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• Pillsbury Winthrop Shaw Pittman
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After a year marked by noteworthy events in which India sought to position itself as a key player in the global energy transition, on February 1, 2024, the government presented an Interim Union Budget[1] reinforcing India’s commitment to net zero by 2070. This is an interim budget, as a full set of allocations will be announced by the new government following the forthcoming 2024 national elections. This article assesses if India’s 2024 Interim Union Budget has kept up the momentum and budgetary support for the country’s energy transition initiatives.
Actions to combat climate change were a recurring theme in 2023 during India’s G20 presidency[2] and the Clean Energy Ministerial held in the country.[3] Programs focusing on decarbonization received a significant boost in the previous Union Budget.[4] Several of these are to be funded through the first sovereign green bond of US $2 billion[5] issued by India last year. India also launched the Green Credit Initiative[6] at COP28 to create a participatory global platform for the exchange of innovative environmental programs and instruments.
The authors’ assessment of this interim budget is based on changes in budgetary allocations—interpreted as signals for ongoing support for energy transition and climate action initiatives—as well as an analysis of policy announcements in the finance minister’s speech.
Achieving Energy Independence through Energy Transition
India has set itself a target of becoming energy independent by 2047,[7] a century after the country gained independence from the British. Elements of this strategy include an increase in renewable electricity capacity, introducing green hydrogen into the energy mix, increasing access to natural gas and biofuels, and faster electrification of the transport network. Parsing through budgetary allocations for the various programs, the authors have assessed changes that are afoot in these sectors (Table 1).
Solar
The allocation for solar power witnessed a substantial increase of $569 million, from $314 million[8] in FY 2021–22 to $883 million[9] in FY 2023–24. This has propelled an 81% growth in the installed solar capacity, from 40.5 gigawatts (GW)[10] in April 2021 to 73.31 GW[11] in December 2023. The latest budget further signals the government’s support for bolstering solar capacity, with a commitment of $1,207 million[12] to solar power, a 37% increase compared to last year’s budget.
Rooftop solar is one sector that had lagged behind the very ambitious targets[13] announced in 2015 as part of the overall expansion plan for renewable energy in the country. Compared to the target of 40 GW for 2022,[14] the installed capacity of solar grid-connected rooftops was just 11.08 GW as of December 2023.[15] Nevertheless, recognizing the enormous potential for rooftop solar in the country, India hasannounced a new scheme targeting 10 million solar rooftop households.[16] Accordingly, the budgetary allocation to solar power grids has increased by 71% over the previous year’s budget. The government estimates that through the rooftop panels, households will receive 300 units of free electricity, thus saving $180–$215 annually, with the potential to sell surplus electricity to the grid. Additionally, the government also foresees an increase in employment and entrepreneurship opportunities as well as an avenue to promote charging infrastructure for electric vehicles through this scheme.
The new scheme targets 40 GW of sanctioned solar installations by 2026[17] with the state-run Rural Electrification Corporation as the designated nodal agency providing a line of credit up to $14 billion. Details on the scheme are still awaited, particularly related to the business model for development, allocation of subsidies, and the role of renewable energy service companies in its execution.
Biofuels
Continuing the emphasis placed on the biofuels sector—e.g., setting up the Global Biofuel Alliance[18] during India’s G20 presidency—there is a big push for biofuels in the budget, including the announcement of mandatory phased blending of compressed biogas (CBG) in compressed natural gas (CNG) for transport and piped natural gas (PNG) for household use. The budget provides $18 million[19] for the procurement of biomass aggregation machinery to support collection. Additionally, a new scheme of bio-manufacturing and bio-foundry—to provide an alternative from consumption-based manufacturing to one based on regenerative principles—focusing on alternatives like biodegradable polymers, bio-plastics, bio-pharmaceuticals, and bio-agri-inputs will be launched. There is also a $36 million allocation[20] for the biopower and biogas programs.
Hydrogen
The $72 million allocation for the National Hydrogen Mission—which aims to develop India as a global hub for production, utilization, and export of green hydrogen and its derivatives—represents a significant 102% increase[21] compared to last year. This signals the government’s intent to grow India’s capacity in the green hydrogen space. Last year, the government introduced financial incentives for the manufacturing of electrolyzers and the production of green hydrogen under the National Green Hydrogen Mission,[22] and several Indian companies,[23] both from the public and private sector, have bid for these incentives.
Wind
The allocation for wind power increased from $133 million[24] in FY 2021–22 to $146 million[25] in FY 2023–24, resulting in an increase in the installed wind power capacity from 39.41 GW[26] in April 2021 to 44.73 GW[27] in December 2023, a growth of 14%. In the current year’s budget, wind power has been allocated $96 million,[28] representing a 34% decline compared to last year, suggesting that, going forward, the government’s focus is shifting toward prioritizing solar and other renewables over wind.
Instead of government support, this budget proposes to provide viability gap funding for offshore wind for an initial capacity of 1 GW, thus shifting the onus to the private sector for further growth of wind capacity. India’s plans for offshore wind energy generation off the coast of Tamil Nadu and Gujarat has made notable progress this year, with revisions to the strategy for development of offshore wind energy projects[29] and the notification of the 2023 Offshore Wind Energy Lease Rules[30] to regulate allocation of offshore wind sea blocks to developers.
Transport Sector Electrification
India’s flagship electric vehicle subsidy program, the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicle scheme, has been allocated $322 million, a 48% reduction[31] compared to last year—even as the allocation for the Production Linked Incentive (PLI) Scheme for the automobile sector has increased six-fold, from $73 million to $422 million.[32] This suggests that the government may be shifting the subsidy from vehicle buyers to the automobile manufacturing industry. In addition, the PLI National Program on Advanced Chemistry Cell Battery Storage has gone up by almost 250 times,[33] to $30 million. The government also aims to increase the adoption of e-buses for public transport through a payment security mechanism. The PM E-Bus Sewa Scheme,[34] launched in August 2023 with a goal to deploy 10,000 electric buses in 169 cities on a public-private partnership model, has received $156 million[35] this year.
In railways, India has electrified 40,000 kilometers of tracks since 2014,[36] when a massive electrification program was launched, with nearly 95% of the network now electric. Full electrification is expected with the next few months, with $783 million[37] going toward the effort this year. In addition, urban rail projects, a key element of reducing reliance on private vehicles, have received a total of $2,572 million[38] this year.
Other Initiatives
Programs that deal with reducing energy poverty and improving the efficiency of energy use have an impact on the speed of India’s energy transition. In addition, developing more nuclear electricity capacity would also help mitigate greenhouse gas emissions from the power sector while improving the energy sector’s resilience and security. Below is a brief discussion of the allocations for these initiatives.
Energy Access
The state-run Rural Electrification Corporation’s bond issue and interest expenditure gets $2 million this year, comparable to the allocations in previous budgets. Proceeds of this bond issue shall be exclusively utilized for the purposes of rural electrification schemes.[39] Now that almost all households in the country are connected to the grid, this program has more or less run its course.
Additionally, $176 million[40] has been allocated for payments to oil marketing companies for direct transfer of an LPG cash subsidy to consumers under the PAHAL Direct Benefit Transfer Scheme.[41] This scheme aims to target the reduction of subsidy leakages by depositing subsidies into the bank accounts of eligible beneficiaries. There is also an allocation of $1,025 million[42] for LPG connections to poor households, which aims to provide support to below-poverty-line (BPL) households[43] to motivate them to shift from solid biomass to a cleaner fuel with the goal of saving lives of millions of women and children suffering from indoor air pollution. When providing the new connections to BPL households, preference would be given to regions yet to be covered, particularly in the eastern parts of the country.
Energy Efficiency
There has been a more than 50% reduction,[44] from $16 million last year to $8 million this year, in the allocation to schemes promoting energy conservation and energy efficiency in different sectors of the economy and to the Bureau of Energy Efficiency, mostly due to underutilization of the allocations over the past two years. But the $1,446 million[45] allocated to the production of energy-efficient, three-phase locomotives for Indian Railways represents a 21% increase over last year.
Nuclear
This year, the nuclear power sector received $418 million,[46] a doubling from the previous year. Within this allocation, $268 million is earmarked for nuclear power projects, a substantial 404% increase compared to last year. Additionally, $92 million is allocated to nuclear fuel fabrication projects, with no change in funding compared to last year. Furthermore, $58 million is directed to the Fast Reactor Fuel Cycle Projects at Kalpakkam, Tamil Nadu, representing an 8% decrease from last year as India’s fast breeder reactor program struggles to make progress.
Financing through Sovereign Green Bonds
In FY 2023–24, the government has targeted $2.7 billion through sovereign green bonds; in FY 2024–25 this amount is expected to increase to $3.9 billion[47] (Table 2) and will likely be allocated to projects primarily under the following four ministries: Ministry of Railways (47%), Ministry of New and Renewable Energy (42%), Ministry of Housing and Urban Affairs (10%), and Ministry of Environment, Forest, and Climate Change (1%).[48]
Despite this increase, the funds raised for green projects are still miniscule compared to the $160–$200 billion[49] per annum investment estimates required to achieve India’s clean energy targets.
Conclusion
The interim budget for this year marks a shift from wind energy toward solar energy, aligning with the National Electricity Plan 2023 projections.[50] According to these projections, the share of solar energy in the renewable energy mix is anticipated to rise from 17%[51] in December 2023 to 40%[52] by FY 2031–32, whereas the share of wind energy is expected to increase more modestly from 10%[53] to 14%[54] during the same period. A change in strategy is also seen in the electric vehicle sector, where there is a greater focus on strengthening the manufacturing sector rather than influencing consumer preferences. In addition, Indian Railways is on track to complete 100% electrification by 2030, aligning with its net-zero carbon emitter target[55] by 2030.
Although this year’s interim budget signals an ongoing commitment to decarbonize India’s economy, the nation confronts challenges, both in terms of financing and executing the just transition. Additionally, given that this budget is an interim one, all attention will be focused on the budget that follows the highly anticipated general elections later this year. Even with these caveats, the increased allocation for energy transition is important to support near-term efforts toward energy transition and energy independence.
[3] Ministry of Power, Press Information Bureau, “14th Clean Energy Ministerial and 8th Mission Innovation Meeting begin in Goa on the sidelines of the 4th Energy Transitions Working Group (ETWG),” July 20, 2023, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1940909.
[6] Ministry of Environment, Forest and Climate Change, Press Information Bureau, “COP 28 National Statement by Union Minister for Environment, Forest and Climate Change Shri Bhupender Yadav,” December 9, 2023, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1984434.
[15] Ministry of New and Renewable Energy, Government of India, “Programme/Scheme wise Cumulative Physical Progress as on December, 2023,” accessed February 2024, https://mnre.gov.in/physical-progress/.
[18] Ministry of Petroleum and Natural Gas, Government of India, “About Global Biofuels Alliance (GBA),” accessed February 2024, https://mopng.gov.in/en/page/68.
[34] Ministry of Housing and Urban Affairs, Press Information Bureau, “Cabinet approves ‘PM-eBus Sewa’ for augmenting city bus operations; priority to cities having no organized bus service,” August 16, 2023, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1949430.
[41] Ministry of Petroleum and Natural Gas, Government of India, “PAHAL (Pratyaksh Hanstantrit Labh))/DBTL (Direct Benefit Transfer-LPG),” accessed February 2024, https://mopng.gov.in/en/marketing/pahal.
[47] Ministry of Finance, Government of India, “Expenditure Profile 2024-2025 – Statement of fund utilization/allocation under the schemes eligible for Sovereign Green Bond (SGrB) proceeds,” https://www.indiabudget.gov.in/doc/eb/stat15a.pdf.
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