India’s US$4.3 billion budget for energy transition goes to fossil fuel ministry

However, the country’s annual budget for 2023-24 has many positives: support for domestic EV battery manufacture, green hydrogen, interstate transmission of power, pumped storage, EVs, natural farming and mangrove replantation.

India's finance minister Nirmala Sitharaman
India's finance minister Nirmala Sitharaman. Image: PIB

In its first annual budget to focus squarely on energy transition, India has allocated Rs35,000 crore (US$4.3 billion) “for priority capital investments towards energy transition and net-zero objectives, and energy security”, but has allocated this sum to the Ministry of Petroleum & Natural Gas.

Experts have questioned this crucial allocation to the fossil fuel ministry – especially as no fresh outlay has been made to the renewables ministry.

“Is the government signalling to develop more strategic gas reserves or gas infrastructure, or helping [oil marketing companies] make up losses on account of high oil and gas prices?,” said Vibhuti Garg, director, South Asia, at the think tank Institute for Energy Economics and Financial Analysis (IEEFA), adding that the fine print isn’t yet clear. 

“[If] a majority of this allocation would go towards gas exploration, then it signals a bet on gas as the bridge fuel to India’s energy transition,” said Dr Aman Srivastava, fellow at the Centre for Policy Research (CPR), a think tank.

Renewable energy transmission, green hydrogen, battery storage

Overall, experts agree, the budget has been a mixed bag with positive steps including a US$2.5 billion allocation for inter-state transmission and grid integration of renewable energy from the northern, high-altitude territory of Ladakh.

Transmission infrastructure of renewables has not kept pace with capacity addition across the country, and this allocation “will provide impetus to stagnated renewable energy deployment in India,” said Ashwini Swain, fellow at CPR. Ladakh has rich solar and geo-thermal potential, but its tough mountainous terrain and distance from the more densely populated demand areas have hindered construction of transmission infrastructure. 

India’s budget: other highlights

• Complete switch to mechanical cleaning of sewers, and scientific management of dry and wet waste. This would improve the condition of sanitation workers, especially “manual scavengers”. 

• A green credit programme will incentivize sustainable actions by companies, individuals and civic authorities. 

• Centres of excellence in Artificial Intelligence will be set up, which sustainability experts say could be used to transform agriculture and make cities sustainable. 

• A programme called Amrit Dharohar will be implemented over the next three years to encourage optimal use of wetlands, enhance bio-diversity, carbon stock, eco-tourism opportunities and income generation for local communities. 

• A Mangrove Initiative for Shoreline Habitats & Tangible Incomes will take up mangrove plantations along the coastline and on salt pan lands, using the ongoing rural job guarantee programme MGNREGS and funds from the afforestation corpus CAMPA and other sources.

Finance Minister Nirmala Sitharaman’s announcement of viability gap funding for battery storage systems with a capacity of 4,000 megawatt hours has been largely welcomed. She also said a detailed framework for pumped storage projects would be created. This comes after India’s recent announcement of a US$2.4 billion National Hydrogen Mission to produce 5 million metric tonnes by 2030. 

“The troika of green hydrogen, energy storage (both battery and pumped-hydro), and the investments in energy transition provide the building blocks for a greener power sector,” said Abhishek Nath, sector head for Energy and Power at the Center for Study of Science, Technology and Policy, another think tank.

Commenting on the amount allocated, Ulka Kelkar, director of the climate programmme at World Resources Institute India, a non-profit, tweeted that the investment required for green energy – renewable energy, electric vehicles (EVs), green hydrogen and battery storage, is to the tune of US$30 billion a year on average in this decade. This can come mostly from private sources. But this budget allocation can be catalytic…”, she wrote, by offering viability gap funding for offshore wind and hydrogen electrolysers (in addition to battery storage), credit risk guarantees to reduce the cost of capital, and enabling demand aggregation as done for LEDs and electric buses in the past. 

Electric vehicles and transport

The EV sector has reacted enthusiastically to the announcement of funds to replace old vehicles and decrease custom duty on the import of capital goods for making lithium-ion batteries, as well as double the budget for the Faster Adoption and Manufacturing of Electric Vehicles programme – which has significantly boosted sales of two- and three-wheeler EVs and aims to do so for four-wheeled vehicles too – to US$630 million.

However, said Dr Easwaran Narassimhan, associate professor at CPR, a more ambitious budget would invest in research to develop solutions higher up in the EV value chain (charging and ecosystem level solutions). “On transport sector decarbonisation, EV deployment and ethanol blending incentives are a plus but support for public transportation is missing,” he said. He also questioned the ethanol blending incentives given India’s air quality goals.

Agriculture and air pollution

Given the primacy of agriculture as an employer of over half the working population, as well as the role of agriculture in climate mitigation, numerous steps have been announced to promote natural farming with a target to enlist 10 million farmers in three years; create a countrywide micro-fertiliser and pesticide manufacturing network; promote alternative fertilisers; set up 200 units to make compressed biogas (CBG is made largely from agricultural waste in India) as well as a 5 per cent CBG mandate for organisations selling natural and bio gas; collection of bio-mass and distribution of manure. 

In addition, an Agriculture Accelerator Fund will be set up to encourage farming startups in rural areas. 

“Over the years, we have seen hundreds of agri-focused start-ups bridging the information gap for the farmers but limited innovation on hardcore technologies,” said Abhishek Jain, fellow and director for the Powering Livelihoods programme at the think tank Council on Energy, Environment and Water (CEEW). “I hope that the newly announced Agriculture Accelerator Fund brings an explicit focus on hardware technological innovations to address challenges like pest and weed management, affordable storage, and post-harvest solutions, as well as innovations for the livestock and allied sectors.” 

However, the critical problems of crop residue burning, which chokes northern India in fumes from farm fires, has been left largely unaddressed. The larger and urgent challenge of transforming environmentally disastrous cropping patterns – a legacy of the Green Revolution of the 1960s and 1970s that encouraged farmers to grow water-guzzling crops in water scarce areas, creating havoc with the water table and soil quality – has also been ignored. 

Although there is greater momentum to improve air quality – the budget has set aside more money for the National Clean Air Programme, and cities are already getting funds for air quality management, greater scrutiny is needed, said Dr Bhargav Krishna, fellow at CPR, on “how these monies are spent and how the incentive structures of the NCAP align with prioritising investment in untested techno-fixes such as smog towers and anti-smog guns”. 

At the same time, Krishna said, the lack of investment in both crop residue management mechanisms and crop diversification programmes indicates a shift of responsibility for the management of stubble burning from the central government to the states. “In the absence of a Union [federal] government-led mechanism to facilitate this transition, there is unlikely to be any substantial reduction in crop residue burning this winter,” he said. 

Overall, this is a “stay-the-course” budget on green growth, said Navroz K. Dubash, professor at CPR. “But not, as yet, a green transformation inducing budget”. Although welcoming the fillip to hydrogen, battery storage, gas and transmission, he added that the budget “focuses less on green development – using renewable energy for an inclusive transition and promoting rural productivity.”

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