The Ministry of New and Renewable Energy is planning a bold move to boost climate finance. It will urge the finance ministry to offer tax incentives for green bond investors. This initiative aims to enhance investor appeal and meet clean energy funding needs.
Green bonds are crucial for financing India’s ambitious environmental targets. Currently, they offer similar interest rates to conventional bonds, providing little incentive. Tax rebates could make them more attractive and drive higher investment.
A source familiar with the matter highlighted the challenge. Sovereign green bonds launched years ago have not gained significant traction. Low premiums mean buyers see no extra benefit, prompting the push for fiscal sops.
Globally, green bonds are a popular tool for climate finance. They fund projects with positive environmental impacts while offering returns. Investors support initiatives that contribute to a sustainable economy.
These bonds finance renewable energy, efficiency, clean transport, and conservation. They also back certified green buildings, aligning with global sustainability goals. Issuers include public, private, and multilateral entities.
In India, the Reserve Bank issues sovereign green bonds. State-run institutions like REC Ltd and IREDA are major players. Corporates also participate, expanding the market’s reach.
Saurabh Agarwal of EY India praised the potential move. Tax incentives would be a strategic policy tool for clean energy transition. They could channel significant private capital toward sustainability goals.
He emphasized that targeted fiscal measures attract needed funding. Capital markets would then play a pivotal role in building a resilient future. This approach ensures broad economic participation.
India’s green bond journey began in 2015 with Yes Bank. The first issuance funded renewable energy projects with a 10-year maturity. Since then, several banks and corporates have entered the market.
A Teri report cited Climate Bonds Initiative data. In 2016, India had $15.7 billion in climate-aligned bonds for low-carbon transport and renewables. This early activity showed promise for future growth.
Despite this start, green bond issuance has progressed slowly. The Indian bond market remains nascent, facing several challenges. Currency risks and hedging costs affect dollar-denominated issuances.
Rupee-denominated green bonds offer 7.5-10% coupons, while dollar ones range 2.75-6%. This difference stems from rupee volatility and low secondary market liquidity. These factors hinder faster expansion.
The 2023 sovereign green bond tranches initially gained a ‘greenium’. This price advantage reflected strong domestic appetite and cheaper financing. However, illiquidity and lack of trading erased those gains.
Greenium refers to savings from lower coupon rates versus conventional bonds. Understanding its drivers is key to strategizing market interventions. Policy must address both demand and supply factors.
India aims for 500 GW non-fossil capacity by 2030 and net-zero by 2070. Stakeholders see immense growth potential for green bonds. Supportive policies could unlock this opportunity.
Climate Bonds Initiative ranks India as the fourth-largest emerging market for GSS+ debt. Cumulative issuance hit $55.9 billion by December 2024, up 186% from 2021. This growth highlights increasing alignment with global standards.
Since January 2023, the government issued eight sovereign green bond tranches. Totaling ₹47,700 crore, these support climate action and energy transition. The FY23 budget introduced them to raise essential capital.