India’s credit rating suffers from prejudice, Fed elections and bias and credit rating agencies need to relook at it, NK Singh, chairman of the 15th Finance Commission said.

“Given our track record in terms of never defaulting on a debt or never resigning from a guarantee, perhaps the US credit rating will have to take a second look,” Singh said while chairing a session on climate financing at the Confederation of Indian Industry’s Annual Business Summit 2024.

Singh said roughly $5 trillion is needed for climate financing out of which $500 million has to come from multilateral development banks, $1.5 trillion from private capital and $3 trillion from domestic resource mobilisation.

“The multilateral development banks have an important role to play in reforming the international global financial architecture. They may have begun tentatively, but they have a long way to go to improve the processes and procedures to be able to address the daunting challenge of seeking to meet financing needs of an orderly transition to be able to address the challenges of climate financing,” Singh said.

Agreeing that a lot of fiscal resources will be needed for climate financing, NITI Aayog vice chairman Suman Bery said domestic resource mobilisation will be more for mitigation while adaptation will require private finance.

“There is a large demand that’s going to be made on fiscal resources at a time when tax revenues are themselves going to be affected by decarbonisation as a large part of our revenues, at both the state and the center level, comes from fossil fuel taxes,” Bery said. “So resource mobilization is implicitly about mitigation while private finance is needed for adaptation,” he added.Talking about the carbon tax to fund climate financing, Bery said the issue of carbon taxes is controversial and the reality is neither the US or Europe have truly gone down that route.

“It’s possible because of the distributional implications that we may need to go for, you know, capping trade or something like that as an alternative to carbon taxes,” he said.

Citing the success of Jan Dhan scheme, Bery said that it should be possible to move away from subsidies to direct payments. “It will clean up the subsidy side of the government to create fiscal space for some of the new requirements,” he added.

Bery urged that the Finance Commission should incentivise states to generate non-tax revenue. “I don’t think there’s enough pressure on how the cities or states regenerate non-tax revenue,” he said

“So how do we construct an incentive structure through the Finance Commission otherwise, so that, as it were, there’s more incentive for states to mobilize resources at the local level,” he said, suggesting that the Finance Commission should take up this issue.