Union Budget 2024: Need to Catalyse India’s Green Energy Transition

India has set itself a target of achieving 500 GW of renewable energy capacity by 2030 as part of its commitment under the Paris accord. Significant progress has been made, with renewable energy capacity reaching over 170 GW in 2023. However, more needs to be done to accelerate the pace of growth.

The Ministry of New and Renewable Energy estimates that achieving the 2030 target will require investments of around USD 500 billion. Much of that has to be done through private sector participation, and the budget can help by providing viability gap funding and low-cost financing through a dedicated green fund. Tax holidays (though an anathema to the present policy discourse), exemptions on capital equipment imports and reductions in GST rates would help lower costs for the consumers and reduce capital requirement for developers and investors.

Budgetary capex will be required for augmenting transmission infrastructure for smart grids to manage intermittent supply. Emerging areas like green hydrogen and offshore wind would need further policy backing to achieve commercial viability.

Empowering MSMEs for Green Transition

Micro, small, and medium enterprises (MSMEs) are the backbone of India’s economy, contributing around 30% to GDP and 44% to exports (declining over years). There are over 60 million MSMEs operating in India, and they provide large-scale employment opportunities. MSMEs are largely in largely in informal sector and as such lack access to affordable finance and technical know-how, hampering their ability to adopt cleaner, energy efficient technologies.

The budget should introduce targeted incentives to encourage MSMEs to invest in upgrading to sustainable manufacturing processes, materials, and waste management practices. Tailored fiscal incentives, such as interest subsidies on bank loans and capacity building initiatives for MSMEs can drive widespread adoption of resource efficient and low carbon solutions across industrial hubs.

Scaling Up Electric Mobility

The transport sector accounts for about 10% of India’s greenhouse gas emissions, a share that is expected to grow rapidly. Transitioning to electric mobility is key to reducing carbon footprint, improving air quality in cities, and enhancing energy security by lowering fuel imports. By 2030, India aims to have 30% private cars, 70% commercial vehicles and 80% two-wheelers and three-wheelers as electric vehicles. This will require concerted policy action and investments.

Despite such remarkable EV adoption, India is considerably behind its global peers such as Norway and China. This does present an opportunity, and the government support to accelerate electric vehicle adoption based on experience of these countries would be in installing public fast charging points and slow charging points, extending non-monetary benefits to EV drivers, etc.

Promoting Shipping and Ports Capex allocation for port infrastructure and shipping has not been large as compared to road and railways. This probably suggests that port infrastructure, shipping and inland waterways require more attention. No doubt, private sector investment has been encouraged. The Prime Minister has recently launched ‘Maritime Amrit Kaal Vision 2047’ encompassing aspirations in logistics, infrastructure, and shipping supporting India’s ‘Blue Economy’. Despite private investors showing interest in investing in ports and inland waterway docks, the lack of clear incentive policies has prevented them from fully committing. There is a trend towards investing in logistics ports. So, efforts can be made to promote logistics ports as coastal shipping and inland waterways can reduce logistics costs by 4% of GDP and lower carbon emissions by 33% over the next decade. Port businesses, it may be mentioned, are most profitable in the logistics and warehousing, and that can help preserve goods and distribute.

Building Climate-Resilient Digital Agriculture

India’s agriculture sector, which employs almost 50% of the workforce, has a declining share in the GDP. While that is part of the growth and economic structuring, the growth in agriculture sector is still weak.

Climate change is definitely one of the key reasons. Climate change has also resulted in slowing animal growth rates and decreasing livestock productivity. Digital agriculture and better management practices can help overcome climate risk and reduce food insecurity. This will require a concerted effort from policymakers, researchers, and farmers to ensure that the benefits of digitalisation are realised in a sustainable and equitable manner. The government had announced the development of Digital Public Agriculture Infrastructure and an Agriculture Accelerator Fund (AIF), to foster farmer-centric solutions, nurture agri-tech growth, and encourage agri-startups in rural areas, but concrete steps need to be taken to improve increased adoption of digital technologies.

Summing Up

# While the budget provides an occasion to revisit existing schemes, bring new ones, it is also an opportunity to push for a multi-year roadmap of incentives, sectoral policies, and public expenditure plans to provide long-term direction to promote green adoption. Consistent political will is vital.

# No doubt everything will not be done in the February budget, the policy makers should think of appraising the existing schemes, and policies, and think of bringing new ones with a clear-cut view on cost-benefit analysis.

(Sanjay Kumar is Partner, Deloitte India & Vasundhara Rastogi is Assistant Manager, Deloitte India)