. We have the tools. Now we need the will to deploy them.

The article is co-authored by Dr Dhruba Purkayastha, Senior Advisor, Climate and Sustainability Initiative (CSI) and Labanya Prakash Jena, Director,  Climate and Sustainability Initiative (CSI). Views expressed are personal.

Originally published in The Times of India (Online).