Mapping India's Energy Policy 2023

A decade in action

Global resurgence of fossil fuel subsidies affects India too, and it may delay progress on clean energy goals and unwind decade of hard-won reforms.

Over the past decade, India has made meaningful progress on fossil fuel subsidy reform, with fossil fuel subsidies declining by 59% since 2014—an accomplishment that many other large economies have failed to achieve. However, the 2022 energy crisis—together with India’s growing energy demand— has led the country to put in place measures that may unwind this hard-won progress. Like many countries, with an aim to protect low-income households, India responded to peaking fossil fuel prices in 2022–23 by capping retail prices of petrol, diesel, and domestic liquefied petroleum gas (LPG), cutting taxes, providing direct budgetary transfers to businesses and consumers, and supporting existing energy supplies. However, untargeted fossil fuel subsidies are generally highly inefficient at supporting low-income households, and they shrink the fiscal space available to support emerging clean energy technologies, undermining the energy transition. While these subsidies remain below their historic peak in 2013, without further policy reform, their resurgence is concerning and can have important budgetary impacts. Our latest estimates show that fossil fuel subsidies remained five times the subsidies for clean energy in fiscal year (FY) 2022–23.

 India is positioning itself to become a USD 5 trillion economy in the next 3 years (up from USD 3.7 trillion in FY 2024) and taking bold steps to decouple this economic growth from greenhouse gas (GHG) emissions. For this, in the Union Budget 2023–24, the government set an agenda to deliver economic growth, energy access, energy security, and decarbonization through “green growth” by allocating INR 35,000 crore (USD 4.4 billion) for priority capital investments toward energy transition and net-zero objectives.

In 2023, India also demonstrated leadership by steering the G20 under its Presidency to a common goal of tripling global renewable energy capacity globally by 2030. However, the country’s rapidly increasing energy demand has also led it to adopt a hybrid approach, bolstering all forms of energy supplies in 2023. Our estimates show that this has led total energy subsidies to surge to a 9-year high of INR 3.2 lakh crore (USD 39.3 billion) in FY 2023 (see methodology note for details). In FY 2023, both clean energy and fossil fuel subsidies grew by around 40%, with subsidies for renewable energy and electric vehicles growing slightly faster. The government also announced several new initiatives during this period for promoting emerging sectors such as green hydrogen, battery storage, and offshore wind. Despite this, clean energy subsidies remained less than 10%, while subsidies for coal, oil, and gas contributed around 40% of total energy subsidies. Most of the remaining subsidies were for electricity consumption.

Ongoing high levels of public financial support for fossil fuels not only undermine emission reduction goals but also perpetuate dependence on price-volatile and geopolitically risky fossil fuels, which weakens energy security and affordability. Shifting support from fossil fuels to clean energy in a socially responsible manner provides a long-term solution to the Government of India’s energy objectives and is consistent with India’s commitment to achieving 50% cumulative electric power installed capacity from non-fossil sources by 2030, energy independence by 2047, and net-zero emissions by 2070.

To support its consideration of these issues, Mapping India’s Energy Policy provides the latest estimates on public financial support for energy in India, using a detailed review of a decade of data (FY 2014–FY 2023) for the first time.


Why it’s important that we understand these public financial flows and the cost of fossil fuel subsidies globally

The energy price crisis brought about by Russia’s invasion of Ukraine led to a spike in subsidies for fossil fuels to record levels across the world. Global fossil fuels subsidies totalled at least USD 1.3 trillion in 2022, primarily consisting of subsidies for consumption. Governments, including India’s, were quick to implement these measures in the face of soaring fossil fuel prices.

Governments need to support businesses and households during a cost-of-living crisis. However, untargeted fossil fuel subsidies are a notoriously inefficient way to help the poor because the largest sums go to the rich, who use the most energy. Fossil fuel subsidies also delay transitions to cleaner alternatives and exacerbate toxic air pollution and climate change, which tend to impact the poor the most.

Instead, governments should channel their resources toward measures that more effectively support the people they represent, such as cash transfers or energy access through clean technologies. Where immediate removal of fossil fuel subsidies is not feasible (for example, due to the lack of adequate welfare systems), governments should better target subsidies to those most in need while developing welfare systems funded by fossil fuel subsidy reform.

Price signals on fossil fuels need to be maintained to encourage consumers and investors to switch to cleaner alternatives. Below-market pricing and under-taxation of fossil fuels mean that retail prices do not reflect supply costs or social costs, leading to overconsumption. The International Monetary Fund estimated that the undercharging of environmental costs and foregone consumption taxes for coal, diesel, gasoline, and natural gas cost an estimated USD 5.7 trillion globally in 2022 (this is what the International Monetary Fund calls “implicit subsidies” but are more commonly understood as externalities or social costs). For India, this was USD 346 billion in 2022, or 10.6% of GDP. Taxation—while politically unpopular—can ensure that retail prices reflect at least some of these social costs while raising substantial revenues that can be used for social welfare and supporting fossil-dependent communities and industry’s transition.

Global subsidies for producers totalled around USD 51 billion in 2022, based on a projection from Organisation for Economic Co-operation and Development data covering 51 countries. Production subsidies can have a major impact on supply because they are designed to crowd in substantial private funds for the exploration and development of fossil fuels. The result is to amplify private investments, lock in higher production and emissions, potentially increase stranded assets, and divert investment away from cleaner sources of energy.

People on motorbikes pull into a fuel station in Kerala, India.

A diesel/petrol fuel station in Thrissur district, Kerala. (Shawn Sebastien/IISD)

A diesel/petrol fuel station in Thrissur district, Kerala. (Shawn Sebastien/IISD)

Oil and gas subsidies rose by 63% in FY 2023, a period when revenue receipts contracted by 3%, despite collections from an additional windfall profit tax imposed on producers.

The government provided significant support to the oil and gas sector through direct budgetary transfers to state-owned oil marketing companies (OMCs) in FY 2023. During this period, total oil and gas subsidies rose to at least INR 70,692 crore (USD 8.8 billion), a 63% increase from FY 2022. Over the last decade, the nature of oil and gas subsidies provided has shifted from substantial consumer price support for petrol and diesel (until FY 2015) to domestic LPG in FY 2023. Consumer price support for petrol and diesel is now provided through excise and VAT cuts since India adopted a variable approach to excise and VAT on fuel. However, the variable approach to excise and VAT on fuel results in the absence of a clear benchmark for determining subsidies, and our estimates, therefore, do not include the impact of these tax cuts in our subsidy totals.

The government also provides support to the oil and gas sector through tax expenditures that tend to be less visible but were quantified as a part of this study. A large part of these tax expenditures also went to domestic LPG consumers through lower goods and services tax (GST) rates and custom duty exemptions on imported LPG for domestic use (see interactive database for details). India also continues to provide a full custom duty exemption on import of crude oil to promote its refining sector. Although identified, this measure has not been quantified in the current estimates.

In FY 2023, the government provided a one-time grant of INR 22,000 crore (USD 2.7 billion) to OMCs for under recoveries on sale of domestic LPG through direct budgetary transfers. The grant is to cover the historical losses incurred by OMCs on selling LPG below cost to domestic consumers from June 2020 to June 2022. Due to resurgent international crude oil and LPG prices, in August 2023, the government cut domestic LPG prices across the board by INR 200 per cylinder and expects OMCs to absorb any further hikes in costs. For beneficiaries under the Pradhan Mantri Ujjwala Yojana—a scheme aimed at making LPG available to women from poor households—the subsidy was further increased to INR 300 per LPG cylinder in October 2023. Together, these measures could lead to an additional subsidy burden of up to INR 37,700 crore (USD 4.6 billion) for the government in FY 2024. A similar price freeze exists on retail prices of petrol and diesel at the time of writing.

Moreover, the government plans to spend another INR 628 crore (USD 78 million) toward capacity addition to India’s strategic petroleum reserves along with capital support of INR 15,000 crore (USD 1.9 billion) to OMCs in FY 2025. Based on media reports, the government is still considering the mechanism for providing this capital support. The government should carefully evaluate if this support is being used for new diversification plans or bailing out OMCs due to past under-recoveries and the price freeze in place on retail petrol and diesel for the last ~20 months. The latter can create additional fiscal pressure on government budgets for many years to come.

Bar graph showing total oil and gas subsidies in India dropping between 2014 and 2023.
Line graph showing rise in price of fuels, then a plateau once price freezes are introduced around 2022.

Source: Author’s analysis; Petroleum Planning & Analysis Cell (PPAC) data 2023 for prices in Delhi.

Source: Author’s analysis; Petroleum Planning & Analysis Cell (PPAC) data 2023 for prices in Delhi.

Area graph showing the price build-up for petroleum products in India increasing until 2022, then plateauing.

Source: Author’s analysis; PPAC data 2023.

Source: Author’s analysis; PPAC data 2023.

These higher subsidy levels in FY 2023 have come at a time when revenues from oil and gas have contracted. Excise duty collections from the petroleum sector declined by over INR 71,800 crore (USD 8.9 billion) or 18% in FY 2023 despite 6% growth in oil demand and the imposition of a windfall tax on production of crude oil and export of petrol, diesel, and jet fuel. The windfall tax (a special excise duty) was paused for a few months at the beginning of FY 2024 but has since been reinstated due to a resurgence in international prices. Our previous publication, Mapping India’s Energy Policy 2022 (Update), warned that support provided through tax cuts can lead to bailouts, reduced dividends, and lower tax revenue—all of which occurred in FY 2023.

Key Recommendations

  1. Return to a market-based pricing regime for petroleum products and tax rates that reflect their negative impacts. Instead, ensure that the poor are supported through temporary and targeted cash transfers.
  2. Ensure that the capital outlay of OMCs is linked to their diversification and net-zero plans.
  3. Promote transparency on the use of tax revenues from cesses, levies, and surcharges on petroleum products.
  4. Use scarce public resources to incubate new technologies, such as electric cooking stoves to reduce import dependence on LPG in the medium and long terms.


Oil bonds: How a clever financial instrument has become a fiscal burden

India’s experience with oil bonds demonstrates why the government should be wary of ongoing fossil fuel subsidies that can lead to long-term debt on the public balance sheet. Oil bonds are special securities instruments issued by the government to OMCs to offset their losses incurred from shielding consumers from rising crude oil prices. These are typically long-term bonds with a tenure of 15 to 20 years, and they carry an interest that is paid along with the principal amount to OMCs. Governments resort to such measures rather than cash grants when attempting to delay the fiscal burden of a payout, such as when in danger of breaching a fiscal deficit target.

In India, the government issued 14 oil bonds worth INR 1.34 lakh crore (USD 16.6 billion) to OMCs between 2005 and 2010 that had to be repaid between 2015 and 2026. Between 2015 and 2021, out of these 14 bonds, the government has been able to fully pay off only four sets of oil bonds, a total of INR 13,500 crore (USD 1.7 billion). The government continues to provide interest of around INR 10,000 crore (USD 1.2 billion) a year on these bonds at the time of writing and has often referred to them as the principal reason for needing to keep excise and VAT on petrol and diesel at high levels.

Weather-worn diesel pump next to fishing harbour.

Diesel pump in Munambam fishing harbour in Ernakulam district, Kerala. (Shawn Sebastien/IISD)

Diesel pump in Munambam fishing harbour in Ernakulam district, Kerala. (Shawn Sebastien/IISD)

Coal subsidies reached almost INR 50,000 crore (USD 6.2 billion) in FY 2023, a 17% increase over FY 2022.

India continues to be powered by coal, which comprised 45% of total primary energy supply in 2022, an increase from 43% in 2018. The central government provided at least 10 different subsidies to coal, but the largest in FY 2023 were tax expenditures: concessional custom duty on imported coal and a concessional GST rate. These concessions mean that India foregoes substantial revenue from coal while controlling coal prices. For the first time, we have also added the fiscal impact of underpricing of coal used by utilities to our estimates using a conservative approach (see methodology note for details). The quantification of this measure was previously difficult due to the unavailability of comprehensive data on quantities and prices for grade-wise coal utilized by utilities and captive power producers. This data is now made available on a regular basis by the government. This price support mechanism amounted to INR 15,000 crore (USD 1.9 billion) in FY 2023. However, it is important to highlight here that India also taxes coal through the GST compensation cess at INR 400 per tonne, which alone comprises 36% of total coal revenues and totalled INR 46,909 crore (USD 5.8 billion) in FY 2023 as per our latest estimates.

Coal subsidies in India dropping from 2014-2021, then rapidly increasing in 2022 and 2023.

To meet the rising demand from power and industry, the country relied on expensive coal imports, with a 20% increase in non-coking coal imports (by volume) in FY 2023—the highest growth since FY 2015. As a result, the coal import bill reached INR 3.8 lakh crore (USD 47 billion) in FY 2023, an increase of 68% over FY 2022. To reduce costs to electricity providers and steelmakers, India fully exempted imported coal from custom duty for a short duration between June 2022 and November 2022, leading to high support levels. Our estimates show this measure alone led to foregone revenue of INR 10,000 crore (USD 1.2 billion) in FY 2023. Official estimates were not publicly available. Further, the Ministry of Power has mandated that imported coal-based power plants operate at full capacity till June 2024 and directed all thermal power plants to import a minimum of 6% of their fuel requirement for blending till March 2024. It is also planning 80 GW of new thermal capacity addition by 2031–2032 to meet the rising power demand in the country.

The government’s primary motivation in reducing coal prices through concessional duties, tax rates, and underpricing of coal for power utilities is to make electricity production more accessible and affordable, noting that the single largest energy subsidy in India is electricity subsidies (see next section).

However, international public finance for coal globally is reaching a peak, with financial institutions increasingly recognizing climate change as a source of financial risk. Major economies, including China’s, and globally strategic financial institutions, such as multilateral development banks and development financial institutions have announced the end of cross-border coal financing, and around 200 of them have formal policies restricting investment in coal. As a result, domestic public financial institutions are increasingly taking on higher risk of financing new investments in coal mining and thermal power, potentially requiring substantial bailouts in future due to the risk of stranded assets. This will lock scarce domestic public finance into coal assets for many coming decades.

Key Recommendations

  1. The government should carefully evaluate the fiscal impact of tax expenditures provided to coal as the country moves toward higher electrification.
  2. Design and articulate medium and long-term coal production plan to help communities and its coal-linked public sector undertakings (PSUs) better prepare for a net-zero future.
  3. The government should conduct a detailed cost-benefit analysis of earmarking a portion of its existing energy revenues for meeting its emerging economy-wide just transition needs.
Bar graph showing total oil and gas subsidies in India rising between 2014 and 2023.

Consumer price support for electricity continues to grow and remained the single largest subsidy mechanism, accounting for 50% of all energy subsidies in FY 2023.

Transmission and distribution subsidies were estimated to be INR 1.7 lakh crore (USD 20.9 billion), a 3% decrease from FY 2022. This decrease was mainly due to old grid-strengthening schemes for the distribution sector being subsumed in the wider results-linked Revamped Distribution Sector Scheme. Consumer price support for electricity remained the single largest subsidy mechanism, accounting for 93% of all subsidies to the transmission and distribution sector and were estimated to have grown by 3% in real terms in FY 2023. Without reforms, these subsidies will only increase with higher electrification and economic growth.

Electricity prices in India are subsidized for certain agricultural users and households. For these groups, prices remain below the cost of supply, leading to large under-recoveries for state distribution utilities. At an aggregate level across states, agricultural consumers receive almost 75% of all electricity subsidies. To address this (and shift agricultural demand to daytime as the grid absorbs greater levels of renewable energy), the government has been incentivizing solar irrigation through its flagship PM-KUSUM scheme. As per the latest official reports, there are some signs of improvement, with tariff subsidy billed declining to 17.9% in FY 2022 from 18.7% in FY 2021. However, accumulated losses continue to increase and were INR 5.5 lakh crore (USD 68.5 billion) in FY 2022.

To address transparency concerns around this mounting debt, the government amended the Electricity Rules in 2023 to improve the accounting, payment, and reporting of electricity subsidies—a major achievement as India moves toward greater electrification. Under the new rules, every distribution licensee needs to submit a quarterly report to their respective State Electricity Regulatory Commission (SERC) with details of the subsidy demands raised by the licensee, the actual subsidy paid, and the resulting subsidy gap. The SERC will then review these details and publish quarterly reports on electricity subsidies. Importantly, the new rules specify that SERCs are empowered to issue orders for implementation of the tariff without subsidy in case the subsidy has not been paid in advance by the respective state government. This is an important milestone in improving the governance of electricity subsidies. SERCs should use this opportunity to also study the distributional impacts of electricity subsidies for better targeting.

Wind turbine stands tall amidst palm trees and power lines.

A 350 KW Windmill owned by ‘Odanthurai’ village panchayat council in Tamil Nadu. (Shawn Sebastien/IISD)

A 350 KW Windmill owned by ‘Odanthurai’ village panchayat council in Tamil Nadu. (Shawn Sebastien/IISD)

Renewable energy subsidies increased to INR 14,843 crore, an 8% increase over FY 22, but remain low when compared to fossil fuels.

In FY 2023, India also ramped up subsidies for renewable energy, which were INR 14,843 crore (USD 1.8 billion) in FY 2023, an 8% increase over FY 2022. The key measures remain direct budgetary spending through several Central Sector schemes being implemented by the Ministry of New and Renewable Energy, such as the Solar Parks and Ultra Mega Solar Power Projects scheme, Central PSU (popularly known as CPSU) Scheme, PM-KUSUM and rooftop solar program. Most of these schemes were to end by March 2024. However, due to multiple issues, such as land availability, evacuation infrastructure, and supply chain bottlenecks, the government has now extended these schemes till March 2026, with no financial implication since current budgets remain underspent. Other quantified support measures include tax expenditures and price support in the form of accelerated depreciation, waiver of inter-state transmission system charges and credit support through the Indian Renewable Energy Development Agency (IREDA). For comparison, total renewable energy subsidies were only 12% of all fossil fuel subsidies in FY 2023.

In a welcome move, the government made several announcements in 2023 to promote further renewable energy deployment, including the decision to add 50 GW of RE capacity annually for the next 5 years. Under this, the government has already come out with a plan for NTPC Ltd., SJVN Ltd., NHPC Ltd., and SECI to invite bids for 50 GW of RE capacity in FY 2024. As of October 2023, bids for around 27 GW of this capacity have been floated. This is a significant step to support diversification plans of CPSUs.

On the financing side, during FY 2023, India incorporated the use of sovereign green bonds in its decarbonization strategy. Notably, schemes for grid-scale solar and wind, PM-KUSUM, and green hydrogen are now expected to be partly or fully financed from the proceeds of sovereign green bond issuances.

Bar graph showing total renewable energy subsidies in India between 2014 and 2023, peaking in 2017 and 2023.


India incorporates sovereign green bonds into its decarbonization strategy

To help realize its ambitious decarbonization targets, the Government of India has joined multiple other countries in issuing sovereign green bonds, i.e., fixed-income instruments issued by the state, the proceeds of which are strictly used for financing or refinancing sustainable and green public sector projects. Sovereign green bonds can play a pivotal role in funding India’s clean energy transition and helping energy CPSUs diversify into clean energy.

Earlier this year, the government raised INR 16,000 crores (USD 1.9 billion) from its maiden issuance of sovereign green bonds in two tranches, divided equally into 5- and 10-year tenors. The debut bonds were a success as they were issued in the local currency with a “greenium” (investors were willing to accept a lower return for a green label when compared to conventional government securities). Given its success, the government is now preparing for a second and larger issuance of INR 20,000 crore (USD 2.4 billion) in the second half of FY 2024. As the number and volume of issuances increase in the future, there is potential for the greenium to grow, further incentivizing green investments. Since proceeds from sovereign green bonds are to be used to finance public sector projects, this move can further help boost India’s plans to add 50 GW of annual renewable energy capacity by its CPSUs.

India's Sovereign Green Bond Framework aligns with international best practices, particularly the recommendations of the International Capital Market Association’s Green Bond Principles. This alignment ensures transparency, helps prevent greenwashing, and sends positive signals to participants and investors. However, the medium green rating by Cicero, the Second Party Opinion, also raises concerns about loosely defined project categories and the inclusion of investments/expenditures in compressed natural gas. The government must ensure that it maintains utmost transparency during these initial years on the use of proceeds to build strong investor confidence.

India is also positioning itself as a leader in the emerging global value chain of clean energy technologies by promoting domestic manufacturing of high-efficiency solar photovoltaic modules and advanced batteries as well as the production of green hydrogen. Key schemes include the production-linked incentive (PLI) for manufacturing of high efficiency solar PV modules, advanced chemistry cell batteries, production of green hydrogen, and manufacturing of electrolyzers—all of which are attracting private investments. The success with initial pilots demonstrates that there is an increasing investment demand to scale these programs to crowd in further private investments.

The government also increased duties and taxes on solar products, which has helped protect the nascent domestic manufacturing industry and spurred exports but has slowed down deployment in FY 2023. In April 2022, the government increased basic customs duty on solar modules (40%), cells (25%) and inverters (20%). The government had previously also increased the GST on solar products (such as modules and inverters) from 5% to 12%. Our estimates show that this may have collectively resulted in record tax collections of INR 10,000 crore (USD 1.2 billion) from the solar industry in FY 2023.

Aerial view of fishing boat with solar panels covering part of the front.

‘SRAV’ the solar powered fishing boat built by NavAlt, does a pilot run in the backwaters of Kerala. (Shawn Sebastien/IISD)

‘SRAV’ the solar powered fishing boat built by NavAlt, does a pilot run in the backwaters of Kerala. (Shawn Sebastien/IISD)

Bar graph showing total EV subsidies in India between 2014 and 2023, increasing sharply in 2022 and 2023..

EV subsidies reached an all-time high at INR 9,798 crore, with India emerging as one of the fastest-growing markets for EVs—but the future of government support remains unclear.

The government continues to support the EV industry through multiple mechanisms: concessional GST, demand incentives, and the PLI for Advanced Automotive Technology. Consumer subsidies under the Government of India’s flagship demand incentive scheme for EVs, FAME-II, increased by around 182% in FY 2023 and remained an important mechanism to drive EV adoption. This strong growth continued into FY 2024 and under the FAME-II scheme, total subsidies for electric two-wheelers, three-wheelers, and four-wheelers amounted to ~INR 5,790 crore (USD 721 million) at the end of January 2024. This has helped subsidize 1,341,459 EVs and led to fuel savings of 1.2 million litres per day. At the time of writing, the scheme outlay of INR 10,000 crore (USD 1.2 billion) has been increased by INR 1,500 crore (USD 187 million), but the scheme is set to expire in March 2024, beyond which there have been no announcements regarding its future. There have also been disputes on the extent of domestic value addition, a prerequisite for receiving subsidies.

Key Recommendations

  1. The government should carefully evaluate the impact of higher GST on recent solar tariffs and the localization benefits of a higher basic custom duty regime.
  2. The government should urgently provide policy certainty on subsequent phases of FAME policy and wider government support for EVs for business continuity and promoting further investments.
  3. For schemes aimed at deeper localization, such as FAME and PLI, the government should put in place sufficient measures to harmonize standards and adequately measure the extent of domestic value addition, a prerequisite for claiming incentives.
Close up of yellow e-bus covered in ads.

E-bus at a bus depot in Lucknow, Uttar Pradesh. (Shawn Sebastien/IISD)

E-bus at a bus depot in Lucknow, Uttar Pradesh. (Shawn Sebastien/IISD)

New build-out plans of energy-related CPSUs show early signs of diversification into clean energy, but capital spending remains too low to achieve India’s 2030 clean energy targets.

Central and state-level PSUs dominate energy supply in India and are, therefore, key to ensuring that the country undergoes a just and socially responsible transition to clean energy. They are also major employers and play a critical role in social development, especially in underdeveloped regions. Their investment decisions have a major direct impact on communities, as well as on GHG emissions.

In FY 2023, total capital expenditure (capex) by 22 energy-related CPSUs (see methodology note for full list and entity-level details) reached pre-pandemic levels and stood at least INR 2 lakh crore (USD 24.9 billion), a 14% increase over FY 2022. Over the last few years, most CPSUs in India have announced operational net-zero targets (i.e., Scope 1 and 2 emissions) and aspire to diversify into clean energy technologies, including solar, wind, battery storage, and green hydrogen. To help track progress against these targets, our study compiled and analyzed a detailed project-level pipeline of these CSPUs (~725 CPSU projects of more than INR 150 crore size) to understand how these commitments may be translating into action. Project-level data was unavailable for smaller projects (under INR 150 crore).

We found that capex in new projects continues to be 13 times higher in fossil fuels compared to clean energy in FY 2023 (three times when compared to non-fossil fuels, which includes hydro and nuclear) and most CPSUs are in the early stages of clean energy diversification. The known capex for new projects in coal/ lignite mining and thermal power generation by CPSUs such as Coal India Limited, Neyveli Lignite Corporation, and NTPC Ltd. was at least INR 25,000 crore (USD 3.1 billion) in FY 2023. There are some early signs of diversification into clean energy projects, but for instance, this remained less than 10% of Coal India Limited’s and NTPC Ltd.’s capex in FY 2023 (excluding hydro and nuclear).

As discussed in previous sections, NTPC Ltd., SJVN Ltd., NHPC Ltd., and SECI lead in RE (mainly solar) deployment, benefiting partly from the CPSU Phase-II scheme, their recently nominated status as Renewable Energy Implementation Agencies by the government, and carve-outs. Among OMCs, IOCL is leading in setting up EV charging stations across the country, with more than 7,300 EV charging stations as of December 2023. It also aims to build a renewable portfolio of 31 GW by 2030 and 200 GW by 2050 by also carving out a wholly owned subsidiary for its green assets and joint ventures—a promising strategy for diversification.

Graph of known capex of major CPSUs projects across energy technologies. Coal, oil, and gas are the most prominent.

Source: Author’s analysis. This disaggregated view is based on monthly Flash Reports of Ministry of Statistics and Program Implementation’s Infrastructure and Project Monitoring Division that only includes projects of size INR 150 Cr+. The totals may thus differ and are lower than the total capex of CPSUs as a whole. This view also excludes nuclear projects.

Source: Author’s analysis. This disaggregated view is based on monthly Flash Reports of Ministry of Statistics and Program Implementation’s Infrastructure and Project Monitoring Division that only includes projects of size INR 150 Cr+. The totals may thus differ and are lower than the total capex of CPSUs as a whole. This view also excludes nuclear projects.

Domestic public finance is also beginning to shift from fossil to clean energy. Three CPSUs that are the major energy sector financiers in India—Power Finance Corporation Ltd., REC Ltd, and IREDA—provided INR 2 lakh crore (USD 24.9 billion) to energy in FY 2023. Based on our estimates, for the first time, annual disbursements for clean energy were marginally higher than disbursements to fossil fuels. All three institutions have reported a strong pipeline of projects in clean energy, with their combined clean energy loan book demonstrating record growth levels of around 48% in FY 2023. After approval from the Ministry of Power in 2022, PFC Ltd. and REC Ltd. are now also diversifying into financing the logistics and infrastructure sector. This enables them to expand into sectors like electric vehicles, charging infrastructure, and green hydrogen, but they are also considering lending to oil refining, ports, and railways.

Graph showing composition of loan book and annual lending pattern is weighted towards fossil fuels, but clean energy is increasing.

Source: Author’s analysis. Note: This view is based on sectoral data from annual reports and investor presentations of respective public financial institutions (PFIs). FY 2023 annual lending figures for fossil fuel and clean energy are estimated based on company reports because actual disbursements for renewable energy for PFC Ltd. were unavailable in FY 23. Other domestic PFIs, such as public sector banks and development financial institutions, have not been covered due to the paucity of data on energy-related financial flows. Others category mainly includes transmission and distribution loans.

Source: Author’s analysis. Note: This view is based on sectoral data from annual reports and investor presentations of respective public financial institutions (PFIs). FY 2023 annual lending figures for fossil fuel and clean energy are estimated based on company reports because actual disbursements for renewable energy for PFC Ltd. were unavailable in FY 23. Other domestic PFIs, such as public sector banks and development financial institutions, have not been covered due to the paucity of data on energy-related financial flows. Others category mainly includes transmission and distribution loans.

Way Forward

After reaching a high in 2013, India reduced consumer price support (primarily on transport fuels) and increased fossil fuel taxation. The revenue from these reforms indirectly provided the fiscal space to increase public financial support for renewable energy, EVs, and electricity infrastructure. The reform process was not complete, but there had been gains.

That hard-won progress is at risk of being derailed due to persistent price caps on petrol, diesel and domestic LPG and tax cuts on fossil fuels. Experience shows that price caps can often be hard to reverse. There needs to be a return to market-based pricing and higher taxation on fossil fuels, with the revenues used for more productive purposes, including supporting the poor in a way that is decoupled with energy consumption, such as cash transfers.

New renewable energy installations are now cost competitive with new coal- and gas-fired power in most regions. However, public support is still needed, given high upfront capital costs, land shortages, and the need for integration, balancing, and storage. Support for clean energy is also warranted because of the sheer scale of deployment needed to meet India’s growing energy and transport needs while hitting its climate targets. Leveraging the balance sheet strength and technical skill of India’s energy CPSUs can supplement the government’s own efforts. The government should, therefore, support them in laying down clear net-zero plans and clearly articulate its position on emerging technologies to provide strategic alignment with its long-term net-zero goals.

Mapping India’s Energy Policy is an annual review of Government of India’s support for energy. It aims to improve transparency and ensure that energy is more equitable, secure, and aligned with India’s long-term net-zero emissions target by 2070. The study gathers the best available data from FY 2014 to FY 2023 on subsidies, investments by energy PSUs, PFIs, energy revenues and the social cost of energy.

Aerial view of house on a treed hill with three large solar panels beside it.

A solar microgrid facility established at a tribal hamlet in Kerala’s Idukki district. (Shawn Sebastien/IISD)

A solar microgrid facility established at a tribal hamlet in Kerala’s Idukki district. (Shawn Sebastien/IISD)

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