There is one figure that should command the attention of every policymaker, banker, and financial expert in India. India will require ₹162.5 trillion — roughly $2.5 trillion — by 2030 to meet its Nationally Determined Contributions. Over the longer term, the cost of achieving net-zero emissions by 2070 is estimated at $10.1 trillion, nearly three times India’s current GDP.This is not a counsel of despair. India has more tools to bridge this gap than it has deployed so far. But doing so requires a clear financing strategy and the institutional resolve to build mechanisms that can mobilise capital at scale.The financing gapDecarbonising just four sectors — steel, cement, power, and road transport, which together account for more than half of India’s carbon emissions — will require $467 billion in additional capital expenditure between 2022 and 2030, roughly $54 billion annually, or 1.3% of GDP. These are sectors where the private sector will not lead without strong regulatory incentives, because the economics of green steel and green cement simply do not yet work without policy support.By 2030, developing economies are estimated to need $5 trillion to $6 trillion for climate action. The developed world promised $100 billion annually at Paris — and missed it. The Baku New Collective Quantified Goal (NCQG) commits $300 billion by 2035 — which India rightly considers insufficient. The Reserve Bank of India (RBI)’s own Report on Currency and Finance estimates that India needs an additional annual investment of at least 2.5% of GDP for green financing until 2030.The international community will not fill this gap on India’s behalf. The honest answer is that India must mobilise most of it from within.India is not starting from zero. By the end of 2024, India had issued $55.9 billion in green, social, sustainability, and sustainability-linked debt — a 186% rise since 2021. Green debt leads, making up 83% of the total, with most funds directed to clean energy and transport. Sovereign green bonds worth ₹477 billion have helped set benchmarks and boost investor confidence. This is genuinely impressive.The instruments exist. The challenge is deploying them at scale. India already has green bonds, sovereign green bonds, sustainability-linked bonds, blended finance structures, transition finance instruments and infrastructure investment trusts. What is missing is the connective tissue: a taxonomy, a guarantee architecture, a liquidity mechanism, and the regulatory incentives that make green finance cheaper than brown finance.The most significant shift in India’s climate-finance landscape in 2025 did not occur at a climate conference but in Mint Street. In 2025, the RBI’s Climate Finance and Management of Climate Change Risks Directions for Commercial Banks and Small Finance Banks established a comprehensive framework requiring banks to integrate climate risks into their lending and risk-management practices. Importantly, eligible green activities can qualify as priority sector lending (PSL), while investments in sovereign green bonds are also recognised under the framework.This is a bigger deal than it looks. PSL requirements are one of the most powerful levers that the RBI holds over bank behaviour. Currently, for every ₹10,000 crore in loans, banks must ensure ₹4,000 crore of PSL.The RBI can and must go further. It has proposed accepting sovereign green bonds as collateral with more flexibility in margin requirements and adjusting reserve requirements to support credit flows to green sectors. The next frontier is differentiated capital requirements based on climate risk — essentially, making brown lending more capital-intensive and green lending less so.The RBI’s Climate Risk Information System on climate-related financial risks for commercial banks, and its inclusion of sustainable finance in its regulatory sandbox, are steps in the right direction. The next critical step is a comprehensive climate stress-testing framework for Indian banks — one that assesses the flood risk of a loan portfolio in Bihar as rigorously as it evaluates credit risk.The taxonomy unlocks everything elseFinance Minister Nirmala Sitharaman announced in the Union Budget 2024-25 that India would develop a climate-finance taxonomy. This is the foundation of the entire ecosystem. Without a clear legal definition of what counts as “green”, green bonds cannot be credibly verified, PSL classifications remain questionable, international investors cannot make compliance claims, and regulators cannot effectively curb greenwashing.The Ministry of Finance’s Climate Finance Taxonomy and the Ministry of Steel’s Green Steel Taxonomy will facilitate standardised sustainable investments and boost investor confidence.The international climate finance system has one instrument that India has chronically underused: blended finance — the strategic use of public or concessional funds to de-risk private investment. Financial instruments such as green bonds, climate funds, and blended finance models are important in mobilising capital for sustainability initiatives, and unlocking investment at scale will help drive long-term resilience in India’s most climate-sensitive sectors.Here is the arithmetic that makes blended finance so compelling. A first loss guarantee of $100 million from a public source can unlock $500 million to $1 billion in private co-investment in solar, offshore wind, green hydrogen, or climate-resilient agriculture, because it absorbs the risk that private capital finds unacceptable. It needs a capitalisation injection and an expanded mandate to get there.Where the finance gap is most acuteOne dimension of India’s climate finance challenge that receives almost no attention is its federally disaggregated nature. Climate adaptation — the kind of finance that protects coastal villages in Odisha, drought-proofing in Vidarbha, or spring rejuvenation in the Himalayas — is delivered at the State level. But States have neither the borrowing capacity nor the institutional infrastructure to access international climate finance. Tamil Nadu and Kerala have shown that ambitious State-level climate programming is possible. The financing architecture needs to catch up with the ambition.There are four things that India must do now. First, finalise and enact the Climate Finance Taxonomy without further delay. It is the single most leveraged action available.Second, the RBI must move from enabling green finance to mandating it — through differentiated capital requirements, mandatory climate stress testing for banks, and expanded PSL targets that include climate adaptation alongside mitigation.Third, establish a State Climate Finance Facility, capitalised for example, by the Union, National Bank for Agriculture and Rural Development (NABARD), and international sources, to give States and municipalities genuine access to green debt markets.Fourth, scale sovereign green bond issuances rapidly and embed them in the SLR framework to deepen the domestic market and attract foreign capital.India’s climate-finance challenge is large and urgent, but not insurmountable. The instruments exist, the regulatory framework is taking shape, and capital is available. What is missing is not money, but the institutional capacity to deploy it at scale. Fixing that is the work of the Budget cycles. The country that solves this challenge fastest will shape the future of climate finance in the developing world.Balakrishna Pisupati is the Head of the United Nations Environment Programme (UNEP) office in India. The views expressed are personal