Revisiting the Linkage between Environmental Policy Stringency and Climate Sustainability of India: Do Natural Resource Rent, Green Innovation, and Financial Development Matter?

ABSTRACT

The growing imperative to enact stringent environmental policy in India has become central to policy discourse, as the country struggles to navigate the policy trilemma of balancing the over‐exploitation of natural resources, policy rigidity that hinders environmentally friendly technological spillover, and the need to facilitate climate resilience development. Amid this trilemma, the role of environmental policy stringency (EPS) in shaping India's climate trajectory remains underexplored, particularly in relation to natural resource rents, fintech, and green innovation. Building on this gap, we hypothesize that EPS, natural resource rent, and financial development each exert a dampening effect on temperature. In contrast, economic growth exerts an intensifying effect consistent with an Environmental Kuznets Curve. Using annual data for India from 1990–2020, we test these relationships with the Fourier autoregressive distributed lag (Fourier ARDL) framework to identify the long‐run determinants of temperature and use the kernel regularised least squares (KRLS) method to validate the results. The results confirm long‐run cointegration and show that EPS, natural resource rent, and fintech significantly reduce temperature, while GDP raises it, consistent with an EKC pattern; green innovation's effect is statistically insignificant. The findings indicate that advances in fintech‐enabled green finance, natural resource rent, and strengthening environmental regulations reduce temperatures and are likely to provide policy roadmaps for government and regulatory bodies.

JEL Classification: Q54, O44, C22