As India heads to polls this year, the incumbent government presented the Interim Union Budget on 1 February. This Budget will guide the Indian economy and government funding till a new government is formed. Though interim, it can still help us understand India’s climate priorities and what is to come next. In all, this Budget has built on the government’s previous announcements towards transitioning to a net-zero economy by 2070. Below is an overview.
“India has had three consecutive years of 7% GDP growth and is the fastest growing economy in the G20. This growth is bound to continue by design, however, we need to deploy all levers to make sure the energy intensity of the GDP growth is contained and green transition becomes central to the objectives of the budget, this year and the years to come. India’s Interim Budget has several elements that would support net zero transition. We look forward to a holistic budget that brings forth equitable and just energy transition towards our net zero future.”
-Divya Sharma, India Executive Director, Climate Group
Provisions for transition to Green Energy
Over ₹11,500 crore has been allocated for Solar Power (Grid), the ³Ô¹ÏÍøÕ¾ Green Hydrogen Mission and Wind Power (Grid) projects for the financial year ending March 2025.
“Empowering citizens to embrace rooftop solar will add to the government’s ambition of 40 GW rooftop capacity and is in line with India’s 2070 Net Zero targets.
The push for large scale rooftop solar deployment in 1 crore households would gradually reduce energy bills, drive energy security, boost domestic manufacturing and help attain Atmanirbhar Bharat. It would also help India achieve its renewable energy deployment goals as part of ³Ô¹ÏÍøÕ¾ly Determined Contributions-2030.”
-Kinsuk Shuckla, Senior Manager, Energy & Industry
A corpus of ₹1 lakh crore will also be established with 50-year interest free loans for long-term financing to encourage the private sector’s scale-up of research and innovation in sunrise domains comprising renewable energy industries.
“The thrust on offshore wind projects with Viability Gap Funding (VGF) is a welcome policy move – one that has been contemplated for a while now.
Offshore wind does not have complex land acquisition and delivers higher capacity utilisation. It is also in sync with solar Photovoltaic (PV) generation. More so, it allows Commercial & Industrial (C&I) consumers to meet their renewable energy requirements and targets.
This will accelerate India’s journey to 500 GW renewable electricity by 2030.”
-Saswat Panda, Program Manager, Energy
The government has announced the setting up of coal gasification and liquefaction projects capable of processing 100 metric tonnes by 2030. This move could reduce energy import bills by offering an alternative to natural gas in fertiliser production.
“More than 50 lakh jobs are directly or indirectly linked to the coal mining sector in India. This Budget has announced coal gasification and liquefaction projects. Such innovative measures could lead to gradual Just Transition while phasing-down carbon emissions from coal.”
-Altaf Azam, Program Coordinator, South Asia Government Relations
Phased mandatory blending of compressed biogas (CBG) in compressed natural gas (CNG) for transport and piped natural gas (PNG) for domestic purposes has been mandated. Financial assistance will be provided for the procurement of biomass aggregation, which is essential to produce bioenergy. This step is likely to encourage Indian farmers to participate in the bioenergy supply chain. It can create a sustainable and profitable model for agricultural waste while addressing the issue of toxic smog that clouds northern parts of India due to indiscriminate burning of crop residue.
Decarbonisation of the transport sector
The transport sector accounts for about 12% of India’s greenhouse gas emissions. Announcements have been made to strengthen the EV ecosystem by supporting manufacturing and EV charging infrastructure.
“The government has taken a comprehensive ecosystem view, which will be a major boost to Electric Vehicles (EVs). The Budget will encourage new-age startups with new finance, more women-led enterprises supported through the Mudra Yojana, and promote solar-powered decentralised charging for EVs.
More budget for FAME removes the uncertainty around the sector.
The PM GATI Shakti scheme for infrastructure is expected to lead to the greening of last-mile delivery and logistics.”
-Kumar Nitant, Program Manager, Transport
Another mention towards promoting electric mobility was the promotion of e-buses for public transport networks through payment security mechanisms. This important because most state public transportation utilities run at a loss and cannot afford significant capital allocation towards procurement of e-buses which are twice the cost of internal combustion engine (ICE) buses.
“FAME went a long way in transforming the adoption of EVs in the passenger segment, including buses, but it did not incentivise medium and heavy-duty EV trucks.
Trucks comprise a very small portion of on-road registered vehicles but contribute a significant share to emissions and air pollution. Incentives for electric trucks can spur demand and bring down the high cost of EV adoption. The question is when will allocations such as the new additional allocation of ₹2,671 crore under FAME be made for trucking?”
-Ashish Saraswat, Program Manager, Transport
The allocation to the ³Ô¹ÏÍøÕ¾ Green Hydrogen Mission has been increased from ₹297 crore to ₹600 crore. The increase in coal gasification and liquefaction capacity is also expected to provide a boost to the Direct Reduced Iron (DRI) method of steel production.
“Green hydrogen is one of the most promising technological interventions for decarbonising India’s steel sector. The doubling of allocation to the ³Ô¹ÏÍøÕ¾ Green Hydrogen Mission shows the importance that the government rightly places on deploying green hydrogen on a large scale.
Given the capital-intensive nature of steel production, the scheme to fund pilot projects under this Mission is particularly welcome.
While this is an important step in addressing the supply side of the issue, a similar plan to simultaneously boost demand for low emissions steel will ensure a ready market when such steel becomes commercially available.”
-Abhas Sinha, Program Manager, SteelZero
Mitigation, Adaptation and Resilience
The Interim Budget was oriented towards mitigation measures. Financial allocations for adaptation and resilience found inadequate mention even as India had proposed adaptation and equity as cornerstones in the fight against climate change at COP28.
A significant announcement was that of the Blue Economy 2.0. The government scheme is meant for restoration and adaptation measures, to promote climate resilient and sustainable development activities in coastal areas.
The dilemma of climate finance
“The role of the Ministry of Environment, Forest and Climate Change (MoEFCC) is pivotal to strengthen the implementation of State Action Plans on Climate Change (SAPCCs) and local adaptation efforts.
The ministry’s overall allocation has seen a mere 34% increase from last year’s budget. SAPCCs and the ³Ô¹ÏÍøÕ¾ Adaptation Fund received no allocation. This leaves room to raise ambition in the budget which will be presented post India’s General Elections.”
-Rana Pujari, Senior Manager, South Asia Government Relations
The Reserve Bank of India’s Report on Currency and Finance estimates that the cost of adapting to climate change in India will reach a cumulative ₹85.6 lakh crore ($1.065 trillion) by 2030. Substantial climate finance shortfall requires allocating 2.5 per cent of India’s annual GDP to green finance.
The transition to renewable energy is inevitable given the catastrophic repercussions of climate change, however, the inherent risks and uncertainties surrounding green technologies pose limitations for traditional financial institutions. These highlight the need for innovative and tailored approaches to effectively channel funds into Green Finance. The implementation of a ³Ô¹ÏÍøÕ¾ Carbon Market framework and adoption of blended finance instruments, which combine public and private capital while safeguarding against financial risks, are key to attracting private finance.
Although the Interim Budget presents broad outlines in the right direction, significant budgetary allocations and policy measures are required to catalyse green investments.
Seven of the world’s most populous nations head to polls this year. The Interim budget announcement in India, while brief, presents broad outlines towards the objective of realising the vision of a ‘Viksit Bharat’ by 2047 – “a prosperous nation in harmony with nature, with modern infrastructure, and abundant opportunities for all citizens and regions to reach their potential”. We hope the full-budget in July will present a detailed roadmap on India’s transition to a low-carbon, climate resilient economy.
