India’s Climate Future Hinges on How Its States Adapt

As climate pressures rise, the real test will be whether states can build the fiscal and administrative systems needed to sustain productivity

Dec 23, 2025

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Naveen Kumar: Delhi School of Economics
Dibyendu Maiti: Delhi School of Economics

SDG 13: Climate Action | SDG 8: Decent Work and Economic Growth
Ministry of Finance | Ministry of Environment, Forest and Climate Change

Climate pressures are steadily reshaping the natural systems that underpin India’s productive base. Rising temperatures limit how long workers can safely and effectively perform both physical and cognitive tasks, particularly in sectors exposed to outdoor conditions. Infrastructure faces parallel strains: roads degrade faster, machinery requires more frequent maintenance and energy systems operate under heavier loads. Warming, in effect, raises operating expenses for labour and capital and shortens the lifespan of public and private assets.

Whether these pressures stay within manageable bounds or evolve into persistent economic headwinds increasingly depends on the capacity of India’s states. Their ability to mobilise resources, curb leakages and sustain investment in resilience determines how climate stresses accumulate over time. India’s long-term growth trajectory, therefore, is closely tied to the strength and reliability of its state-level institutions.

A Climate That Is Changing Unevenly

India’s warming is progressing at markedly different speeds across states. ERA5 reanalysis data for 1980–2019 (from the World Bank Climate Change Knowledge Portal) shows that annual temperatures in Manipur and Mizoram rose by about 0.03°C per year, while Puducherry, Odisha and Delhi saw increases closer to 0.01–0.013°C. Over the past four decades, this has resulted in a warming of roughly 1.2°C in parts of the North-East, compared with 0.4–0.5°C in the Southern and Eastern pockets. These differences reshape moisture stress and crop cycles, and they accelerate the pace at which public infrastructure deteriorates.

Vulnerability also differs. Andhra Pradesh, Karnataka, Kerala and Tamil Nadu, already operating at higher baseline temperatures, face tighter constraints on labour productivity and a rising strain on power systems as heat intensifies. Himachal Pradesh, Uttarakhand and Sikkim, with cooler climates and more diversified economic structures, possess greater immediate thermal buffers. Yet climate vulnerability does not track geography neatly. Bihar, Uttar Pradesh and Jharkhand remain highly exposed because even small shifts in seasonal conditions directly influence agricultural outcomes, rural incomes and water availability.

Seasonality adds another layer. Winters have warmed faster than other seasons, particularly across the North-West and the Indo-Gangetic belt. A 1°C increase in winter temperatures is associated with a larger drag on state-level growth (about –0.023 percentage points) than comparable changes in summer or monsoon months (roughly –0.008 to –0.019). Warmer winters compress sowing windows, alter pest behaviour and increase off-season electricity demand, pushing adjustments into sectors far beyond agriculture.

Why State Capacity Shapes Climate Outcomes

State capacity is central to how climate pressures translate into long-run economic outcomes. It rests on three connected foundations: fiscal strength, administrative efficiency and institutional stability.

Fiscal strength reflects a state’s ability to mobilise revenue, manage debt and finance public goods. States with tighter balance sheets or narrower tax bases face sharper constraints as temperatures rise. Long-run estimates for 1980–2019 suggest that the growth impact of a given temperature increase is nearly twice as severe in fiscally stressed states as in those with healthier finances.

Administrative efficiency influences how well departments coordinate and how reliably public money is translated into heat-resilient infrastructure and water systems. High-leakage states experience climate pressures accumulating more quickly because each rupee of adaptation investment yields less on the ground.

Institutional stability enables continuity. States with frequent policy churn or weaker regulatory routines struggle to maintain the multi-year investments needed to slow the economic drift from persistent warming.

These differences explain why two states experiencing the same rise in temperature can diverge economically. In states with weaker capacity, the combined effects of debt, leakages and limited household buffers magnify the economic consequences of warming – a critical distinction when long-run estimates place the cost of a 1°C rise in annual temperature at nearly 4 percent of state-level growth.

A Federal Challenge in a Federal Economy

The uneven ability of states to absorb climate pressures carries clear implications for India’s federal architecture. National climate strategies and long-term development plans provide direction, but the practical work of adaptation takes shape within states, districts and municipalities. States account for over 60 percent of India’s total public spending, and nearly all recurring costs in climate-sensitive sectors such as irrigation, rural roads, local health systems and energy distribution. This makes their fiscal and administrative readiness central to the country’s overall resilience.

Federal coordination, therefore, matters not only for redistributing resources, but also for ensuring that states can sustain their investments as climatic conditions change. Such shocks also generate spillover effects across neighbouring states: weak capacity in one region can impose costs beyond its borders, often through trade, shared resources and interconnected markets. In an economy with integrated labour and commodity markets, these spillovers make coordination essential.

Strengthening tax administration, reducing inefficiencies and improving the durability of public goods give states the room to plan, borrow and invest in ways that prevent climate shocks from becoming persistent structural burdens. As warming accelerates, the credibility and predictability of fiscal federalism – how reliably revenues flow, how transfers are designed and how effectively spending reaches the ground – will shape how evenly India adapts.

A More Resilient Path to Growth

Mitigating the economic consequences of climate change requires integrating these pressures into core development planning rather than treating them as a separate environmental track. A forward-looking growth strategy will depend on whether states can build fiscal space, deepen administrative capability and sustain institutional routines that manage long-term stresses effectively.

Adaptation, viewed in this light, complements India’s development ambitions. States that reinforce their institutions early will be better positioned to protect productivity, attract investment and manage a more variable climate. The resilience of state-level systems will determine how confidently India can pursue growth in an economy where climatic volatility is becoming a structural feature, not a temporary disruption.