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Inherent risks in sustainable finance drive up lending costs: RBI's Rao
He noted that this prompts private sector investors and lenders to seek appropriate de-risking mechanisms — such as grants, guarantees, philanthropic capital, and financial incentives. However, mobilising such capital at scale remains a significant challenge. Rao also highlighted issues around the availability of bankable projects. While fully bankable projects typically secure funding, partially bankable or non-bankable projects continue to face financing hurdles.
'The inherent risks in green and sustainable finance skew the risk-reward considerations, leading to an increased cost of credit. This leads to demand by private sector investors/lenders for appropriate de-risking mechanisms through grants/guarantees/philanthropic capital/financial incentives, etc. Mobilising such capital on scale would be a challenge,' he said. 'Also, there is a difficulty regarding the availability of bankable projects. Though bankable projects invariably find credit, there are funding challenges with partially bankable and non-bankable projects,' he added.
Rao highlighted that when discussing green and sustainable finance, the first and foremost consideration is defining what qualifies as such. A national-level taxonomy is essential — it forms the foundational framework that brings alignment across the entire ecosystem, including the government, regulators, policymakers, financial institutions, and borrowers or investors. In India, this taxonomy is currently under development.
'When we talk of green and sustainable finance, the primary consideration is understanding as to what defines it. A national-level taxonomy is crucial as it serves as the first building block that aligns the entire ecosystem, be it the government, regulators, other policymakers, financial institutions, and borrowers/investors. This is under development in India,' he said.
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Joydeep has over 25 years of experience in the financial services industry in roles spanning research and advisory. Currently he is on his own, working as a corporate trainer. He has authored four books on fixed income investing and wealth management, which have received accolades from the fraternity. Joydeep writes columns regularly in various financial publications. He is a thought leader in fixed income investing. He runs his own portal Worried about inflation eating into your savings? While official CPI data suggests a moderate 1.55% in July 2025, it's crucial to understand its limitations. The 'base effect' and a generic consumption basket may not accurately reflect your personal inflation rate. This is why you should reach out to a financial planner to help incorporate inflation-related nuances in your financial planning. Tired of too many ads? Remove Ads How is inflation calculated? Tired of too many ads? Remove Ads How should you measure? Professional guidance (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of .) You have heard that inflation reduces the purchasing power of money, which implies you require more money to buy the same amount of goods or services in the future. This is an age-old truth and will remain true in the future as well. Today, we will provide you with some food for thought on how to view gauge inflation, we examine the data reported by the government. The most widely used gauge is consumer price inflation (CPI). Another metric is wholesale price inflation (WPI). We will discuss CPI, as the Reserve Bank of India uses it for policy formulation. The latest declared data is for July 2025, which is 1.55%. With the inflation rate having eased to only 1.55%, does it mean you would inflate your expenses by a more benign number than you thought of earlier? Not examine how inflation is measured and assess the relevance of the data. The rate of price increase is calculated for a defined basket of goods and services. The starting point of the series, which dates back many years to 2012, is set at 100. Over the years, as prices went on increasing, the value of the index increased as well. Currently, the index value is 196.0 in July 2025. Inflation is measured year-on-year: i.e. for July 2025, the index is compared with that of July 2024, which was 193.0, and the outcome is 1.55%. The percentage rise in the index over the course of one year is what is announced, and we react to is a flaw in this method, followed not just in India but all over the world. In this year-on-year computation, the price level of the previous year has a significant impact on the inflation data. Intuitively, when we think of inflation, we think of an increase in current prices. That is, of course, relevant, but the price level of the previous year is as applicable in determining the outcome, e.g., 1.55% in July 2025. This is known as the base effect, where the base (denominator in the equation) influences the data. If inflation was higher in the previous year, and consequently the inflation index was higher, inflation this year is that much lower. And vice other issue is the composition of the basket. Almost half the CPI measurement basket comprises food or food-related items. This would be true for some people who are just above the subsistence level. People who are in a position to save and invest a chunk of their earnings would not need to spend as much on food. The broad issue is that there is only one basket for measurement nationwide. However, the consumption basket of all the 144 crore people of the country is different. It is not possible to have multiple baskets across the country; there are none anywhere in the world. Hence, the available inflation data is the nearest proxy for gauging and incorporating into your financial you look at your consumption basket and measure inflation accordingly. However, it is practically difficult, near-impossible, for individuals to do it consistently. One approach could be to consider the goal you are saving and investing the goal is a child's education abroad, that inflation would be different from the inflation of vegetables in India, a significant variable in the CPI basket. When considering a purchase, such as a house or a car, you can evaluate it accordingly. If you can gather working data on the item you are looking at, you are better off than looking at the generic CPI data of a government-decided with the available data, it is possible to avoid the base-effect flaw by looking at a longer period. As an example, the CPI index was 194.2 in June 2025; the data is available on the website Five years ago, in June 2020, it was 151.8 and ten years ago, it was 123.6. The compound annualised growth rate (CAGR) inflation over five years is 5.05% and over ten years is 4.6%.When formulating your financial plan, it is advisable to seek professional input. If you are doing it yourself, even if you are savvy, you may miss out on specific nuances. An experienced financial planner can guide you adroitly. You must ask your financial adviser the right questions, not only about the expected returns on your the current context, inflation can be managed in tandem with your planner. You can form a rough estimate of your consumption, e.g., X% on food, Y% on education, or Z% on discretionary consumption. Accordingly, you can discuss with your planner the basis for the assumed rate of inflation for your expenses five or ten years from is not under your control. You need not fret over it or plan your consumption basket around it. You are earning, saving, and investing for a reason. Your finances should not go haywire due to deficient planning. Inflation is a cog in this wheel; put the best estimate in your Excel spreadsheet.
