Read part one: Financing the Next Generation of Indian Cities — Why Innovative Urban Finance Can’t Wait

As India’s urban financing landscape evolves, some of the most promising innovation is emerging at the intersection of finance and measurable results. Outcome based financing is particularly well suited to sectors such as health, nutrition, and social services—areas where outcomes can be independently verified, efficiency gains are substantial, and public value is unquestionable. It represents a shift away from funding inputs toward paying for what actually works.

Palladium India designed and managed UTKRISHT, the world’s first Development Impact Bond in healthcare. The initiative upgraded the quality of maternal care across Rajasthan, reaching more than 450,000 mothers and children. It strengthened over 400 private facilities, trained more than 6,000 healthcare workers, and created a results driven model in which private capital was repaid based on independently verified improvements in care quality rather than on activities or expenditures. Building on this experience,

Palladium—appointed by the United Nations Development Programme—conducted the feasibility study for India’s first municipal healthcare Social Impact Bond in Pimpri Chinchwad, valued at US$14 million. The model links outcome payments to measurable improvements across 36 public healthcare facilities, with risk shared among government, service providers, and investors. This is not experimentation for its own sake. It is a disciplined way to align public spending with verified impact—and to pay for results, not promises.

Climate resilience represents another frontier where innovative finance is reshaping city planning. Climate risks—from floods and heat stress to water scarcity—are no longer abstract concerns for Indian cities; they are immediate fiscal realities. These shocks impact municipal budgets directly and disproportionately affect women, persons with disabilities, informal workers, and low income communities who have the least access to resilient infrastructure and services.

In Palladium’s urban finance work, climate considerations are integrated into fiscal planning through debt policies, participatory budgeting, and project selection processes that intentionally focus on inclusion. In PCMC, this ensured that every rupee borrowed contributed to long term environmental and social resilience rather than short term infrastructure fixes. Urban investments were prioritised not only for their climate benefits but also for their ability to improve access to safe mobility, healthcare, and essential services for vulnerable groups.

This approach aligns with Palladium’s global climate and environment portfolio, which has helped protect or restore more than 4.5 million hectares and catalysed over US$4 billion in investment. The lesson is clear: resilience must be financed deliberately, not retrofitted after damage has already occurred.

The challenge now is scale.

For India’s cities to meet the demands of the coming decades, they need strong, bankable project pipelines backed by robust preparation, standardised documentation, and credible financial models that attract institutional investors who require volume, consistency, and transparency. State level project preparation units and pooled finance mechanisms have a critical role to play in mitigating early stage risk and enabling cities to access capital markets with confidence.

Blended capital works best when it is used with a clear purpose. When public or concessional funding is applied thoughtfully, it can reduce risk, strengthen a project’s financial profile, and encourage much larger amounts of private investment than public funding could achieve on its own. Standardisation also matters. Clear and consistent green and social definitions, shared impact frameworks, and trusted independent verification can lower costs and make it easier for more investors to participate in GSS+ and outcomes linked investments.

Finally, bundling projects—pairing revenue generating assets with high impact social or climate projects that offer lower financial returns—can create balanced portfolios that spread risk while delivering both returns and impact, making them more attractive to long term institutional investors.

India’s cities will not be built on grants alone. The future of urban development lies in diversified capital stacks capable of funding large scale, climate aligned, and inclusive infrastructure. The momentum is real, and capital is increasingly available. The task ahead is to move from isolated pilots to system wide adoption—through disciplined project preparation, smart credit enhancement, and consistent standards.

If India gets this right, its cities can become not just engines of economic growth but global models of resilient, inclusive, and sustainable urban development for decades to come.