India’s Budget 2024-25 focuses on capacity building to fight climate change, but lacks details

Finance minister Nirmala Sitharaman made some strong statements regarding the country’s energy transition goals with a focus on pushing MSMEs, which are currently lagging behind, to make the leap

The newly elected Indian government announced its 2024-25 budget on Tuesday. Finance minister Nirmala Sitharaman’s speech touched upon some aspects of climate change—namely resilience and adaptation. While the FM acknowledged flash floods, cloudbursts and landslides in Bihar, Assam, Himachal Pradesh, Uttarakhand and Sikkim, and promised assistance to these regions, details on what this assistance would look like were missing. 

The PM Surya Ghar Muft Bijli Yojana and pumped storage, which Sitharaman had spoken of in her interim budget, found a mention this time as well, signalling policy continuity by the new government with regards to India’s energy transition plans. The finance minister also announced the government’s plans to formulate a policy document on the appropriate energy transition pathways that will aim to balance growth with employment and sustainability. 

The minister also said the government will develop a taxonomy for climate finance to increase availability of capital for climate action (finance for adaptation and mitigation projects). “This will support [the] achievement of the country’s climate commitments and green transition.” Sitharaman said. This taxonomy has been in the works for a long time, but progress has been slow. “Investors and industry have been demanding a taxonomy and transition pathway as guidance for flow of finance and reorientation of economic activity. The budget announcements that clearly mention the establishment of a carbon market, taxonomy and transition pathways mark significant progress in planning towards Net Zero in 2070,” said Suranjali Tandon, associate professor, National Institute of Public Finance and Policy.

Focus on energy transition

Sitharaman said the PM Surya Ghar Muft Bijli Yojana, which was launched to install rooftop solar plants to enable 10 million households to get free electricity up to 300 units per month has generated a “remarkable response” with more than 12.8 million registrations and 1.4 million applications. Missing from her speech, however, was any acknowledgement of the glitches and errors on the government’s national registration portal that has led to a significant loss of business for vendors. 

For the transition to solar energy, which Sitharaman said was “critical in the fight against climate change,” the minister proposed to expand the list of exempted capital goods for use in the manufacture of solar cells and panels in the country. The finance minister removed the duty on oxygen free copper for manufacture of resistors and certain parts needed to manufacture connectors for the solar panels. But this waiver was not extended towards solar glass and thinned copper interconnects because they have sufficient domestic manufacturing capacities, Sitharaman said.  

The minister said nuclear energy is expected to form a significant part of the mix for Viksit Bharat or developed India. She added the government will partner with the private sector to set up Bharat Small Reactors, research, and development (R&D) of Bharat Small Modular Reactor, newer technologies for nuclear energy.

The budget proposed “required fiscal support” for a joint venture between NTPC & BHEL to set up a full-scale 800 MW commercial thermal plant using Advanced Ultra Supercritical (AUSC) technology indigenously.

Launch of a critical mission

To boost processing and refining/recycling of critical minerals and encourage their acquisition from overseas, the Union government has decided to launch a Critical Minerals Mission. The budget has fully exempted Custom duties on 25 rare earth minerals like lithium and reduced Basic Customs Duty (BCD) on two of them. India imports critical minerals therefore to boost domestic mining, the government passed the Mines and Minerals (Development & Regulation) Amendment Bill 2023 last year, to allow exploration licences for deep-seated and critical minerals. Critical minerals are used in clean-energy sectors such as solar, wind, electric vehicles and batteries.

Shift to carbon markets for reducing emissions 

The budget speech mentioned forming a pathway for “hard to abate” industries to shift from energy efficiency targets to “emission targets”. The minister said appropriate regulations for transition of these industries from the current ‘Perform, Achieve and Trade’ (PAT) mode to ‘Indian Carbon Market’ mode will be put in place. 

“Finally, the government has also recognised an important piece of the puzzle, the MSME sector. The budget emphasised the transition of these industries and also other large corporations from the current ‘Perform, Achieve and Trade’ mode to ‘Indian Carbon Market’. For MSMEs in particular, energy audits will be provided and financial support for deploying clean energy and energy efficiency measures,” said Vibhuti Garg, director, South Asia, Institute for Energy Economics and Financial Analysis (IEEFA).The addition of MSMEs is a significant step also because they form the supply chains for larger corporations. This will help India’s larger companies, especially those exporting abroad, to meet their Scope emission norms (which require clean supply chains) for the global market and for the domestic BRSR norms.

However, the finance ministry’s 2023-2024 Economic Survey Report, which is released a day before the country’s annual budget, said India’s export of carbon credits through the voluntary carbon market (VCM) will actually make emission reduction expensive and lead to double accounting. VCM operating in India could make the country’s emission reduction expensive and difficult, given its net-zero commitment, the survey pointed out, in a rare disagreement between policy arms of the Indian government. 

India is the world’s second-largest source of carbon offsets in the voluntary carbon market, which allows companies to voluntarily buy and sell carbon credits generated from emission reduction or removal projects. The Survey stated that there is uncertainty about whether a credit sold to a foreign entity will also be claimed by the country where the credit was generated, which could lead to double accounting.

The Economic Survey stated that as part of the NDC, India plans to augment non-fossil energy so that it can meet 50% of its electric power requirements by 2030 and grow forests to increase the carbon ‘sink’. The Economic Survey pointed out that if India cannot claim these credits, the country’s emission reduction activities as part of its climate commitments could become expensive and India will not be able to afford to make investments in the hard-to-abate options.

Push for climate-resilient agriculture

The government also plans to undertake “a comprehensive review of the agriculture research setup” to raise productivity. The minister said “new 109 high-yielding and climate-resilient varieties of 32 field and horticulture crops will be released for cultivation,” adding that in the next two years, one crore farmers will be initiated into natural farming supported by certification and branding. The government, in partnership with the states, will facilitate the implementation of the Digital Public Infrastructure (DPI) in agriculture for coverage of farmers and their lands in three years.

About The Author

Editorial Team

A team of handpicked and dedicated writers committed to fact check each climate-related statement. Go to the roots and intent of each policy implemented, internationally and at home to help you understand climate better

See author's posts