The government will bring in a framework for its maiden issuance of sovereign green bonds in two weeks, but it isn’t planning to extend tax incentives to woo investors, official sources told FE. It aims to raise Rs 16,000 crore through such bonds in the second half of FY23.
The cost of borrowing through the green bonds may be lower than the G-sec rates of comparable tenure, one of the sources said.
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The proceeds will be used by the government to spend on extant and new green projects executed by various departments. Currently, the framework developed by the finance ministry is being vetted by CICERO, the leading global independent reviewer of green bond investment architecture, as part of the “second-party review”, said one of the sources.
The government had also sought technical assistance for this purpose from the World Bank, which has issued more than 200 such bonds since 2008.
Once the framework is put forward, the Reserve Bank of India will come out with details of the timing of the issuance and the tenor of the bonds, based on the feedbacks from investors.
“The inclusion or the size of the green bond in the FY24 Budget as well as the borrowing calendar will depend on its performance this fiscal,” said the source quoted above.
A green bond is essentially a fixed-income instrument, just like the regular corporate or government bond, but it is issued to raise capital specifically for climate-related or environmental projects. This specific use of the funds distinguishes green bonds from regular papers (the funds raised via regular bonds has no such strings attached).
One of the sources said the government will adhere to utmost transparency in reporting the spending of the amount raised via this route, which is an important condition of investors when they pick up such bonds.
Announcing its plan to raise Rs 16,000 crore via green bonds as part of the borrowing in the second half of this fiscal, the finance ministry had in late September said it would come out with the framework soon. The framework will guide future issuances as well.
Explaining the reason behind the modest size of the maiden green bond issuance (some analysts were expecting it to be as high as Rs 35,000 crore), the sources said the government wanted to first test the market appetite.
Introducing the Budget for FY23, finance minister Nirmala Sitharaman had announced the launch of such bonds “for mobilising resources for green infrastructure”. The proceeds would be deployed in public sector projects that will “help in reducing the carbon intensity of the economy”, she said.