Financing climate-resilient cities for sustainable India

Climate change is accelerating, leading to extreme weather events. India recorded extreme weather events between January and September on approximately 90 per cent of days, as per a Centre for Science and Environment analysis from 2022.

Extreme weather events result in loss of lives, vector-borne diseases, damage to infrastructure, and other economic losses. The Global Climate Risk Index 2021 listed India as one of the most risk-prone countries to climate change.

Flooding and extreme heat are the most potent disaster risks for urban India because of its tropical climate. Erratic but extreme rainfalls, combined with rising sea levels cause flash floods and stagnation of water. Besides, higher average temperatures in summer due to global warming lead to heat waves, i.e. temperatures breaching 45-50 °C mark, over sustained periods. Nearly 76 per cent of the Indian population is exposed to climate disaster risks, of which 30 per cent of the victims live in small towns.

India's cities are not ready to withstand either of the risks. The design capacity of stormwater systems is inadequate to match more intense floods. Impervious and heat-absorbing concrete and asphalt have replaced natural drainage systems of wetlands. Buildings and public spaces have minimal heat resistance and offer little respite from extreme heat. Green cover, tree canopies and water bodies that can reduce ambient temperatures have been depleted.

Nature-based solutions offer hope. Increasing urban forests, tree cover and controlling cutting down of trees are known to be effective. Evapotranspiration alone or in combination with shading can reduce temperatures by 1-5°C. Focus needs to be on mitigating flash floods, which require the revival of natural water bodies and channels, that in turn will also recharge groundwater and mitigate heat waves. Reviving water bodies needs to be further complemented with a science-based strategy to control vector-borne diseases. For this, cities need to prioritise investments in climate resilience and adaptation to reduce the loss of lives, property, and economic potential.

Low-carbon mitigation and adaptation measures exist to build urban climate resilience but require massive, low-cost financing. In the Report on Currency and Finance 2023, the Reserve Bank of India has projected that climate adaptation will cost India 85.6 lakh crore/$1 trillion, by 2030. The magnitude of damage, if we do not adapt, is much larger; India may lose more than Rs 4 lakh crore/ $50 billion annually.

The bulk of this financing will be required in urban areas. Raising climate finance is a formidable but unavoidable challenge for cities as they primarily depend on Central and state government assistance for delivering essential urban services. Enhancing public finance management systems is therefore advantageous from a broader macroeconomic viewpoint. Private investors hesitate because of low and uncertain returns in climate resilience. Municipal fiscal deficits and lack of governance autonomy complicate access to public and international development funds.

Cities can also raise green and blue bonds, and to attract investors, innovative structures such as zero-coupon or inflation-linked instruments can be attempted. Here are six strategies for municipalities to generate revenue and attract investment.

• Understand, evaluate, and communicate adaptation benefits. ULBs (urban local bodies) must determine the monetary value of mitigation and adaption in terms of benefits to health, livelihood, economic productivity, biodiversity, etc. within their jurisdiction. Land value enhancement resulting from increased climate resiliency should also be estimated. Quantifying the benefits will help in developing business cases for potential investors.

• Maximize utilisation of ULB assets. Cities must monetise ULB-provided public infrastructure—climate-resilient or otherwise—as it raises the value of private assets. This can be achieved through value capture methods such as betterment levy, land value tax, development charges, additional FSI and others recommended by the ministry of housing and urban affairs to maximize revenue.

• Urban governance and institutional practices must be efficient. Governance needs to be strengthened and stabilised to boost investor confidence. Limited mandates of city corporations reduce their efficacy. Fast turnover in tenures of municipal commissioners, which typically last a year, curtail their capacity for stable governance; municipal financial accounting is irregular and often ignores standard accounting practices. All of these need to be corrected to boost credit ratings and gain market confidence.

• Minimise under-recovery of revenues. Municipal revenues can be enhanced substantially, without raising the tax rate, by improving property tax billing and collection efficiency.

• Upskill ULBs for planning and climate action. Gaps in ULB expertise in urban and town planning are staggering and must be avoided. Nearly half of the sanctioned posts for town planners are vacant as per a NITI Aayog report on urban planning capacity reforms in 2021. Cities must also appoint resilience officers and reinforce with subject experts to plan and execute roadmaps for climate sustainability.

• Use data-driven planning and performance monitoring methods. Cities must start capturing data about city infrastructure, vulnerabilities, and risk hotspots. Planning aided by reliable data will be more vigorous. Investors will also be assured if risk adaptation measures are tracked robustly and accurate results are reported about progress.

India’s net zero ambition is admirable. We have done well up until now by ramping up clean energy through private investments. Complementing it with climate resilience and financing for adaptation will make our cities sustainable and provide momentum for the next round of growth.

Hitesh Vaidya is the director of National Institute of Urban Affairs, and Gaurav Bhatiani is the director of Energy and Environment, Research Triangle Institute India. Views expressed in this article are personal.