The role of renewable energy in the upcoming Union Budget 2023 is highly anticipated for the future of India – a country with long-term targets involving economic progress as well as sustainable growth. According to Santosh Janakiram, partner, Cyril Amarchand Mangaldas and head, Projects & Financial Institutions Group, India requires about USD 500 billion to fund its 500 gigawatts (GW) of sustainable energy target by 2030. “These funds will be put towards the generation, transmission, and storage of renewable energy,” Janakiram said, adding, “A major source of this capital can be domestic as well as international debt financing – a successful example of which is Adani Green, which acquired one billion dollars entirely through international debt financing. A similar strategy may be adopted in the Budget 2023.”
Current RBI policies allow lending for green projects to be limited to USD 300 million, as per Ramanuj Kumar, Partner, Cyril Amarchand Mangaldas, and banks expect the limit to be increased in the Budget. However, he mentioned, this could be perceived as a directed lending policy, which has its own set of challenges. “Instead, RBI should provide banks with a 10-year view of how their lending portfolio should look like and how green lending fits into that portfolio,” he said. Both industry experts stated their confidence in the fact that green energy is high on India’s priority list for this year’s Budget allocation, keeping in mind its Net Zero Emissions Bill, increased incentives for the Green Hydrogen Mission, and other policy moves supporting green energy.
Another major point of discussion is the role of a carbon tax in the upcoming Budget. India already imposes an implicit ‘carbon tax’, said Kumar, it has simply not yet been given a name, and so, instead of introducing a separate tax, the Budget should focus on redesigning the existing green taxation model. Renewable sources such as solar, wind, and hybrid are mature sectors, according to Kumar. What the government now needs to focus on, he added, is promoting green hydrogen and green ammonia as energy carriers- which it intends to do with the Sovereign Green Bonds (SGrBs). “Once these energy sources are used to support public sector undertaking (PSU) projects, it will create demand cycles and subsequently lower the total cost due to economies of scale, as well as attract private investments,” Kumar said. This, he said, will reduce the role the government plays in the sector in the long run.
Talking about the strategy that should be adopted in the Budget, Janakiram believes that there exist three phases- the development phase, the consolidation phase, and the regulation phase. “In my opinion, the next two to three years should see the development phase where the focus would be on the delivery of debt and capital to the green industry. The second phase comprises of eliminating practices such as greenwashing as well as ensuring the existence of practices like proper reporting mechanisms. The final phase includes overall regulation of the sector,” Janakiram stated.
Despite a potential short-term compromise on economic growth, redirecting the economy towards green energy and allocating funds towards it actually has long-term economic benefits. “India is heavily dependent on fossil fuel imports. Switching to alternate energy sources makes a case for energy security, affordability, and economic growth as we rely less on large imports for energy needs,” added Kumar.