New Delhi – India is building a classification system to decide what counts as climate finance, aiming to direct roughly 250 billion dollars a year toward activities consistent with net zero by 2070.
The Department of Economic Affairs announced the taxonomy in the Union Budget for 2024-25 and released a draft framework in 2025, developed with the Reserve Bank of India, SEBI and the Ministry of Environment, Forest and Climate Change. Public comments closed in June 2025 and a final framework is awaited.
A taxonomy is a definition with money attached
Without one, green finance is self-declared. A bank decides what is green in its own portfolio. A fund decides what is green in its own mandate. Nothing is comparable, and nothing is falsifiable.
A taxonomy sets the boundary centrally. That is useful, and it makes the boundary itself contested, because inclusion decides which projects access cheaper capital.
Where India has to diverge from Europe
The draft is explicit about pairing net zero by 2070 with continued access to reliable and affordable energy. That dual objective is the whole design problem.
A European-style taxonomy that excludes anything short of fully clean would shut out most of the Indian economy, and finance nothing where emissions are actually concentrated. Efficiency upgrades at existing steel plants, cleaner cement, industrial process heat and grid strengthening are where large reductions are available, and none is green in a binary sense.
Transition categories address this, at the cost of creating the category most open to misuse.
What determines whether it works
Three things. Whether transition thresholds are quantified rather than descriptive. Whether reporting against the taxonomy is mandatory or voluntary for banks. And whether classification is verified by anyone other than the lender making the claim.
Taken with the RBI climate disclosure framework and BRSR Core assurance, the taxonomy is the third leg of an emerging architecture. Each supplies data the others need.
Source: Draft Framework of India Climate Finance Taxonomy, Department of Economic Affairs, Ministry of Finance.
