India?s Green Revolution: Sitharaman?s Seventh Budget and the Path to 2047

In a significant move towards fortifying India’s economic landscape and spearheading the country’s green energy ambitions, Finance Minister Nirmala Sitharaman is set to present her seventh consecutive budget. This budget is poised to be a cornerstone in India?s quest to achieve developed nation status by 2047, with a pronounced focus on extending tax incentives for the burgeoning green energy sector.

One of the most anticipated announcements in this budget is the extension of the concessional corporate tax rate of 15% for new domestic manufacturing companies under Section 115BAB, originally set to expire on March 31, 2024. This tax benefit has been instrumental in attracting significant investments into India, as highlighted by Ashwin Jacob, Partner and Industry Leader – Energy, Resources & Industrials.

Jacob emphasized the critical role this tax rate has played, stating that extending it by two additional years would significantly bolster India’s economic growth and enhance its appeal to investors.

The concessional corporate tax rate, introduced to stimulate domestic manufacturing, has been a linchpin in the government’s broader economic strategy. It has not only encouraged new investments but also fostered the creation of numerous jobs in the manufacturing sector, thereby contributing to the country’s overall economic health.

Extending this tax rate aligns with India’s long-term vision of becoming a manufacturing powerhouse, reducing dependency on imports, and strengthening the “Make in India” initiative.

Sitharaman is expected to introduce a concessional tax rate on the sale of all carbon credits and Renewable Energy Credits (RECs), expanding beyond those currently validated by the UN Framework on Climate Change (UNFCC).

This proposal aims to standardize the treatment of carbon credits, reduce litigation, and stimulate investment in the renewable energy sector. The move is expected to simplify the regulatory environment and provide clarity to investors, thereby enhancing the sector’s attractiveness.

Green Bonds and Renewable Energy: Accelerating the Transition

The budget is also likely to include tax incentives for investments in Green Bonds, with measures proposed to exempt interest income and profits derived from these bonds from taxation. Such initiatives are anticipated to benefit bond issuers by providing access to lower borrowing rates, thereby supporting India?s transition to a low-carbon economy.

Green Bonds have emerged as a crucial tool for financing sustainable projects. By offering tax exemptions on interest income and profits, the government aims to make these bonds more appealing to investors.

This will enable companies to raise funds at lower costs, facilitating the development of green infrastructure and renewable energy projects. The enhanced investment in Green Bonds will also contribute to the growth of a secondary market, providing liquidity and encouraging more issuers to enter the market.

Jacob anticipates that the budget will address indirect tax costs affecting the green hydrogen sector and set clear revenue recognition guidelines for infrastructure projects under Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT), and Hybrid Annuity Model (HAM) frameworks. These frameworks are commonly utilized in the energy, roadway, and other industrial sectors, and clear guidelines are essential for their smooth operation.

Economic Survey 2024: A Roadmap for Renewable Energy

The Economic Survey 2024, presented by Sitharaman in Parliament, underscores the pivotal role of renewable energy in India’s growth strategy. As of March 31, 2024, India’s renewable energy installed capacity reached 190.57 gigawatts (GW), accounting for 43.12% of the nation?s total installed power generation capacity.

The survey highlights the expansion of India’s power transmission capabilities, now able to transfer 118,740 megawatts (MW) across an extensive network, reflecting the country’s readiness to meet its growing power demands.

The expansion of power transmission capabilities is a testament to India’s commitment to upgrading its energy infrastructure. The ability to transfer large amounts of electricity across vast distances ensures that renewable energy generated in remote areas can reach urban centers, thus supporting the overall grid stability and reliability. This development is crucial as the country?s peak electricity demand surged by 13% to 243 GW in FY24, driven by increasing power needs across the country.

Under the global commitments outlined in the United Nations Framework Convention on Climate Change, India aims to secure about 50% of its electric power installed capacity from non-fossil fuel sources by 2030.

The Ministry of New and Renewable Energy is actively working towards achieving a monumental 500 GW of installed electricity capacity from non-fossil sources by the end of the decade. This ambition is backed by substantial investments, with the renewable energy sector attracting new investments totaling ?8.5 lakh crore between 2014 and 2023, and an additional ?30.5 lakh crore anticipated from 2024 to 2030.

The Economic Survey provides a comprehensive view of India’s renewable energy landscape. The sector’s growth is not only a response to global climate commitments but also a strategic move to ensure energy security and economic resilience.

Investments in renewable energy have been robust, and the anticipated influx of ?30.5 lakh crore by 2030 highlights the sector’s potential to drive economic growth. These investments are expected to create extensive economic opportunities throughout the renewable energy value chain, including manufacturing, installation, and maintenance of renewable energy systems.

Battery Energy Storage: Integral to Net-Zero Goals

As India progresses towards its ?net-zero? commitments, battery energy storage (BES) systems are set to become a cornerstone of the country?s energy infrastructure. The BES systems market in India is estimated to reach about USD 3 billion by the end of 2024 and is projected to grow to USD 5.3 billion by 2029, according to Mordor Intelligence. This growth underscores the critical role BES systems will play in supporting India’s clean energy goals.

Battery Energy Storage Systems (BESS) are essential for addressing the intermittency issues associated with renewable energy sources like solar and wind. By storing excess energy generated during peak production times and releasing it during periods of high demand or low production, BESS ensures a stable and reliable energy supply. The integration of BESS into the national grid will also enhance grid resilience and support the broader adoption of renewable energy.

The Economic Survey also sheds light on the challenges of balancing India?s development needs with its low-carbon pathway. The survey calls for a diversified energy portfolio, emphasizing the importance of non-fossil fuel sources, including renewables, nuclear, and biofuels, while continuing to rely on thermal power for baseload support. It advocates for clean coal technologies and enhanced international cooperation in research and development for emerging green technologies.

Balancing growth with green goals is a complex task, especially for a developing country like India. The Economic Survey acknowledges the need for a multi-pronged approach to energy security. While renewable energy is crucial, the country cannot entirely phase out thermal power due to its role in providing a stable baseload.

Therefore, the promotion of clean coal technologies like gasification and carbon capture is essential to reduce the environmental impact of coal-based power.

Financial Support and Global Cooperation

The survey underscores the need for financial support from developed countries to meet India’s ambitious climate goals. With financing needs estimated at USD 2.5 trillion for meeting NDC targets till 2030, access to finance and technology at reasonable costs is crucial.

Achieving India’s climate goals requires significant financial resources. The survey calls for increased international cooperation and financial support from developed countries. This support is essential to bridge the funding gap and ensure that India can invest in the necessary technologies and infrastructure to meet its targets. Access to affordable finance and advanced technology will be crucial in overcoming the resource constraints and achieving the country’s climate ambitions.

Sitharaman?s upcoming budget is not just a financial statement but a blueprint for India’s sustainable future. By extending tax incentives, promoting green bonds, and addressing critical sectors like green hydrogen and renewable energy, the budget aims to set the stage for robust economic growth while adhering to climate commitments. As India strides towards its 2047 vision, these measures will be instrumental in achieving a balanced, green, and prosperous future.

This budget marks a decisive step in aligning India?s fiscal policies with its long-term developmental and environmental goals. By fostering a favourable investment climate and addressing key sectors, the government aims to propel India towards a sustainable and prosperous future.

The budget’s focus on green energy not only addresses climate change but also promises to create new economic opportunities, ensuring that India’s growth trajectory remains robust and inclusive.