Climate Change Strategy and India's Federalism

This paper calls for a stronger and closer intergovernmental coordinated approach to fighting climate change in India. We argue that the current commonly proposed approach to fighting climate change in India based on sectoral policies (energy generation, transport sectors, etc.) is incomplete because it fails to specify what level of government will be in-charge on regulating and implementing those policies and how they will be financed. This will require understanding how the institutions of fiscal decentralization are framed and operate in India. The paper takes stock of current institutions and practices involving the four pillars of fiscal decentralization. Getting the functional assignment of responsibilities right will offer an answer to the question of who will be charged with regulating and monitoring compliance with the different sectoral policies for decarbonization and adaptation. Getting the other three pillars right will allow us to answer the question of financing. India seems to have the right framework of concurrent assignments of responsibilities, with the union government establishing minimum standards to prevent a race to the bottom among the states. The main problem appears to be that currently standards and regulations are not enforced. States currently work with insufficient revenues, raising questions about the necessary fiscal space to finance their climate change policies. There is also a need to reengineer IndiaÕs current transfer policies to incentivize the states in fighting climate change. Adapting the last pillar of decentralization, borrowing, will be critical to help finance the large investments, especially in the case of adaptation programs.