India’s ambitious climate goals require meticulous economic planning and budget allocation for the policies formulated to promote renewable energy uptake. To this end, the government’s interim budget, announced in February 2024 established the groundwork for expanding the renewable energy sector. This foundation was further reinforced by the Union Budget 2024-25, announced in July, deepening and accelerating these initial initiatives by incorporating advanced economic strategies and enhanced fiscal measures. This budget for 2024-25 was preceded by the release of the Economic Survey 2023-24, which outlines key challenges and opportunities for the Indian economy, while covering the climate change and energy transition topics in detail.
This article aims to highlight the achievements in the renewable energy sector and the challenges outlined in the Economic Survey of India. It assesses whether budgetary allocations effectively address these challenges, noting both successes and shortcomings. Additionally, the article explores strategies for accelerating growth and achieving India’s renewable energy commitments.
Highlights of the Economic Survey 2023-24
As reported by the Economic Survey, India’s energy needs are projected to increase by 2 to 2.5 times by 2047. To support the developmental goals of its expanding economy and demography, India faces the challenge of advancing its energy transition, while ensuring sustained economic development.
Additionally, India is grappling with rising temperatures and increasing energy demands, posing significant challenges to its clean energy transition. The peak electricity demand in FY2024 surged by 13 per cent to 243 GW, prompting the government to enhance renewable energy generation. Overall, India reduced the emission intensity of its GDP by 33 per cent from 2005 levels by 2019, ahead of its 2030 target.
The survey highlights a significant shift in power generation towards non-fossil fuels, with fossil fuel generation expected to decline from 74.7 per cent in FY2022 to 55.9 per cent by FY2030. Conversely, non-fossil fuel generation is projected to increase from 25.3 per cent to 44.1 per cent during the same period. This transition is expected to be driven by the growth of the renewable energy sector, which is set to create substantial economic opportunities across the value chain, supported by approximately $17.88 billion in foreign direct investment received between April 2000 and March 2024.
To build on this momentum in terms of renewable energy capacity, the National Electricity Plan projects an increase in non-fossil fuel capacity from 203.4 GW (46 per cent) in 2023-24 to 349 GW (57.3 per cent) by 2026-27 and 500.6 GW (64.4 per cent) by 2029-30.
Going forward, the Economic Survey 2023-24 projects an investment of about Rs 30.5 trillion in the renewable energy sector between 2024 and 2030. To meet these goals, the Economic Survey emphasises critical areas that require attention. One key challenge is mobilising finance, which involves enhancing the banking sector’s ability to provide long-term credit for both domestic and international renewable energy projects. Additionally, the Economic Survey highlights the need for effective land acquisition strategies, including identifying sustainable land and obtaining necessary clearances as per the Land Acquisition Act.
Another key priority mentioned in the survey is job creation, with an emphasis on equipping the Indian labour force with the skills needed to thrive in the expanding renewable energy sector. The survey also emphasises the need to secure access to essential minerals such as lithium, nickel and cobalt for battery production. Furthermore, decarbonisation of micro, small and medium enterprises (MSMEs) is acknowledged, with a focus on financing the decarbonisation process and adjusting credit assessments based on their digital footprint.
Highlights of the Union Budget 2024-25
A review of the 2024-25 budget reveals key allocations for the Ministry of New and Renewable Energy, which saw a significant increase to Rs 191 billion from Rs 102.22 billion, and for the Ministry of Power, which received Rs 205.02 billion, slightly lower than the Rs 206.71 billion allocated in 2023-24. These budgetary allocations reflect strategic investments aimed at addressing ongoing challenges, particularly in renewable energy. Notably, the Interim Budget 2024 allocated Rs 750 billion until 2027 to the PM Surya Ghar Muft Bijli Yojana (PM-SGMBY), launched in January 2024, with these measures reiterated in the Union Budget.
In the bioenergy space, the interim budget 2024 initiated efforts to advance biofuels, particularly compressed biogas (CBG), targeting 750 CBG projects by 2028-29, with an investment potential of Rs 375 billion. Despite these plans, the Union Budget 2024-25 did not introduce significant new measures for the bioenergy sector, despite the government’s goal of 20 per cent ethanol blending with petrol by 2025 and setting up 5,000 CBG projects under the SATAT scheme, especially when the number of CBG projects implemented is too less vis-à-vis the target set.
Further, India’s reliance on imported critical minerals is not only a burden on the exchequer but also poses a geopolitical risk given the supply of such minerals is dominated by just a few countries. In 2023-24, the country spent Rs 4.3 billion on imported solar panels, marking a 361 per cent increase from the previous year.
The 2024 budget did address this dependency by exempting basic customs duty on 25 critical minerals, aiming to bolster domestic procurement, refining and supply capacities. Nevertheless, given the high demand and limited domestic technology for mineral extraction, these measures may fall short.
In addition, a significant development is the reduction of customs duties on solar panels and cells, which is expected to bolster domestic manufacturing and support the solar energy sector. Additionally, the budget highlights the transition of MSMEs and larger corporations to the Indian carbon market, moving away from the “Perform, Achieve and Trade” system. This includes providing energy audits for MSMEs and financial support for deploying clean energy and improving energy efficiency. Furthermore, the introduction of a taxonomy for climate finance is a commendable step. This initiative aims to enhance the availability of funding by accurately identifying green activities, thus attracting environmental, social and governance-focused investors and preventing greenwashing.
However, several critical areas remain inadequately addressed. Although the budget did not introduce new measures to support the wind energy sector, the recent announcement of a viability gap funding scheme for offshore wind, with a total outlay of Rs 74.53 billion, offers some encouragement.
The need for energy storage solutions is highlighted by the ongoing policy developments for pumped hydro storage, essential for managing intermittent renewable energy generation and meeting peak demand. This policy is essential for meeting energy storage targets and thus timely release of this policy will be appreciated by the industry.
Additionally, the renewable energy industry was expecting an extension of the interstate transmission system waiver, which is set to expire according to June 2025 in the budget, but it did not make the cut. However, the government had extended the waiver for green hydrogen/green ammonia (December 31, 2030) and offshore wind projects (December 31, 2032) earlier, which should be appreciated.
This budget also lacked new measures for the green hydrogen sector, though the National Green Hydrogen Mission is laying the groundwork and tender activity in this space has gained momentum. To advance the market, further fiscal support, including tax incentives and increased backing for green hydrogen production and electrolyser manufacturing is essential to boost India’s global competitiveness and counter international green subsidies.
Further, an important aspect that was overlooked in both the budget and the Economic Survey is the potential for clean energy initiatives to enhance employment and skilling opportunities for women. Empowering women in this sector could provide them with valuable skills, increase income opportunities, support their children’s education and promote sustainable energy practices.
Further, India’s research and development investment in renewable energy remains significantly below international standards, highlighting a critical gap and hampering technological innovation.
Conclusion
Despite some shortcomings, the Union Budget largely aligns with the highlights of the Economic Survey, striving to balance economic growth with India’s clean energy transition. A key focus area going forward will be the Anusandhan National Research Fund, with a Rs 1,000 billion financing pool, combined with the Critical Mineral Mission, which will reduce the country’s reliance on imported critical minerals and enhance resource self-sufficiency. All in all, India is positioning itself effectively to harmonise economic growth with a transition to clean energy. This approach underscores its commitment to sustainable development and green growth, ultimately supporting the net-zero goal by 2070.
By Mohammed Ali Siddiqi
