India's Climate Finance Taxonomy: Balancing Development and Discipline for a Green Transition

• India's Ministry of Finance released a draft climate finance taxonomy in May 2025, aiming to integrate climate finance into the nation's financial architecture.
• The taxonomy must prioritize development, considering India's diversity and uneven development, and perform effectively across various climate realities from Assam to Kerala.
• Future climate-linked regulation should be predictable, proportional, and adaptable to ensure long-term capital formation and avoid systemic friction.
• Key design gaps include unclear application of "Do No Significant Harm" (DNSH) principles, the need for time-bound thresholds for transition activities, and a uniform classification logic that may misprice risk.
• The taxonomy needs to be more nuanced, federal, and operational, with a stronger focus on adaptation finance, to achieve India's Viksit@2047 goals.

Why It Matters: India's climate finance taxonomy must balance development with robust, adaptable design to effectively fund its green transition.