Centre may cap upcoming first green bond issues at Rs 25,000 crore

The Union finance ministry is putting finishing touches to its framework to issue ‘green bonds’ in the second half of the fiscal year, as part of its H2 borrowing of Rs 5.86 trillion. Initially, green bond issuances will only be a few tranches of its weekly government securities offerings and may not exceed more than Rs 25,000 crore, Business Standard has learnt.

Additionally, there have been talks within the government on providing tax benefits to make these instruments relatively attractive for investors, Central Board of Direct Taxes Chairman Nitin Gupta told Business Standard.

“Discussions have taken place on this matter. It is a policy decision but, so far, there has been no outcome,” Gupta said.

Other officials said that to begin with, these bonds will only be issued for domestic investors, and that consultations within the government on the framework are in their final stages. The announcement is likely to be made along with the second-half borrowing calendar by the end of the month.

Ready for launch

• Green bonds to be issued as part of H2FY23 borrowing plan
• Green bond proceeds will be used to fund projects which will help India meet COP commitments
• Govt and RBI have examined suggestions of multilateral bodies
• In many nations, yields on green bonds are lower than the benchmark rate by 10-15 basis points

Officials at the finance ministry and the Reserve Bank of India sought the assistance of multilateral bodies like the World Bank and also closely examined the existing framework of other countries with better-developed green financing markets.

One of the sticking points in India is that there is no local definition of what constitutes green projects. But as part of the framework, the government will make it clear which kind of public-sector projects will be funded through green bonds. “The money raised will go towards projects and initiatives which will help India meet its COP (Conference of the Parties) commitments,” said a senior government official.

India’s commitments made at COP26 earlier this year include reaching 500Gw non-fossil energy capacity by 2030, meeting 50 per cent of its energy requirements from renewable sources by 2030, reducing total projected carbon emissions by one billion tonnes from now to 2030, reducing carbon intensity of the economy by 45 per cent by 2030, over 2005 levels, and achieving the target of net zero emissions by 2070.               

According to the norms in most nations, yields on green bonds are slightly lower than the benchmark rate (by 10-15 basis points). The Centre and RBI are still discussing at what rate to peg India’s green bond offerings.

Finance Minister Nirmala Sitharaman had first announced the Centre’s intention to issue green bonds in her 2022 Union Budget. “As a part of the government’s overall market borrowings in 2022-23, sovereign green bonds will be issued for mobilising resources for green infrastructure. The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy,” she said.