South Asian Journal of Social Studies and Economics

Climate change has evolved from an environmental concern into a central macro-fiscal challenge, yet its effect on India’s fiscal deficit remains empirically unresolved, with existing studies reporting contradictory findings regarding both direction and magnitude. This study adopts a qualitative, descriptive-exploratory methodology structured through the SPAR-4 protocol to synthesise the theoretical and empirical literature on the climate-fiscal deficit nexus and examine how climate change affects India’s expenditure, revenue, and financing channels. Grounded in Keynesian, Pigouvian, public goods, and fiscal sustainability theories, the analysis draws on descriptive statistics concerning volatility, sub-period comparisons, and fiscal marksmanship. The findings show that climate-related expenditure is more than three times as volatile (coefficient of variation: 26.4%) as total government expenditure (7.7%) and that this volatility has intensified sharply since 2006, with disaster relief spending and revenue foregone rising by 200% and 300%, respectively, far outpacing the 35.4% rise in the overall fiscal deficit. Budget credibility is also markedly weaker in climate-sensitive sectors, with a 24% deviation between budgeted and actual expenditure, compared with only 2% elsewhere. These results reconcile the contradictory conclusions of previous Indian studies by showing that climate change manifests less as a steady expansion of the fiscal deficit than as increasing unpredictability in climate-linked spending, an effect concentrated in poorer and less climate-resilient districts. The study concludes that fiscal sustainability in India is inseparable from climate resilience and recommends strengthening subnational fiscal transfers, improving budget credibility in climate-sensitive sectors, and prioritising preventive over reactive adaptation spending to safeguard long-term fiscal space.