India’s budget for 2021-2022 lays a strong foundation for a sustainable recovery post-COVID-19, with a clear focus on infrastructure development and job creation. Despite the fiscal constraints due to the pandemic, the current budget does convey the government’s intent to fight climate change. However, the budgetary allocations may fall short given the sheer scale of estimated adverse economic impact due to the impending climate crisis.

GREEN BUDGET LINES

The government recognizes the importance of conserving the country’s coastal environment and is reflected in the National Coastal Mission’s budget almost doubling to INR 2 billion (USD 27 million) from INR 1.03 billion (USD 15 million). However, the coastal environment’s budgetary allocation is meager if we consider the length of India’s 7,500-km coastline, and that more than 36 million Indians are extremely vulnerable to rising sea levels.

Other welcome steps include a voluntary vehicle-scrapping policy and a focus on hydrogen energy. The former will help check vehicular pollution, while the latter will aid energy-intensive industries like steel and cement to decarbonize, and also support the growth of other sectors, like clean transportation.

The budget also proposes an additional INR 10 billion (USD 136 million) for the Solar Energy Corporation of India (SECI) and INR 15 billion (USD 204 million) for the Indian Renewable Energy Development Agency (IREDA). This increase will enable SECI to set up innovative renewable energy projects in underserved regions and help IREDA finance projects by an additional 50% of its current loan book. However, it is still paltry considering India’s funding requirement of INR 36,775 billion (USD 500 billion) to meet its renewable energy capacity target of 450 GW by 2030.

To promote domestic manufacturing, the budget increases the duty on solar invertors from 5% to 20%, and 5% to 15% on solar lanterns. This could impact India’s transition to a green economy if local manufacturers do not ramp up their operations fast enough to become cost competitive. 

This year’s budget addresses key pollution issues. One notable step is the city gas distribution project extension to 100 additional districts, which will accelerate the replacement of pollution-intensive fuels such as cow dung cakes and wood in rural areas. However, the budgetary allocation for these activities is unclear. The government also allocated INR 1,416.8 billion (USD 19.3 billion) for the Urban Swachh Bharat Mission 2.0. The main interventions under this mission include fecal sludge management and wastewater treatment, waste management, single-use plastic and air pollution. 

Given the country’s acute water crisis, with over 600 million Indian citizens annually facing water stress, the Jal Jeevan (urban) mission allocates INR 2,870 billion (USD 39 billion) supply efficient household tap water connections in all 4,378 urban local bodies and improved liquid waste management to 500 Atal Mission for Rejuvenation and Urban Transformation (AMRUT) cities.

A DROP IN FUNDING

The total budgetary allocation for India’s Ministry of Environment, Forest and Climate Change has been reduced to INR 28.7 billion (USD 400 million) compared to INR 31 billion (USD 420 million) in 2020-2021. This drop in funding is primarily due to small cuts across the board, including for the National Mission for Green India, national afforestation programme, wildlife conservation, climate change action plan, Project Tiger and Project Elephant.

The government allocated INR 44 billion (USD 600 million) in the 2020-2021 budget to ensure clean air in cities with a population of more than 1 million, but has reduced the allocation by 50% to INR 22.2 billion (USD 300 million) in the 2021-2022 budget. Considering that pulmonary diseases related to air pollution are one of the leading causes of death in India, fighting air pollution warrants greater government attention.

SPENDING THE MONEY WISELY

There are specific ways in which budgetary spending can accelerate economic recovery and offer long-term environmental benefits. For example, the government is setting up a professionally managed Development Financial Institution (DFI) to enable infrastructure financing. This institution can focus on sustainable infrastructure lending, based on certain criteria like the Standard for Sustainable and Resilient Infrastructure – a global voluntary standard that integrates the criteria of sustainability and resilience in infrastructure development.

The DFI can also set a minimum disaster-resilient standard for infrastructure project lending, which is well-aligned with the objectives of the Coalition for Disaster Resilient Infrastructure (CDRI), an international coalition launched by India. And, the new institution can participate in global initiatives such as the UN-supported Principle of Responsible Investment (PRI), demonstrating India’s commitment to climate change.

The budget also proposes to infuse INR 3,000 billion (USD 40.8 billion) into India’s electricity sector through a reform-based, result-linked power distribution scheme. The government should direct India’s electricity distribution companies (DISCOMS) to set a higher renewable energy procurement target, shorten the delays in payment of dues and incentivize smart metering. Such initiatives would also highlight India’s commitment to accelerate clean energy adoption.

Of the INR 180 billion (USD 2.44 billion) budget allocation for public bus transportation services (with a target to run 20,000 buses in cities), the government should earmark a majority of the budget for electric buses and necessary supporting infrastructure, especially as electric buses are more affordable to operate and maintain in the long run. Since the budget has emphasized the deployment of innovative models to enable private sector players to invest in public transportation services, innovative business models for electric buses, like the one linked above, can alleviate the concerns over adopting electric buses.

Agriculture continues to remain a key focus area for the government, but there is not enough emphasis on sustainable agriculture, which is essential for India’s food security. The allocation for rural infrastructure development fund has increased from INR 300 billion (USD 4.08 billion) to INR 400 billion (USD 5.44 billion). The micro-irrigation fund corpus was doubled to INR 100 billion (USD 1.36 billion). These agriculture and agro-based funding initiatives could be used to promote sustainable agriculture and eco-friendly farming practices.

Similarly, the budget includes proposed tax incentives for affordable housing and rental housing projects. These should be structured to encourage projects that align with green building standards – green buildings can reduce water consumption by over 20-30%, generate 50% less waste and reduce carbon emission by 35%. Affordable housing would also reduce the government’s subsidy burden in the future since the state subsidizes most of the households’ electricity bills.

While the government of India did a commendable job in creating a balanced budget, India’s climate change action plans need more vigorous and urgent attention. If not, ignoring climate change risk in the national financial strategy will turn costly for India in the future.