India’s states are putting a climate tag on public money

In February 2020, Odisha placed a document before its legislature that no Indian state had produced before: a climate budget. It coded spending across 11 departments for its relevance to climate change, and made Odisha the first Indian state to publicly disclose its climate spending this way.

Bihar began tabling a separate green budget statement the same year, a first of its kind in the country. Six years on, Assam, Meghalaya, Puducherry, Kerala, Uttar Pradesh and Rajasthan publish their own versions, and Mumbai’s municipal corporation produces a climate budget for the city.

My own research looks at how Indian states balance what they raise against what they spend. From that vantage point, this is one of the most practical fiscal reforms Indian federalism has produced this decade. And it’s arriving just as the Union builds the financing and classification tools that can carry it much further.

Odisha showed what a climate budget can do

Odisha’s climate budget grew out of its State Action Plan on Climate Change. The state faces tropical cyclones and floods almost every year, so knowing which schemes build resilience is everyday budgeting for its finance department.

The method has matured with each edition. Odisha now pairs climate budget tagging with a Climate Change Impact Appraisal, and its climate-tagged budget rose from ₹31,317 crore in 2024-25 to ₹36,065 crore in 2025-26, an increase of 15%.

The 2024-25 edition had already tagged over 48% of allocations across 11 key departments as climate relevant, classifying schemes by their climate sensitivity. That kind of scheme-level scoring lets a finance department see which programmes carry the most climate weight before it signs off on the numbers.

In agriculture, energy and disaster management, more than 70% of allocations are identified as climate relevant. For a coastal state, that’s a budget that reads like a resilience plan.

Bihar made green budgeting a yearly habit

Bihar’s green budget for 2026-27 is its seventh edition. It earmarks ₹15,837 crore as green budget, about 7.5% of departmental outlay and 4.6% of the overall state budget, up from ₹15,588 crore in 2025-26.

Tabling the statement in the assembly every year matters as much as the number itself. Legislators and citizens get one document that shows where the state’s environmental money goes, and they can compare it year after year.

The idea has spread across India

Assam’s green budget for 2025-26 drew 32 line departments, more than double the previous year, with ₹10,138.75 crore making up 11.35% of their combined budget. Meghalaya’s climate action budget rose from ₹3,411.93 crore in 2023-24 to ₹4,501.04 crore in 2024-25, or 16.6% of the state budget.

Uttar Pradesh identified ₹64,912 crore of green spending across 17 departments in 2024-25, roughly 26% of scheme expenditure. Rajasthan launched its first climate budget in 2025-26, tagging about 5.18% of the state budget, or 1.39% of GSDP, with more than 60 departments contributing schemes, and Kerala’s environment budget covers 95 schemes across 10 sectors.

What drove the growth is instructive. TERI’s portal credits Assam’s jump to a structured methodology and capacity-building for departments. The lesson travels well: states adopt tagging faster when finance departments give line departments a simple, repeatable way to do it.

The Union has built the financing layer

India has a long habit of issue-based budgeting. The Union Budget already carries a Gender Budget Statement, and its expenditure profile includes a statement of spending under schemes eligible for sovereign green bonds, covering metro projects, PM-KUSUM, the National Green Hydrogen Mission and the Green India Mission.

Those bonds are now a regular part of India’s borrowing. The government sold its first sovereign green bonds in January 2023 and raised ₹57,697 crore through them between 2022-23 and 2024-25. In the first year, about 78% of proceeds went to clean transportation and 21% to renewable energy.

Demand has deepened at the long end. In 2025-26, the RBI’s 30-year green bond tranches of ₹5,000 crore each were expected to attract strong demand from investors, with insurers and pension funds among the natural buyers.

A national taxonomy gives everyone a shared language

In May 2025, the Finance Ministry released a draft framework for India’s Climate Finance Taxonomy for public consultation. It sorts activities into climate-supportive and transition categories, starting with sectors such as power, mobility, buildings and agriculture.

Two design choices stand out. The draft treats adaptation as core, including sustainable water management and geography-specific adaptation measures, and describes the taxonomy as a living document. The approach is hybrid, combining qualitative principles with quantitative metrics so it can fit India’s diverse industrial structure. Its ambition is large too: the taxonomy aims to help channel around US$250 billion a year toward climate-friendly activities.

Adaptation is where state budgets live. Agriculture and water are state subjects under India’s Constitution, and states lead the first response when disasters strike. That’s why state tags and a national taxonomy fit together so naturally.

Joining the layers

India now has 4 layers of a climate finance system: a national taxonomy, sovereign green bonds, state green and climate budgets, and city climate budgets. So far, each state has built its own method, which is exactly how good fiscal experiments begin.

The next reform is a shared language, so that a tagged rupee in Bhubaneswar means the same thing as a tagged rupee in Guwahati or Jaipur. Once that exists, state spending becomes something an investor or a credit rating agency can read at a glance.

Tagging helps inside government too. A finance secretary who can see climate relevance scheme by scheme can protect high-impact programmes during mid-year revisions, and a line department can show the climate value of its work when it bids for funds.

4 steps to connect state budgets to climate capital

Here’s how the Union and the states could join the layers they’ve already built:

• A common tagging format. A model climate budget statement for states, mapped to the taxonomy’s climate-supportive and transition categories, would make state figures comparable while leaving room for local priorities.
• Tagged actuals next to estimates. Publishing tagged actual spending once accounts close would show delivery as well as intent, and give investors a track record to price.
• Green state borrowing. States with tagged project pipelines mapped to the taxonomy could raise green state development loans, modelled on the framework behind the Union’s sovereign green bonds.
• A shared learning platform. A common home for methods and training, building on resources such as TERI’s green budgeting portal, would help the next 20 states start where Odisha and Bihar are today.

Conclusion: the states have done the hard part

Six years ago, Odisha and Bihar began tagging public money for climate and the environment. Today 7 states and 1 union territory do it, and their tagged allocations keep growing.

The Union has added sovereign green bonds and a draft national taxonomy. Connecting these layers is the next step: a common tagging format, tagged actuals, green state borrowing and a shared learning platform.

Odisha started with one document in 2020. With common tags, India’s state budgets can become a steady pipeline of climate projects ready for capital, built from the ground up.

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