India ranks ninth among the countries most affected by extreme weather, with mounting costs to its economy, livelihoods and ecosystems . While this speaks to the magnitude of climate risk[1] India faces, the challenge of responding to it runs deeper than the numbers suggest: a less visible but critical obstacle is the difficulty of tracing where adaptation finance actually goes. Without this visibility, it is quite hard to even estimate the size of the financing gap, let alone address it.
India has been working on climate adaptation for well over a decade now, publishing its first National Action Plan on Climate Change in 2008, issuing state-level action plans, and now developing a comprehensive National Adaptation Plan to consolidate these efforts. Yet, even with these structures in place, India’s Adaptation Communication to the UNFCCC places its cumulative financing need at approximately USD 673 billion by 2030. How much of this need is being met, and whether it is reaching the most vulnerable communities, are questions that the available data can only partially answer. This lacuna points to an often-overlooked but important distinction between having planning frameworks in place and being able to trace whether finance is actually flowing through them.
The need for localised data
Successive economic surveys for 2023–24, 2024–25 and 2025–26 (Ministry of Finance, 2024, 2025, 2026) reflect a growing recognition of adaptation as a priority in India’s climate response, even as it remains underfinanced. The 2023–24 Survey documented that adaptation-relevant expenditure had reached 5.6 per cent of GDP in FY2022, a sign of the significant strain being placed on domestic resources. The 2024–25 Survey, in its chapter titled “Adaptation Matters,” pointed to the acute lack of international finance reaching India for adaptation actions. By 2025–26, the Survey pushed this further still, positioning adaptation at the centre of India’s climate strategy and observing that development itself is a form of adaptation.
Yet this growing national recognition does not automatically translate into adequate financing on the ground. The Council on Energy, Environment and Water’s analysis of urban climate resilience finds that while over 75 per cent of India’s districts are highly vulnerable, local bodies often lack the financial means to act (CEEW, 2025). There is not merely a lack of funds; the issue is also our inability to see and measure the gap.
Challenges around traceability
Despite its importance, traceability of funding is difficult to ensure in practice, particularly at the micro level, which is exactly where climate risk impacts hit hardest. To understand why, it helps to consider how climate adaptation is financed. In India, adaptation finance flows through a mix of channels: public sources such as central and state government schemes as well as private channels such as community-led and market-driven pathways (including microfinance institutions [MFIs], commercial banks, corporate social responsibility [CSR] projects and community-linked systems such as the self-help group [SHG]–Bank Linkage Programme facilitated by NABARD).[2]
On the public funding side, several assessments collectively point to a common underlying problem: fragmented and inconsistent reporting makes it difficult to obtain a clear picture of where funds are flowing. A Citizen consumer and civic Action Group assessment of institutional readiness in Tamil Nadu found that implementation quality varies enormously across departments – not because of a lack of intent, but because of institutional gaps. The Climate Policy Initiative’s Landscape of Green Finance report (2020) identifies the unavailability of disbursement data across the value chain as a core methodological challenge. Oxford Policy Management’s review of state action plans further notes that these plans often lack proper budgets or authority, tending to address gaps in older schemes rather than building new resilience – leaving sectors such as water security and agriculture underfunded (Gogoi, 2015). The International Monetary Fund’s Article IV Consultation for India went further, assigning the country a “C” grade for data adequacy due to limited coverage of informal-sector and district-level economic activity – the same limitations that make it difficult to track climate adaptation spending with any precision (IMF, 2025).[3]
Private finance faces similar walls
The challenge looks somewhat different on the private side, but leads to the same place. MFIs operate across 28 states, 8 union territories and 723 districts, serving around 8 crore borrowers through an INR 3.81 lakh crore portfolio. As Climate and Sustainability Initiative’s (CSI) policy brief (2026) notes, MFIs account for 60% of India’s microfinance portfolio and are directly exposed to the impacts of recurring droughts, floods and erratic monsoons. Yet climate stress tends to lower borrowers’ incomes and raise default rates, which can make MFIs understandably cautious about lending more in already vulnerable regions – a pattern that Ahmed et al. (2026) discuss in detail. The result is a self-defeating dynamic, where the institutions best placed to reach the most vulnerable people gradually pull back from them.
Consider how this plays out in concrete terms: a farmer in a flood-prone district may borrow from an MFI to buy drought-resistant seeds or to reinforce a storage structure – activities that are genuinely adaptation-relevant – yet that loan is recorded simply as an agricultural loan, not as climate finance. As CPI’s microfinance brief (2025) notes, even when MFIs support environmentally relevant activities, these are rarely categorised or tracked as “climate finance”. Therefore, the financing gap left by public and private sources alike stays largely invisible, compounding the same underlying data problem from both ends.
Addressing these traceability challenges is critical, since credible, ground-level data on adaptation financing is not merely a matter of record-keeping, but a determinant of how well adaptation measures can protect the people affected. Adaptation work helps protect livelihoods and reduce risks exactly where climate impacts are felt most keenly, at the village and district levels. Understanding how funds are actually used at these levels would reveal where the real gaps are, what causes them and how climate risk differs across regions. This can, in turn, inform policies that reach the people who need them most.
The IPCC’s Fifth Assessment Report (2014) also notes that adaptation options exist in almost every sector, though their feasibility largely depends on the local context. This is why tracing the gap at the micro level matters so much – it helps capture localised variations that broader, top-down planning often misses, something the Indian Institute for Human Settlements also flagged in its subnational analysis of India’s climate-finance architecture (IIHS, 2023). When financing doesn’t reach the ground in time, adaptation plans face delays in implementation (UNEP, 2022). This partly reflects a structural issue: adaptation behaves more like a public good than a profitable investment, so markets left on their own tend to underinvest in it.
Overcoming traceability gaps
Three forward-looking actions could help close these traceability gaps.
In the immediate term, state and district agencies could consider standardising a climate-adaptation tag for any expenditure with a climate-relevant component – whether flood infrastructure, drought-response farming schemes or heat-resilient housing. This is not an untested idea. Indonesia formalised climate tracking through a finance ministerial decree in 2019 (Rulliadi, 2019), operationalised it from 2016, and by 2018 was using the tagged data to issue the world’s first sovereign Green Sukuk bonds. Similarly, Nepal’s Climate Change Budget Code offers a practical regional reference point closer to home (Gupta, 2025).
Over the medium term, linking the regulatory findings of non-banking financial companies (NBFCs) and financial institutions (FIs) with the RBI’s Climate Risk Information System (RBI, 2024) could also help bridge climate data gaps among regulated entities. Consolidating adaptation data may not require building new institutions, only refinements to how existing reporting structures are used.
Looking further ahead, developing Finance Commission devolution criteria, indexed to district-level climate vulnerabilities, could help ensure that fiscally stretched yet highly exposed local authorities receive resource allocations that are proportional to their risk – building a more structurally grounded response over time.
Taken together, these steps point towards a broader approach: the need to build climate policy from the ground up – starting at the district and village levels and moving up to the state level, rather than the other way around. This bottom-up approach will not only help reduce climate risk more effectively, but also address the deeper inclusion challenge India continues to face, so that the communities most affected by climate change are not also the last to be reached by the policies meant to protect them.
Thus, better data on adaptation finance would not be simply a technical improvement; it would serve as the foundation on which more effective, more equitable and more responsive adaptation policy is built.
By Chelsie Chhajer, Research Intern, Climate and Sustainability Initiative (CSI).
Endnotes
[1] The Intergovernmental Panel on Climate Change defines “climate risk” as the potential for adverse outcomes for society or ecosystems due to climate-change impacts, including both the direct effects of climate hazards and the indirect effects of human responses to these changes (IPCC, 2022).
[2] The SHG–Bank Linkage Programme, facilitated by NABARD (2026a), is widely recognised for supporting community-linked lending channels in India, covering over 17.75 crore households across the country. (For further information, see NABARD).
[3] According to the Reserve Bank of India (2023), the nation requires a cumulative climate adaptation expenditure of INR 85.6 lakh crore (approximately USD 1.05 trillion) by 2030. While India actively spends 5.6% of its gross domestic product (GDP) on domestic adaptation, the CPI (2024) confirms that tracked finance flows meet only one-third of the overall targets, leaving a massive funding gap of two-thirds of the need, which is currently borne almost entirely by domestic public budgets.
