Financial sustainability in policymaking refers to the capacity of the government to:
- Meet its current financial obligations
- Withstand economic shocks
- Keep servicing debt
- Continue providing public services
In the future, it is expected that environmental, social, and governance (ESG) factors will significantly influence financial sustainability in India. As a result, we can expect more policies related to tax incentives for green investments, innovative financial products, and budgetary support for renewable energy.
In this article, let’s gain more clarity and see how India is promoting green finance while remaining financially sustainable.
Budgetary support for renewable technology
In the latest union budget 2024-25, the Indian government has focused on renewable energy (especially solar power). One of the key programs is the PM Surya Ghar Muft Bijli Yojana. This scheme encourages people to install solar panels on their rooftops.
The goal here is to help households generate their own electricity from the sun. This reduces their dependence on traditional energy sources like coal and gas.
Also, to reduce carbon emissions, the government is investing money into green infrastructure, such as:
- Solar panels
- Wind farms
- Electric vehicle charging stations
Here the government is ensuring that India can meet its energy needs in a way that is better for the environment and still remain financially sustainable.
Blended finance and issuance of sovereign green bonds
The Indian government has made sustainable development a priority. This means promoting economic growth while protecting the environment. This focus was reflected in the Budget 2022-23 when the government introduced sovereign green bonds to raise money for green infrastructure projects.
For the unaware, these are special government-issued bonds. Money collected from them will be used for public projects that help reduce carbon emissions and make the economy more environmentally friendly.
Another important step in the budget was blended finance. It is a way to attract private investors to fund climate-related projects. The idea is that the government will provide 20% of the money for special funds focused on climate action and technology, while private fund managers will handle the rest. Such a partnership encourages private companies to invest in green projects because they see the government’s commitment.
Since fighting climate change requires a lot of funding, the government is exploring additional ways to channel money into green projects. To remain financially sustainable, the government can:
- Set up a green bank or green fund
- Launch special financial programs
All these efforts make it easier to raise money for projects that fight climate change.
Developing a climate finance taxonomy
The Indian government has announced the creation of a climate finance taxonomy in the Union Budget 2024-25. It will create clear rules on what qualifies as green or climate finance. For the unaware, it represents funds that support environmentally friendly and climate-resilient projects.
Right now, different organisations have different ways of defining green finance, which creates confusion and uncertainty for investors. A standardised system will help businesses, banks, and investors to clearly understand which projects are truly climate-friendly.
This clarity will make it easier to attract more investments in:
- Clean energy
- Sustainable infrastructure
- Climate adaptation projects
This flexibility will ensure India’s economy moves toward low-carbon growth while remaining financially sustainable. Moreover, the taxonomy will also be aligned with India’s climate goals, such as the updated Nationally Determined Contributions (NDC) of 2022 and the upcoming National Adaptation Plan.
Additionally, it will remain a “live document”, meaning it can be updated over time to include new policies and emerging green technologies like:
- Green hydrogen
- The Internet of Things (IoT)
- Earth observation tools
RBI joins the Network for Greening the Financial System (NGFS)
Besides the elected government, the Reserve Bank of India (RBI) is also taking steps to make the financial system more environmentally friendly. One important move was joining the Network for Greening the Financial System (NGFS).
For the unaware, it is a group of central banks working together to tackle climate change in the financial sector. By becoming a member, the RBI can learn from other countries and apply global best practices to India’s banking system.
Additionally, the RBI has issued guidelines on climate risk disclosures. This means that banks and NBFCs must now report how climate change could affect their business and investments.
Conclusion
India is making strong efforts to achieve financial sustainability while promoting green finance. The government is attracting investments in clean energy through:
- Budgetary support for renewable energy
- The issuance of green bonds
- Blended finance initiatives
- The introduction of a climate finance taxonomy
Additionally, the RBI has also joined the NGFS to make the financial system more green. In this way, India is building a low-carbon economy without compromising financial stability. The growth of green finance could be further accelerated through an online marketplace, which connects businesses, banks, and investors.