Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman approves the final Sovereign Green Bonds framework of India, a new tool for government borrowing.
Key points
- The plan to issue sovereign green bonds was announced by Finance Minister Nirmala Sitharaman in the 2022-23 budget as a part of overall market borrowing with the intention to use the funds to build green infrastructure.
- The framework comes close in the footsteps of India’s commitments under “Panchamrit” as elucidated by Prime Minister Narendra Modi at COP26 at Glasgow in November 2021.
- A green finance working committee headed by the Chief Economic Adviser V Anantha Nageswaran will select public sector projects for green financing from those submitted by government departments.
- The funds raised through the instrument to be used for projects including renewable energy, supporting electric vehicles and promotion of public transport through its electrification and transport subsidies, biodiversity conservation and climate change mitigation.
- The proceeds from green bonds will not be used to fund hydropower plants larger than 25 MW, nuclear projects, any biomass-based power generation with biomass originating from protected areas, projects involving new or existing extraction, production and distribution of fossil fuels.
- The equity will be provided only in the case of metro projects, and green spending will include investment, subsidies, grants-in aid or tax foregone, including their combination.
- The proceeds will be deposited to the Consolidated Fund of India (CFI) in line with the regular treasury policy, and then funds from the CFI will be made available for eligible green projects. For the purposes of ensuring that the proceeds’ allocation and accounting is transparent, clear and beyond doubt, a separate account will be created and maintained by the Ministry of Finance Government of India.
- A ‘green project’ classification is based on the following principles: • Encourages energy efficiency in resource utilization • Reduces carbon emissions and greenhouse gases • Promotes climate resilience and/or adaptation • Values and improves natural ecosystems and biodiversity especially in accordance with SDG principles.
What are Green bonds?
- Green bonds are financial instruments that generate proceeds for investment in environmentally sustainable and climate-suitable projects.
- They command a relatively lower cost of capital, compared to regular bonds and necessitate credibility and commitments associated with the process of raising bonds.
- The issue of sovereign green bonds will help the Centre in tapping funds from potential investors for deployment in public sector projects aimed at reducing the carbon intensity of the economy.
