Abstract

This paper presents an overview of climate finance, with special focus on flows of finance for adaptation. A desk analysis of available studies and estimates on finance needs and flows from developed to developing countries, and the current scenario in terms of flows from various international and domestic sources is conducted. The findings clearly establish the lack of uniformity and incomparability across methods used to estimate finance needs and the insufficiency of current financial flows for enabling the required transition to a climate resilient economy for India. Prioritization of resource allocations that integrate adaptation with developmental outcomes can lead to a transition that is compatible with sustainable development. Subsequently, an empirical comparative analysis of adaptation expenditures and needs linked to the consequences of climatic events across states, yields some interesting insights on the relationships between these variables. Choosing health as an indicator of development, the empirical analysis establishes a positive relationship between disaster preparedness and achievement of good health outcomes, and between adaptation expenditures and reduction in mortality. However, across states planned budgetary allocations do not match with adaptation investment needs. The paper presents preliminary evidence on how developmental gaps correlate with fund flows and needs for adaptation. Methodological differences and lack of coordination across sectors, large gaps between needs and available fund flows in the aggregate, low budgetary flows to critical sectors such as health, and lack of flows from the private sector for adaptation are some of the most important challenges. The use of standardized frameworks to accurately assess cost-effectiveness and returns on adaptation investments can encourage private finance and remove uncertainties in the investment climate. The assessment reinforces the need for mobilization and alignment of adaptation finance flows with developmental needs across states and sectors. Prioritization of cross-sector actions to align sectoral budgetary allocations between key developmental and climate outcomes could be beneficial in pursuing transformation.