India’s Union Budget: A mixed bag for the renewable energy sector with some hits and a few misses

With the lead-up to the 2024 general elections and India’s G20 presidency, there were expectations that the Union Budget 2023-24 would include some populist measures but also, more importantly, set out how India will support its ‘Green Growth’ agenda. While Green Growth was among the top seven priorities outlined for the next financial year in Finance Minister Nirmala Sitharaman’s speech, the green gains did not live up to the renewable energy sector’s expectations.

The Budget rightly focussed on boosting economic growth by increasing capital expenditure by 33% to Rs10 trillion (US$122.17 billion). This will facilitate and channel private sector investments into the key infrastructure sectors. However, sustainable energy choices must back economic growth. 

India's ambitious 2030 clean energy targets and 2070 net-zero goal had raised hopes that the Budget would include more support for the renewable energy sector, which continues to face headwinds in the form of high customs duties on imported solar modules and cells and the availability of concessional finance.

Further, the renewable energy sector had also expected a reduction in duties for electrolysers, more budgetary allocation under the Production Linked Incentive (PLI) scheme for batteries and electrolysers, a reduction in Goods and Services Tax (GST) rates, and the creation of a stabilisation fund for the carbon market. Unfortunately, all of these were missing from the Budget.

While the finance minister did announce a budgetary outlay for battery storage, at 4 gigawatt-hour (GWh), it does not match the ambitions on both the electric mobility and stationary storage front.

A further outlay for the energy transition through sustainable finance instruments would have been helpful, especially after the success of the recent green bond issue.

The budget specifies ~Rs237 billion (US$2.89 billion) investments for green projects to be funded by sovereign green bonds on the issue size of Rs160 billion (US$1.95 billion), which leaves room for further issuances.

Moreover, the Green Hydrogen Mission received only Rs2.97 billion (US$36.28 million) from the proceeds. Further outlays for industrial decarbonisation would have provided for the energy transition needs of the industry. 

A green credit program is a positive move that can incentivise corporates to improve their environmental, social and governance (ESG) credentials without considering it as an unnecessary overhead. However, more details are needed on the specifics of the program.

The government announced an inter-state transmission system for evacuation and grid integration of 13 gigawatts (GW) of renewable energy from Ladakh with central support of Rs83 billion (US$1.01 billion); Viability Gap Funding for 4GWh of battery energy storage systems (BESS); Rs197 billion (US$2.4 billion) under the Green Hydrogen Mission and a Green Credit Programme.

To promote green mobility, the government announced funds for replacing old polluting vehicles, a decrease in customs duty on the import of capital goods for li-ion batteries, and an increase in the allocation for the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme from the budgeted estimate of Rs29 billion (US$354.31 million) in FY2022/23 to Rs51.72 billion (US$631.90 million) in FY2023/24. 

The high capital allocation to the Ministry of Petroleum and Natural Gas (MoPNG) raises serious questions about the role of gas in the country’s energy transition plans and net zero objectives. Is the government signalling development of more strategic gas reserves or infrastructure or helping oil marketing companies tie up with the loss because of high oil and gas prices? We need a better understanding of the fine print of the allocation to MoPNG.

Further, there has been a capital outlay to railways of Rs 2.40 trillion (US$29.32 billion), the highest ever and about 9x the expenditure in FY2013/14. Again, the big question is whether it is for passenger traffic or building a freight corridor for the transportation of coal. The government also recently announced no retirement of coal plants until 2030, extending the life of inefficient plants beyond their useful life and lowering the plant load factor of all its existing coal fleet.

The Budget also missed out on providing a further green push on the demand side by creating demand-side obligations for sectors like steel, cement etc. and bringing in more energy conservation measures.

This budget is a mixed bag. Yes, there are some reasons to be cheerful, but LiFE (Lifestyle For Environment), a concept introduced by Prime Minister Narendra Modi at COP26 in Glasgow, had raised hopes that there would be more sops to develop a renewable energy ecosystem.