India’s budget for 2022 finally recognised the urgency of acting on India’s clean energy and climate ambitions, but remains far from describing a clean low-carbon development plan
Over the past two years, it has become clearer that infrastructure is India’s big economic bet for the decade. Prime Minister Narendra Modi made this vision known through his announcement of the Gati Shakti plan last year. This ₹100-crore national infrastructure master plan “will make a foundation for holistic infrastructure and give an integrated pathway to our economy,” PM Modi had said, while launching it on Independence Day last year. This “holistic infrastructure” includes railways, roads, airports, ports, mass transport, waterways and logistics. But a plan of this magnitude needs an incredible amount of energy to develop and sustain—and increasingly, a roadmap that is clean and green.
By many indications, the Union Budget presented a glimpse of where the government’s priorities will lie in pulling together such a roadmap. Finance minister Nirmala Sitharaman’s budget speech was peppered with references to clean energy transition and sustainable living—especially in cities—green bonds and a climate action fund. While in previous budgets, these terms were buried deep in sections pertaining to climate change or sustainability, their prominence this year shows they are a priority. But a bit of number crunching reveals that there is still a significant gap between what is being said and what is on paper.
“At a macro level, increase in Capex will boost economic growth, however, not much additional budgetary support or tax incentives have been provided to clean energy, both grid and off-grid, including solar rooftop, storage technologies and green hydrogen. This is despite the big expectation that support will be provided to these new technologies to improve its commercial viability,” says Vibhuti Garg, Energy Economist, Lead India, IEEFA.
What the budget says on climate, clean energy
At this year’s COP, PM Modi announced India would become net zero by 2070. While this move was welcomed by the world, questions were also raised about how the country would go about achieving this goal, especially with climate disasters on the rise. According to a study by the Overseas Development Institute, India is set to lose 3-10% of its GDP to global warming. Not surprising, considering a single event such as Cyclone Amphan in 2020 affected 13 million people and caused over $13 billion in damage, according to the study.
To get India closer to its 2070 goal, Sitharaman announced the following plans for India’s climate action and clean energy transition goals.
- A climate action fund to achieve its ambitious green targets. The government’s contribution will be a maximum 20%, while the remaining will be made by private participants.
- Four pilot projects for coal gasification and conversion of coal into chemicals
- Biomass pellets will be used to reduce carbon dioxide, saving 38 MMT annually, Sitharaman said. This would also provide extra income to farmers, jobs to locals and reduce stubble burning.
- Green bonds will be issued to mobilise green infrastructure. The funds generated will be used for projects that will help reduce carbon intensity of the economy, Sitharaman said.
- 400 new generation Vande Bharat trains with better energy efficiency and passenger riding experience will be manufactured in the next three years.
- To promote a shift to the use of public transport in urban areas, Sitharaman announced special mobility zones with zero fossil fuel policy to be introduced.
- Considering space constraints in urban areas, a ‘Battery Swapping Policy’ will be brought in, the FM said. As per this policy, an owner of an electric vehicle can exchange a depleted battery with one that has been fully charged at a station without having to wait to charge the existing one.
- To facilitate domestic manufacturing for India’s ambitious goal of 280 GW of installed solar capacity by 2030, Sitharaman announced an additional allocation of ₹19,500 crore for production-linked incentives (PLI) to manufacture high-efficiency modules with priority to fully integrate manufacturing units to solar PV modules.
An analysis by the Centre for Budget and Governance Accountability (CBGA) stated Budget 2022 “sent an important signal to markets, financial institutions and the workforce by mentioning the clean energy and climate section as a sunrise industry and an employment generator.” But are signals enough when the country seems to be haemorrhaging money with each climate disaster?
The truth lies somewhere in between.
What the budget means
“The Union budget 2022 prioritised climate action as one of the four pillars and explicitly acknowledged the threat of climate risks, but it clearly missed on providing a booster shot to climate adaptation and resilience. While a renewed focus on urban planning was one of the key takeaways in the budget, there was no mention of climate-proofing these investments and infrastructure. More than 75% of Indian districts are extreme event hotspots as a result of which India has suffered an annual average loss of $87 billion,” said Abinash Mohanty, Programme Lead, Council on Energy, Environment and Water (CEEW).
Take the Gati Shakti plan as an example. The plan alludes to clean energy through the use of high-efficiency trains. But there is no mention of funds to make the “holistic infrastructure” pertaining to roads and airports and other forms of mass transport more climate-resilient. Climate adaptation also did not get any special attention.
According to official estimates, India would require $4.5 trillion in clean infrastructure investments by 2040 to meet its current climate action commitments. Adaptation efforts in the country too are slated to require about $206 billion (at 2014-15 prices, eq. to about $257 billion at current prices) between 2015-2030— an annual average of $17.1 billion. According to the 2021-22 Economic Survey, released a day before the Budget, India’s adaptation efforts are predominantly financed domestically. Between 2015-19, just $113 million (around ₹847.5 crore), at an annual average of $7.5 million, was spent on adaptation covering 30 projects across the country.
Budgetary allocations are only a drop in the bucket when relative to the quantum of funds required. The budget finally carried a tacit acknowledgement of the massive deficit in climate action spending. The government will now look to close these gaps through the issue of green bonds, which will lock in funds for low-carbon infrastructure and the setting up of the Climate Action Fund, 75% of which will be contributed by the private sector.
While the allocation of ₹19,500 crore for production-linked incentives (PLI) is a step in the right direction to boost domestic manufacturing of solar, what is missing is the allocations to research and develop solar technology that will have more far-reaching outcomes. The enthusiastic official endorsements of green hydrogen over the past year are not reflected in the budget, with an outlay of just ₹1 lakh. Instead, India’s priority in the budget was clearly natural gas. While most outlays under the Ministry of Petroleum and Natural Gas remained static or showed modest changes, exploration and production capex allocations towards the Gas Authority of India Limited (GAIL) increased by over 20%. The refinery and marketing allocations for the public sector company more than doubled from last year.
The bullishness on gas, however, is not evident in the outlay for domestic subsidies. According to an analysis by the Centre for Policy Research, this budget nullified the rapid success of the expansion of LPG for cooking through the Pradhan Mantri Ujjwala Yojana (PMUY) in the fight to control air pollution. It allocated only ₹4,000 crore for LPG subsidies (down from over ₹12,000 crore in 2021-22, and over ₹26,000 crore in 2020-21), the analysis found. As far as biomass pellets are concerned, the analysis stated that the plan to increase their use remains unexplained and their effectiveness at reducing stubble burning is still up for debate.
In keeping with India’s commitment to phase down coal, allocations towards coal and lignite have dropped sharply after the big push for exploration in the past few years. After the tepid response to commercial coal auctions, there are clear signs of a pivot from the direct usage of raw coal. While allocations for this aren’t clear in the budget documents, the FM’s announcement of pilot coal gasification projects may be construed as an indication of the direction the Indian government intends to head towards respect to the future of coal.
A welcome change, however, is the mega boost that the budget has given to electric vehicles. The allocation for the FAME India subsidy scheme increased from ₹800 crore in 2021-22 to ₹2,908 crore in 2022-23. The PLI scheme for National Programme on Advanced Chemistry Cell (ACC) Battery Storage also got a ₹3-crore boost. This could work well under the government’s vision to turn urban areas into special mobility zones with zero fossil fuel policy.
The most glaring problem, however, is which ministry will deliver on India’s 2070 net-zero aim. The Ministry of New and Renewable Energy (MNRE) and the Ministry of Environment, Forests and Climate Change (MoEF&CC), which are largely in-charge of India’s climate efforts, got ₹6,788 crore and ₹3,030 crore, respectively, but this is not nearly enough as the expectations of the 2070 target loom large over both. “Presently no single ministry can deliver Modi’s panchamrit—the five nectar elements announced at COP26 last year. Climate scientists have been demanding that there should be a separate ministry of climate change, which will give the impetus needed to PM pledge of net zero by 2070,” says Dr Anjal Prakash, research director and adjunct associate professor at the Bharti Institute of Public Policy, Indian School of Business.