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India’s debt-to-GDP ratio could inch closer to 100% by 2030 if the government attempts to fill the 3.4% of GDP annual gap in climate mitigation and adaptation, according to a recent report by Moody’s Ratings. The agency highlights the financial challenges posed by climate change investments, especially for emerging markets (EMs), noting that India may face a steeper financial burden than most comparable economies—excluding South Africa and Brazil. Moody’s projects India’s debt-to-GDP ratio will reach 78% by 2030 under a baseline scenario. However, this figure could skyrocket to nearly 100% if the government fully funds the climate adaptation and mitigation gap alone. In comparison, South Africa and Brazil are also expected to experience significant debt increases, given their already high debt burdens.
The report emphasizes that South Africa, Brazil, and India would see the largest jumps in debt ratios among emerging markets due to limited fiscal buffers and high levels of existing debt. If India chooses to shoulder the climate burden independently, its debt profile could worsen significantly. Moody’s also outlines how climate-related spending could affect other major economies. In the United States, the debt-to-GDP ratio is projected to increase by 11 percentage points, reaching 137% from the current 126% by 2030. For African nations, the jump would be even more severe—around 40 percentage points—while Brazil and Mexico would see rises of 21 and 18 percentage points, respectively. The report warns that while climate investments will escalate government spending and debt levels, the cost of inaction is far greater. According to Moody’s, emerging markets in Asia, including India, stand to gain significantly from early and coordinated investments in clean energy. This shift could lead to substantial income growth, reducing long-term economic risks.
India’s financial burden could be alleviated if the government can involve the private sector in climate mitigation and adaptation. In such a scenario, Moody’s projects the debt-to-GDP ratio would only increase by eight percentage points, reaching 86% by 2030. This outcome would be significantly less than the nearly 100% projection if the government assumes the full financial responsibility. By contrast, South Africa, Brazil, and Mexico would still witness larger jumps in debt ratios even with private-sector participation.
The report also highlights that the International Monetary Fund (IMF) and World Bank advocate for carbon pricing as the most effective mitigation strategy. Carbon pricing can drive behavioral shifts toward reduced energy use and a transition to low-carbon fuels. Such measures could help offset some of the financial burden on governments, including India. India faces a hefty climate bill, with Moody’s estimating the cost of climate mitigation to be around $186 billion annually until 2030. Climate adaptation would require less than half of that amount each year. If private sector investment plays a significant role, the government’s annual expenditure on climate mitigation could drop to just 1.3% of GDP.
While India faces tough choices in meeting its climate goals, the country’s debt-to-GDP ratio could rise substantially if the government bears the full cost of climate adaptation and mitigation. However, through strategic partnerships with the private sector and efficient policy tools like carbon pricing, India could reduce the financial strain while securing long-term economic and environmental benefits. Investing in climate action is a necessity, and balancing fiscal responsibility with these commitments will be crucial for India and other emerging markets navigating this complex landscape.