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The past year offered a stark illustration. India experienced one of its hottest summers on record, with prolonged heat waves across northern and central regions disrupting construction schedules, factory output, logistics operations, and agricultural productivity. Government and industry assessments indicate that heat stress alone is already eroding between 4 and 6 per cent of India’s GDP annually, through lost working hours, rising health costs, and yield volatility. Climate impact is no longer episodic. It is structural, recurring, and embedded in India’s growth model.
What truly shifted in 2025, however, was not awareness but accountability. Climate risk began to influence real economic decisions. Infrastructure projects slipped as extreme weather events became more frequent. Urban flooding disrupted transport and municipal services across multiple tier-one and tier-two cities. Insurance coverage tightened sharply in high-risk zones, with higher premiums and exclusions for commercial assets. Food price volatility became increasingly sensitive to erratic rainfall, complicating inflation management. Climate risk is now shaping credit assessments, project timelines, asset valuation, and public expenditure planning across India.
At the same time, India’s position as a climate solutions economy strengthened materially. By mid-2025, the country crossed 190 gigawatts of installed renewable energy capacity, with annual additions among the highest globally. Domestic manufacturing of solar modules, batteries, electrolysers, and power electronics scaled rapidly under production-linked incentive schemes. Green hydrogen moved beyond announcements into pilot-scale deployment in refining, fertilisers, and steel. Sustainability, importantly, is no longer discussed in isolation. It is increasingly framed around energy security, import substitution, and industrial competitiveness.
Yet the execution gap remains the defining constraint. India requires approximately USD 300 billion annually in climate-related investment through 2030 to remain on a credible transition pathway. Actual flows remain well below this threshold. Global capital is available, but India’s ability to absorb it efficiently is limited by short-term debt, currency risk, insufficient credit enhancement, and uneven project readiness, particularly at the state and municipal level. This gap is most acute in adaptation. Despite being among the world’s most climate-vulnerable economies, less than one-quarter of India’s climate finance currently supports adaptation.
Urban resilience exposes this imbalance clearly. India’s cities face intensifying heat stress, flooding, and water scarcity, yet investments in cooling infrastructure, drainage systems, and water reuse remain largely dependent on constrained public budgets. Technologies such as district cooling, climate-resilient housing, flood control systems, and wastewater recycling are globally proven and commercially viable. In India, they remain under-deployed due to the absence of standardised procurement models, predictable revenue mechanisms, and bankable project structures. Without these, private capital remains cautious, leaving states and cities fiscally exposed.
The global climate process has also shifted decisively toward delivery. COP30 reinforced a clear message: ambition without execution is no longer sufficient. Adaptation finance, industrial transition pathways, and delivery frameworks dominated negotiations. For India, the implication is unambiguous. International credibility will increasingly depend on measurable outcomes, not long-dated targets. As global scrutiny intensifies, large emerging economies will be evaluated on how effectively policy intent translates into industrial transformation and financial deployment.
This makes 2026 a decisive inflexion point. The policy groundwork laid in 2025 must now convert into tangible outcomes. India’s draft green taxonomy has introduced long-awaited clarity on what qualifies as sustainable economic activity, enabling more disciplined capital allocation. The Reserve Bank of India’s Regulatory Climate Oversight framework, notified in September 2025, has begun embedding climate risk into financial governance, disclosure, and risk management. In parallel, national roadmaps on carbon capture, utilisation and storage, and climate-focused R&D reflect a shift from intent to industrial planning in hard-to-abate sectors.
Within this transition, the Department of Science and Technology’s R&D roadmap on carbon capture, utilisation and storage assumes critical strategic significance for India’s net zero pathway. Unlike purely aspirational decarbonisation targets, the DST CCUS roadmap explicitly recognises that sectors such as cement, steel, refining, fertilisers, and chemicals will continue to underpin India’s economic growth and cannot be decarbonised through renewables and electrification alone. By anchoring CCUS within a domestic research, demonstration, and deployment framework, the roadmap creates a bridge between scientific capability and industrial application. It enables indigenous technology development, reduces long-term reliance on imported solutions, and supports pilot-to-commercial scale pathways tailored to Indian geology, industrial clusters, and cost structures. If executed with urgency, CCUS can protect export competitiveness under emerging carbon regimes, create new value chains around carbon utilisation, and position India as a solutions provider rather than a compliance follower in the global climate ecosystem.
Carbon markets will also move from theory to consequence. With the European Union’s Carbon Border Adjustment Mechanism entering its execution phase in 2026, Indian exporters in steel, cement, aluminium, and chemicals will face direct carbon cost exposure. India’s green steel policy announcements in 2025 are therefore strategically critical. They offer early movers a pathway to protect export competitiveness while reducing emissions intensity. Delay, by contrast, will translate directly into margin erosion.
One dimension of India’s energy transition now requires far more candid discussion: nuclear power. If India is serious about deep decarbonisation while sustaining high growth, nuclear energy must re-enter the policy conversation as a scale solution rather than a marginal option. Baseload clean power cannot be met through renewables alone. Rationalising India’s nuclear liability framework, accelerating approvals for advanced reactor technologies, and enabling public-private participation in nuclear capacity expansion could materially strengthen energy security, grid stability, and decarbonisation simultaneously. The cost of inaction here is rising system-level inefficiency.
Equally under-leveraged is energy efficiency, arguably the fastest and least-cost climate lever available to India today. Efficiency improvements across industrial processes, buildings, appliances, and transport deliver immediate returns through reduced energy demand, lower operating costs, and improved productivity. For the industry, efficiency is not a compliance obligation. It is a competitiveness strategy. In 2026, energy efficiency will play a central role in managing exposure to volatile energy prices, tightening carbon norms, and reporting obligations linked to global trade mechanisms such as CBAM. India’s efficiency potential remains vast, but unlocking it requires stronger standards, performance-linked incentives, and accessible financing mechanisms.
Adaptation must finally move to the centre of India’s climate strategy. Heat-resilient building codes, reflective roofing, district cooling, advanced weather forecasting, climate-resilient seeds, water-efficient industrial processes, and decentralised energy systems are already available. These are not experimental technologies. What is missing is coordinated deployment at scale. That will require regulatory clarity, bankable project design, and blended finance structures that use public capital to de-risk early investments rather than substitute for private participation.
Industry must lead this transition in operational terms. Boards and management teams must treat climate exposure as a core business risk, not a sustainability sidebar. Companies that invest early in efficiency, electrification, clean power procurement, and data-driven climate risk management will be better positioned to protect margins and market access. Those that delay will face rising compliance costs and strategic disadvantage.
Financial institutions are equally central. Climate risk must be embedded into lending, underwriting, and portfolio strategy as a matter of asset quality and long-term return protection. Banks and insurers that build climate analytics, support credible transition finance, and price risk accurately will strengthen resilience as volatility increases. This is not about ethics. It is about financial prudence.
For policymakers, 2026 should be about enabling execution at scale. Standardised climate data frameworks, stronger municipal finance mechanisms, scalable blended-finance platforms, nuclear policy reform, and tighter alignment between industrial policy and decarbonisation pathways are now essential. Public capital must be deployed strategically to crowd in private investment, not replace it.
India enters 2026 with significant structural advantages: scale, technical capability, entrepreneurial depth, and a development trajectory still being built. Climate change can either slow that trajectory or strengthen it. The outcome will depend on how decisively intent is converted into implementation.
2026 must be the year India demonstrates that climate action, grounded in science and executed through industry, finance, and policy, is not a constraint on growth, but a strategic opportunity to reshape it.
This article first appeared in the BW Businessworld on 2 January 2026.
