Financing India’s green future

Source: Business Standard

Relevance: Increasing investment in decarbonising technology is important for achieving a green future

Synopsis: India’s is among one of the few countries to achieve its target under Paris Commitment. However, we still require investment in green future to promote sustainable development.

Context

Currently, India is moving ahead of its target of reducing 33-35 % emissions intensity of 2005 gross domestic product (GDP) before 2030 under Paris commitment. However, India needs to consider even lower carbon pathways, including Net-Zero emissions.

Each of these development pathways require enormous financing requirements which will come through, commercial (purely financial returns-driven), impact (both financial and social returns- driven) and public (social returns-driven) capital.

How much capital is required?

According to the International Energy Association (IEA) India requires $1.4 trillion over the next two decades in financing green energy technologies alone. This is half of India’s GDP for financial year 2020-21.

The recently announced PM Gati Shakti investment programme is sized at Rs 100 trillion, or about $1.3 trillion.

Need of commercial capital
  • Commercial capital drives the global economy and is many times larger than public funds or impact capital
  • Green investments must therefore compete with brown (non-green) investments to find large markets and generate attractive returns.
Role of government

Government can play a crucial role to promote Government and market collaboration:

  • Public investment should absorb the initial capital expenditure of demonstration or pilot projects
  • Government can offer subsidies for part of the capital or operating costs
  • It can incentivise off take of the final product
  • Government can help push for and create technology transfer initiatives between countries
  • It can offer connecting infrastructure or distribution for the new technology.
Role of Impact capital

Three different categories of impact capital providers assist in jumpstarting green industries to complement the role played by government and the market.

  • First, advanced countries are deploying capital (grants, aid, loans, equity) to help commercialize new technologies.
  • Second, philanthropic capital, which is concerned about long-term social impact and does not judge its performance solely by financial returns.
  • And, finally, there are many firms that are committing to net-zero targets: Their cash flows are being channelized into green investments.

Conclusion

India will require huge amount of investment to get to the Green Frontier. These immense funding requirements will necessitate that we fully mobilize domestic and global sources of capital. Our financing system will have to be geared up to support these capital flows.

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