India Ratings and Research (Ind-Ra) opines climate change and its adverse impact on life, livelihood and economy is no longer an issue of future, it has already become a reality. Reduced agricultural productivity, heightened water insecurity, extreme weather events, stressed ecosystems and elevated health risks are some of the manifestations of this climate change. Measuring economic costs of climate change is still a work in progress, but one of the studies (https://doi.org/10.1029/2018EF000922) estimated that 1°C of global warming reduces India’s GDP by 3% a year. According to the climate change vulnerability index value, Jharkhand is the most vulnerable and Maharashtra the least vulnerable state in India. A low climate change vulnerability index value does not mean that Maharashtra is not vulnerable to climate change in an absolute sense. In fact, all states in India are vulnerable to climate change/risks. Since different factors are drivers of vulnerability in different states, own fiscal capacity of a state will be an important factor determining its capacity to respond to the threat posed by the climate change, notwithstanding the fiscal support from the union government/international agencies.

To examine this, Ind-Ra has used the debt to GSDP ratio as the fiscal capacity of a state and the climate change vulnerability index value as a measure of vulnerability of a state to climate change as follows:

Figure 1
Climate Change and Fiscal Vulnerability Metrics of India States

Climate Change Vulnerability -Index Score (IS) →

High vulnerability (IS = 0.58 to 0.67)

Assam

Chhattisgarh, Jharkhand, Odisha

Bihar, West Bengal

Medium vulnerability (IS=0.50 to 0.58)

Karnataka

Gujarat, Madhya Pradesh

Andhra Pradesh, Rajasthan, Uttar Pradesh

Low vulnerability (IS=0.42to 0.50)

Maharashtra, Telangana

Goa, Haryana, Tamil Nadu, Uttarakhand

Himachal Pradesh, Kerala, Punjab

 

Low vulnerability
(Debt/GSDP: less than 20.0%)

Medium vulnerability
(Debt/GDSP: between 20% to 30%)

High vulnerability
(Debt/GSDP: more than30.0%)

 

Fiscal Vulnerability (Debt/GSDP) →

Source: Climate Vulnerability Assessment for Adaptation Planning in India Using a Common Framework, Department of Science and Technology, Government of India, RBI and Ind-Ra

 

























Of the six states namely – Assam, Bihar, Chhattisgarh, Jharkhand, Odisha and West Bengal - that are highly vulnerable to climate change, Bihar and West Bengal are also fiscally highly vulnerable. While Jharkhand, Odisha and Chhattisgarh fall in the fiscally medium vulnerability category, Assam falls in the fiscally low vulnerability category. States falling in the high vulnerability category both for climate change and fiscal capacity may find it difficult to provide requisite public funding towards climate change mitigating activities and /or the higher relief expenditure if needed in case of natural disasters.

The other category of states is fiscally highly vulnerable and falls in the medium category of climate change vulnerability. These states are Andhra Pradesh, Rajasthan and Uttar Pradesh. Although Himachal Pradesh, Kerala and Punjab also fall in the fiscally highly vulnerable category, their vulnerability with respect to climate change is low. Only two states Maharashtra and Telangana enjoy the status of low climate change vulnerability and low fiscal vulnerability.

Financing for adaptative actions for climate change in India primarily comes from the union government’s budget, the impact of a changing climate on the economy and society has to find a reflection in a state government’s plans and budget as well. There has been some traction and action with respect to mainstreaming of the climate change agenda into public expenditure at the state level over the last two decades. However, deciphering the climate change related public expenditure from a state budget is difficult as there is no climate tagging of budgetary allocation with the exception of Odisha. Ind-Ra thus believes adopting the climate responsive budgeting and/or climate tagging of the state government budget is the way forward to build a climate-resilient economy. 

In the absence of climate tagging of budgetary allocation, it is not possible to assess how much of the allocation is for addressing climate change related issues and how much is for other purposes. However, Ind-Ra believes while spending under the budgetary heads such as ‘soil and water conservation’ and ‘forestry and wildlife’ directly addresses the adaptive response part of the climate change, spending under the head ‘relief on account of natural calamities’ addresses the mitigation response part of the climate change. A peep into these budgetary heads indicates that states are indeed responding to the threat of climate change through budgetary provision. For example, expenditure intensity (defined as expenditure in year/period divided by expenditure in the previous year/period) of all states combined under the budgetary head of ‘forestry and wild life’ shows a rising trend during FY01-FY05 to FY11-FY15 but declines during FY16-FY20. Such a pattern is also observed in case of few individual states such as Bihar, Gujarat, Karnataka, Madhya Pradesh, Rajasthan, and west Bengal. Expenditure intensity only for two states Assam and Maharashtra shows a consistent increase over FY01-FY05 to FY16-FY20. Similarly, a glance at ‘soil and water conservation’ head reveals that the budgetary allocation of all states has increased significantly after the launch of soil health cards as a centrally sponsored scheme by the union government in FY15.

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Analyst Names

  • Dr. Sunil Kumar Sinha

    Principal Economist and Director Public Finance
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana - 122002
    +91 124 6687255

    Dr Devendra Pant

    Chief Economist and Head Public Finance
    0124 6687251

    Paras Jasrai

    Analyst

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121