Centre’s commitment in the Budget reflects a smart approach to integrate climate finance into energy transition

 

Through the Union Budget 2024, the Government of India has demonstrated increased political and public finance commitment towards climate change. It was encouraging to see energy security as one of the nine Budget priorities, along with the 60% increase in allocation towards the Ministry of New & Renewable Energy from ₹12,850 crore in the interim Budget to ₹19,100 crore. It is well recognised that most of the climate action will be private sector funded. The targeted measures announced in the Budget that span across the entire clean energy value chain will spur investor confidence and create substantial opportunities for the movement of both domestic and international finance to India, moving us to a low-carbon economy. Notably, four major initiatives stood out. 

 

First, the continuation of the Pradhan Mantri Surya Ghar Muft Bijli Yojana. It is a visionary initiative that will empower millions of households in residential solar adoption. The overwhelming response of 1.28 crore registrations underscores the immense potential of solar energy in India. This surge in demand will facilitate further investments into the solar sector, fostering innovation, and job creation. 

 

Second, the imposition of duties on goods like solar glass and removal of duties on equipment for manufacturing of solar cells and panels will help to boost domestic manufacturing across the full supply chain for solar. Many Indian companies, including ReNew, have ventured into solar manufacturing sector to fulfill the government’s ‘Make in India’ vision and to make India the future manufacturing hub for solar energy components. The policy measures announced will reduce production costs for manufacturing in India, make it more competitive globally and thereby attract private capital. Third, the announcement by the Finance Minister on Critical Mineral Mission. This will be a key component in ensuring energy security. As we pivot towards renewable technologies, the exemption of basic Customs duty on 25 essential minerals used in renewable energy technologies such as copper, silicon, and vanadium, will secure our domestic supply chain and make it globally competitive. We need significant capital and technological expertise to develop a processing and refining industry for critical minerals and the duty exemptions will go a long way towards that. 

 

Finally, the development of climate finance taxonomy is a crucial step in channelling investments towards climate-friendly projects. Raising capital for climate adaptation and mitigation signals the serious commitment of this government in achieving its renewable energy targets. It also aligns with the G20’s recommendation in their Sustainable Finance Report about the expansion of domestic capital flows for adaptation and mitigation projects. 

 

By establishing clear definitions and standards for climate finance, this initiative will provide transparency and assurance to investors, facilitating the flow of funds into sustainable projects and supporting India’s climate commitments. Moreover, it will also accelerate the emerging green bonds market in India, which has faced challenges in lowering its cost of issuance.