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Coming soon to India: (Taxable) Green bonds. Modi govt’s climate financing plan ‘nearly ready’

Upcoming framework, with separate stream of investors focussed on climate financing, is expected to help India fund green energy & infrastructure projects and meet COP26 commitments.

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New Delhi: The Narendra Modi government is close to finalising a framework that will allow India to finance its green energy and infrastructure projects, with a separate stream of investors focussed on climate financing, ThePrint has learnt.

According to the government’s plan, the framework will detail projects or sectors which would qualify for funding, raised as part of the annual borrowing programme.

The borrowing will be done through a carve-out called green bonds, which will be rupee-denominated papers that will have a long tenure to suit the requirements of green infrastructure projects.

However, unlike in many other countries where green bonds are already being issued, India doesn’t intend to offer any tax exemptions on earnings from green bonds.

“We are close to defining what are green projects and giving a list of projects that will require financing to help us meet our commitments made in the COP26,” a senior government official told ThePrint.

The official added that one to two tranches — amounting to roughly Rs 36,000 crore — of the government’s annual borrowing plan would be dedicated to green financing, to be raised from the bond markets. The raising of funds for green financing is likely to start in the second half of the current fiscal.

Last year, Prime Minister Narendra Modi had listed five commitments which laid down India’s contribution to climate action at the COP26 Summit in Glasgow. Modi had said that India’s non-fossil energy capacity would reach 500 GW by 2030 and that the country would meet 50 per cent of its energy requirements from renewable energy by that year.

He had also said that India would reduce its total projected carbon emissions by one billion tonnes by 2030, and achieve the target of net zero carbon emissions by 2070.

The framework for financing green projects adopts guidelines for green bonds laid out by the self-regulatory trade body, the International Capital Market Association. The government will soon issue the framework in consultation with the Reserve Bank of India (RBI), said the official.

The idea for financing infrastructure projects through green bonds was first floated in Budget 2022-23 by finance minister Nirmala Sitharaman, who announced the government’s intention to issue green bonds for the first time as part of its overall market borrowing.

According to a government announcement in March, it is scheduled to borrow Rs 14.31 lakh crore from the market in the current financial year. Of this, it will borrow Rs 8.45 lakh crore in the April-September period and the rest in the second half of the year ending in March 2023. 


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Green bonds will not have tax exemption

Green bonds are fixed-income investments that are just like any regular bond, but the money raised from investors is used exclusively to finance projects that have a positive impact on climate and the environment, such as renewable energy and green buildings.

Usually, countries that issue green bonds ensure that income from investment in these bonds is tax-exempt. This offers the benefit of a lower cost of borrowing. India, however, won’t offer any such benefits, according to the official quoted above.

India feels that from a global perspective, it should be incentivised to move to green energy as much as possible — and therefore, foreign investors should invest in India’s green bonds irrespective of any tax exemptions, said the official.

The government is, meanwhile, talking to potential investors in these bonds to gauge the appetite and demand for such an offering, the official added.

Climate financing through the issuance of green bonds across the globe has reached $271.6 billion in 2022, according to Climate Bonds Initiative, an international organisation working to mobilise global capital for climate action.

Some of the major entities issuing such bonds include the European Union, the Bank of China, the German and French governments, the Dutch State Treasury Agency, and the China Development Bank, among others.

(Edited by Poulomi Banerjee)


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