As India sets its sights on becoming a global leader in sustainable development, the Union Budget is a crucial tool to catalyse our green transformation. This complements bold international commitments already made under the Paris Climate Treaty to reduce greenhouse gas emissions and source 50 per cent of India’s electricity from non-fossil fuel sources by 2030. Coinciding with India’s G20 presidency, the identification of green growth as one of the seven core economic priorities showcases India’s commitment to a sustainable future.

Employing the largest proportion of the population, agriculture saw clear wins in the Budget’s green initiatives. Sustainable and natural farming practices are increasingly gaining traction, and the government’s intention to facilitate the transition of one crore farmers to such practices is commendable.

The Agriculture Accelerator Fund announced in the Budget will provide crucial funding for entrepreneurs to drive innovation. The combination of the government’s initiatives, such as PM PRANAM, which incentivises States and UTs to promote alternative fertilisers, and the push towards sustainable farming can facilitate the transition away from chemical-intensive farming.

Financing green transition

The previous Budget’s announcement of sovereign green bonds marked a significant milestone for India’s green finance landscape. The successful issuance of the first tranche of these bonds by the central bank, the RBI, with a modest greenium of six basis points followed by Exim Bank’s record-breaking issuance of $1 billion in sustainability bonds, demonstrates a growing appetite for green financial products.

The recent adoption of a new ESG framework by SBI for raising green debt is another step in the right direction. The public markets regulator, SEBI, also recently released a dos and don’ts framework for green bonds that should provide clarity to green debt issuers.

The Budget also pointed to the potential for the growth of Municipal Bonds or Muni Bonds. These have internationally proven to be a successful tool for cities to raise funds for green infrastructure development. The success of Ghaziabad’s recent issuance of a Muni Bond for a waste plant and Indore’s Green Bond issuance shows the promise of green financing to build sustainable cities in India through this avenue.

Amongst the major challenges presented by climate change induced by global warming will be the ability to manage water security in our water-stressed country; remember, close to half of Indian agriculture is still rain-fed. The increase in funding provided to the Ministry of Jal Shakti by 43 per cent is a positive step in this context.

Likewise, the announcement of the ‘Mangrove Initiative for Shoreline Habitats and Tangible Incomes’, which will facilitate mangrove plantation along the Indian coastline. However, more emphasis on disaster management and risk reduction is required going forward. As the adverse effects of climate change continue to escalate, it is crucial that we increase our adaptation efforts and build climate resilience into all the new infrastructure that is being created.

New service offerings

Over the last two decades, the IT industry in India led a digital revolution with dramatic gains in the services sector. Sustainability is the new digital and opens up a similar opportunity for India. The Green Credit programme outlined in the Budget to incentivise behavioural change for people, organisations, and local bodies is encouraging.

Likewise, a ‘green’ procurement requirement in government purchases could motivate Indian industry to transform its offerings. New job opportunities will parallelly be created in spaces such as consulting, audit and climate technology. This can unlock a new wave of growth.

Multiple large-scale initiatives are being undertaken around the world as humankind transitions to net zero. The US government’s Inflation Reduction Act will invest $369 billion in climate solutions and environmental justice. In response, Ursula von der Leyen, president of the European Commission, has introduced a plan to make Europe the home of clean-tech and industrial innovation on the road to net zero. The EU has also deployed the Carbon Border Adjustment Mechanism to address concerns about carbon leakage in imports from countries with lax emission standards.

Sizeable budgetary allocations are also being made in India towards the green energy transition, including an allocation of ₹19,700 crore to the National Hydrogen Mission to achieve at least 5 million tonnes production capacity by 2030, and incentives for ethanol blending in fuel, and waste to energy build-outs.

Going forward, attention needs to be paid to supporting the needs of small and medium enterprises in leveraging such initiatives, including through funding common shared infrastructure in industrial clusters of the kind that exist in Surat, Dahej and Paradeep. Meanwhile, the Energy Conservation Bill envisions the creation of a domestic carbon market, and coupled with the anticipated revival of UN-sanctioned international carbon trading, the government can not only stimulate India’s emergence as the world’s leading supplier of carbon offsets, but also provide overarching guidance to industries for their long-term decarbonisation plans.

Execution is key

Overall, Budget 2023 shows promise in continuing the green focus of previous Budgets. Execution will be key, both in delivering on past commitments and in creating new opportunities for economic growth. The Sustainable Alternative Towards Sustainable Transportation (SATAT) scheme, announced in 2018 to achieve 5,000 compressed biogas plants by 2023, has only met 1 per cent of the target so far. And only around 60 per cent of the 2022 target of 175GW of renewable energy was delivered.

Positive initiatives need to be supported by excellent execution. Meanwhile, greater focus needs to be provided towards building disaster risk resilience, and climate adaptation. From a green lens, there is much to welcome in Budget 2023, but also much more to be done.

The writers are with ECube Investment Advisors, an ESG-focused platform