India’s shift to sovereign green bonds to fund a low-carbon transition faces weak investor demand due to low yield premiums, liquidity issues, transparency gaps, and lack of incentives. Smaller issue sizes have led to funding shortfalls and delayed climate goals, prompting calls for larger issuances, tax benefits, and improved reporting.
Copyright infringement not intended
India has shifted to sovereign green bonds to fund its transition to a low-carbon economy, but investor demand remains weak.
Sovereign Green Bonds (SGrBs) are debt instruments issued by governments to fund environmentally sustainable projects, such as renewable energy, clean transportation, and afforestation.
These bonds are designed to align public finance with climate goals, ensuring transparency in fund allocation.
India launched its SGrB framework in 2022, with proceeds directed toward projects like energy-efficient locomotives, metro systems, and renewable energy initiatives.
Low Greenium
Globally, green bonds commonly offer a yield premium (greenium) of 7–8 basis points, but India’s SGrBs provide only 2–3 basis points. This minimal financial incentive fails to attract investors seeking higher returns.
|
Greenium is the difference in yield between a green bond and a conventional bond. It's also known as the green premium, green bond premium, or green bond issuance premium. |
Liquidity Concerns
Small issue sizes (e.g., ₹5,000 crore auctions) and limited secondary market trading reduce liquidity.
Transparency Gaps
The government has not published the 2023–24 allocation report, which raises concerns about project impact and fund use. Investors require clear post-issuance reports to assess environmental benefits and adjust their portfolios.
No Financial Incentives
Unlike developed economies, India does not offer tax breaks or regulatory benefits for green bondholders.
Economic Expectations
Investors in India expect higher yields due to economic risks.
Funding Shortfalls: The 2024–25 SGrB target was cut from ₹32,061 crore to ₹25,298 crore, delaying projects like grid-scale solar energy. A ₹3,600 crore gap was bridged by general revenue, straining public finances.
Delayed Climate Goals: Slow adoption of SGrBs hinders India’s net-zero emissions target by 2070 and undermines its global climate commitments. .
Combining green and social projects (e.g., affordable housing, healthcare) could broaden investor appeal, as seen in emerging markets.
Publish timely allocation and impact reports to build investor confidence and address greenwashing concerns.
Increase issue sizes to improve secondary market trading and attract institutional investors.
Collaborate with institutions like the World Bank to leverage their credit ratings and attract foreign capital.
Provide tax exemptions or regulatory benefits to encourage participation from retail and institutional investors.
Conduct awareness programs to highlight the long-term environmental and financial benefits of green bonds.
Must Read Articles:
SOVEREIGN GREEN BOND FRAMEWORK
Source:
|
PRACTICE QUESTION Q. Define sovereign green bonds (SGrBs) and explain their significance in financing India’s transition to a low-carbon economy. Why have they gained global traction but struggled in India? 250 words |
© 2025 iasgyan. All right reserved
