By Reena Singh & Purvi Thangaraj, Respectively Senior Fellow and Consultant at ICRIER
India’s climate journey is at an inflection point. Since ratifying the Paris Agreement in 2016, the country has committed to ambitious nationally determined contributions and a 2070 net-zero target. But ambition without alignment will not suffice. The department of economic affairs estimates that achieving these goals will demand $2.5 trillion by 2030. Adaptation alone could cost `72 trillion ($864 billion) across agriculture, housing, health, education, and disaster management.
Globally, the financing gap is even starker. At COP29, developing nations projected a need for $1.3 trillion annually by 2035 for mitigation and adaptation. COP30 pledged to mobilise these finances, but the road map is incomplete and conspicuously excludes energy transition costs. For India, this uncertainty is critical. Ranked as the world’s seventh-most climate-vulnerable nation, India faces mounting risks—crop failures, livestock losses, infrastructure damage, and human casualties. With 60% of the rural workforce tied to agriculture and 90% of farmers operating on less than two hectares, climate change is not an abstract risk but a direct threat to food security and livelihoods.
Yet, India’s fiscal priories remains misaligned. An ICRIER study (Singh et al, 2025) estimated that the current budgetary support to the agrifood sector is about `7,076 billion ($90 billion) annually. Climate-related finance within this is limited—just 8% on average since 2016, with international funding barely 0.5% of total climate finance flowing to the agrifood sector. Worse, subsidies continue to reward emission-intensive practices.
In 2023-24, out of the 63.9 million tonnes (MT) of fertiliser consumed, urea alone accounted for 35.2 MT—an overwhelming 55% share. We all know that this dominance is no accident. Unlike other fertilisers, urea remains outside the Nutrient-Based Subsidy framework and continues to enjoy a hefty 85-90% subsidy. The result—urea is sold at a rock-bottom price of just `5,360 per metric tonne, incentivising farmers to overuse it. The skewed application is evident in the nutrient ratio, which stands at a distorted 10.89:4.42:1 for nitrogen, phosphorus, and potassium.
But the problem runs deeper than pricing. Urea’s carbon footprint is staggering. Its production alone released 37.97 MT of carbon dioxide (CO2) equivalent (eq) emissions into the atmosphere in 2023-24. Once applied to fields, the damage multiplies. Hydrolysis released another 25.72 MT of CO2, while nitrous oxide emissions—273 times more potent greenhouse gas (GHG) than CO2—added 43.54 MT CO2 eq, thus totalling 107.23 MT CO2 eq. What emerges is a vicious cycle: subsidies encourage overuse, overuse distorts soil health and groundwater, and the entire chain—from factory to farm—drives climate change. If India is serious about climate-resilient agriculture, the conversation must begin with rethinking urea’s privileged position.
Grain policy is equally skewed. As of July 1, the central pool held wheat and rice at 1.2 times the buffer norm (50.4 MT), with rice alone at 42.1 MT, which is three times the requirement. This surplus ties up about `2,005 billion in public funds, including Rs 1,758 billion in excess rice, which was calculated using the Food Corporation of India’s (FCI) economic cost estimate.
Instead of rationalising procurement, the government has chosen to divert 5.2 MT of surplus rice to distilleries for ethanol production in 2024-25 while raising the fixed procurement price to Rs 2,320/quintal. This move is justified under the E20 policy to decarbonise the transport sector. However, far from being a climate solution, rice compounds the problem. We know that rice cultivation is India’s third-largest agricultural source of GHGs, contributing 16.68% of total emissions.
ICRIER (Singh & Gulati, 2025) estimates annual emissions from rice cultivation at 144 MT CO2 eq, driven by methane from flooded fields, nitrous oxide from fertilisers, residue burning, and CO2 from groundwater pumping. Punjab and Haryana are the worst offenders, emitting 4,945 and 4,250 kg CO2 eq per hectare respectively—yet procurement continues to favour them. This is irrational. The procurement system must pivot eastward, towards Uttar Pradesh, Bihar, and West Bengal, where rice cultivation is more sustainable and emissions are lower.
Restricting FCI purchases to buffer-stock levels would also free up capital to fund minimum support price operations for pulses and oilseeds, which are nutritionally vital climate-friendly crops that deserve the centre stage in India’s food policy. Punjab and Haryana must be incentivised to diversify. The current `17,500-per-hectare support for crop diversification should be doubled to `35,000. This is fiscally feasible, as savings from reduced fertiliser and power subsidies can be redirected to farmers.
The Paris Agreement offers India another lever. Article 6.4 establishes a global carbon market, enabling nations to trade credits as they chase climate targets. For India, this is a strategic opportunity. High-cost mitigation projects could be financed through bilateral deals, with India exporting carbon credits and importing climate finance. Low-cost options, meanwhile, should be retained domestically to accelerate progress towards national goals.
Yes, India must continue to demand fair climate finance under Article 9.1. But it must also invest aggressively in decarbonisation and resilience at home. That is the true economic race of our time and India cannot afford to lag.