India will soon offer (taxable) green bonds. Government of Modi’s climate funding proposal is “almost ready”

In New Delhi: ThePrint has learned that the Narendra Modi administration is close to finalising a framework that will enable India to fund its green infrastructure and energy projects with a separate pipeline of investors devoted to climate funding.

The framework will outline the projects or industries that would be eligible for funding, which would be raised as part of the annual borrowing programme, according to the government’s plan.

In order to meet the needs of green infrastructure projects, the borrowing will be done through a carve-out referred to as “green bonds,” which will be rupee-denominated papers with a lengthy duration.

India does not propose to provide any tax breaks on green bond earnings, in contrast to several other nations where they are currently being issued.

A senior government source told ThePrint, “We are close to identifying what are green projects and releasing a list of projects that would require money to help us meet our obligations set in the COP26.”

According to the official, one to two tranches of the government’s yearly borrowing plan, or about Rs 36,000 crore, would go toward green financing and would be obtained from the bond markets. It’s likely that capital raising for green finance will begin in the second half of the current fiscal year.

At the COP26 Summit in Glasgow last year, Prime Minister Narendra Modi outlined five commitments that outlined India’s role in climate action. By 2030, India’s non-fossil energy capacity will be 500 GW, and the nation would source 50% of its energy needs from renewable sources, according to Modi.

Additionally, he predicted that by 2030, India’s anticipated carbon emissions will be reduced by one billion tonnes, and by 2070, net zero emissions would be the goal.

The International Capital Market Association, a self-regulatory trade organisation, adopted criteria for green bonds into the framework for funding environmentally friendly projects. According to the person, the government will soon release the framework after consulting with the Reserve Bank of India (RBI).

Finance Minister Nirmala Sitharaman originally proposed the notion of using green bonds to finance infrastructure projects in Budget 2022–2023 when she revealed the government’s intention to issue green bonds for the first time as part of its overall market borrowing.

The government intends to borrow Rs 14.31 lakh crore from the market during the current fiscal year, according to a March announcement. Of this, it would borrow Rs. 8.45 lakh crore between April and September and the remaining amount between October and March 2023.

There will be no tax exemption for green bonds.
Similar to conventional bonds, green bonds are fixed-income investments, but the money obtained from investors is only used to finance initiatives that have a good influence on the environment and the climate, such renewable energy and green buildings.

Typically, nations that issue green bonds make sure that any income from those investments is tax-free. This has the advantage of lowering borrowing costs. However, the official mentioned above claims that India won’t provide any such advantages.

According to India, it should be encouraged to switch to green energy as much as possible from a global perspective. As a result, the official added, foreign investors should participate in India’s green bonds regardless of any tax advantages.

The official continued that the government is currently in contact with possible buyers of these bonds to determine whether there is interest in and demand for such an offering.

According to the Climate Bonds Initiative, a global organisation seeking to mobilise funds for climate action, climate funding through the issue of green bonds globally reached $271.6 billion in 2022.

The European Union, the Bank of China, the governments of Germany and France, the Dutch State Treasury Agency, and the China Development Bank are just a few of the significant organisations issuing these bonds.

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