On the 1st of February, India announced its yearly budget which, despite reducing the Ministry of Environment, Forest and Climate Change’s allocation, demonstrated a commitment to the UN Sustainable Development Goals. While this allocation decision may cause concern, it seemed inevitable, given the global discourse that compulsions to prioritise the pandemic’s fallout would impact developmental finance. OECD’s research shows external private finance inflows to developing markets could dip by $700 billion in 2020. Moreover, given the stewardship India has demonstrated on climate action ever since the Paris Agreement as well as this budget’s allocation towards sustainability sectors, it is not hard to believe that the dip in the headline number on climate allocation is just a one-year aberration owing to the COVID-19 fallout. Given the budget’s humane touch, its initiatives include several positive takeaways from a sustainability perspective.
The prudent integration of the SDGs in the budget resonates with the country’s climate commitments while balancing an impressive COVID-19 response. The doubling of healthcare spending, Rs 2.2 trillion vs. Rs 900 billion last year, was necessary to tackle the virus and reduce the risk of future pandemics. Within this, the Rs 350 billion earmarked for the COVID-19 vaccine was sorely needed in the country with the second-highest case load, globally. This being said, it will be crucial to not only see how actions and outlay allocations in the budget correlate with SDG markers, but also, the social return on investment, in terms of the value that is created, in addition to performance and impact.
The budget’s allocations towards nutrition, air pollution, safe water supply, liquid waste management and wastewater treatment has a multiplier effect on developmental parameters, thus meeting several SDG targets. For example, through the Jal Jeevan Mission 2.0, the budget lays thrust on SDG 6, Clean Water and Sanitation for All, which combined with the Swachh Bharat Mission 2.0, also feeds into the SDG 3 targets of universal good health and well-being. A budget that demonstrates India’s focus on the SDGs, is forward-thinking and aligned with the holistic development of the country.
The impetus to infrastructure spending is encouraging not only because it would stimulate employment and have a multiplier effect for other sectors, but because it would bolster SDG 7 Affordable and Clean Energy, 9 Industry, Innovation and Infrastructure and 11 Sustainable Cities and Communities, among others. As it is, fixed capital formation to GDP had seen a decadal slippage, from ~36% in 2007 to ~27% in 2019. Apart from significant allocations to the Finance, Power and Road/Highway Ministries, the budget’s provision of Rs 2 trillion for production-linked incentive should boost domestic manufacturing of electronics, pharma, food, auto, and more. This, supported by the available demographic dividend will help alleviate poverty through large-scale employment opportunities. Critically, from a green economy lens, the 100% electrification of railway broad-gauge lines, MetroNeo technology, a MRT system providing low-cost, energy-efficient and eco-friendly urban transport and a voluntary scrapping policy for old vehicles are all promising initiatives that not only bring the green focus of the budget to the forefront, but could also help India achieve its carbon emission reduction commitments.
The launch of the National Hydrogen Energy Mission 2021-22 would facilitate transition towards greener forms of energy. Moreover, the boost to rural and agri-infrastructure needs to focus on leveraging clean energy and sustainability practices to improve renewable energy usage within relevant sectors.
The renewable energy sector has seen significant momentum in India over the last decade. Last year’s budget promised that old thermal plants that do not meet emissions norms would be scrapped, promoting the rise of transition finance. This year’s budget adds further thrust to creating a ‘greener future’ for our next generations, with a Rs 25 billion capital infusion into the nodal agencies, notification of a phased manufacturing plan for solar panels/cells and a boost to domestic solar manufacturing by raising import duties. However, while this capacity addition should improve India’s global competitiveness, it remains to be seen how the real capability of these facilities can be enhanced, or how waste from solar domestic manufacturing will be disposed of within a circular economy model. Additionally, there is a great need to boost laggard segments like solar rooftop with targeted incentives and prioritising financial structuring models like aggregation and securitisation, where assets can be sold to institutional or long-term investors to facilitate risk reduction. The distribution infrastructure needs to also move in line with capacity. This is where the budget’s focus on smart meters is reassuring.
Further, the focus to scale up the City CNG distribution network with 100 new projects and add 10 million more beneficiaries under the PM Ujjawala Scheme will help reduce the dependence on, and harmful effects of fossil fuels and firewood respectively. This would ensure good health and well-being for women, who are the direct victims of indoor pollution, as well as protect their rights and dignity.
India needs a standalone green bank, like NABARD, to mobilise dedicated green capital. It is encouraging to see the budget has allocated Rs 200 billion to form a development financial institution (which aims to develop a lending portfolio of Rs 5 trillion), which hopefully prioritises funding of green projects. It would be interesting to see a differentiated multi-stakeholder model by this DFI, which could focus on providing credit enhancements and other risk mitigation mechanisms that will help channelise private sector financing towards climate adaptation and resilience. The budget’s provisions towards asset restructuring and banks’ recapitalisation can also help unlock liquidity in the sector, facilitating refinancing for much-needed green projects.
What remained excluded in the budget were provisions to bring more green sectors under PSL norms and income tax exemptions for green finance/green bonds. Nevertheless, going forward, creating an India taxonomy on sustainable finance would help remove plurality and bring clarity and consolidate investors’ perspectives as a precursor to scaling up of green finance. Other aspects of the budget, like a Rs 40 billion allocation for ocean conservation and biodiversity, setting up a portal for the unorganised labour force with the aim of helping strengthen their social capital and bringing a focus on PPP models to improve effectiveness and efficiency of public sector projects, are also steps in the right direction to expand the scope to sectors beyond renewable energy.
While the estimated ~8% shrinkage in India’s GDP in 2020-21 is a setback, it is temporary. India does need to push several sectors to revive growth, and achieve the expected ~11% GDP growth in 2021-22, ideally by directing infrastructure spending towards ‘green’ segments, like e-mobility, circular economy, green buildings, green transport, energy efficiency, clean energy, waste treatment and sustainable agriculture. The budgetary allocation towards sustainable initiatives reflects a systemic change to build an ecosystem for ESG-aligned capital deployment, and enhancing the pace towards ESG and its compliance, ensuring that India remains on track of its long-term ambitions on climate action and sustainability, despite short-term aberrations because of exigencies like COVID-19.
In essence, the budget is a replete with reformative proposals with focus on infrastructure, healthcare, inclusive development, innovation, and human capital. It attempts to address the challenges with a holistic development-centric approach. The strong political intent coupled with effective resource allocation and periodic SDG impact assessments will steer India towards successful implementation of the SDGs, reviving more than just the struggling economy, leaving no one behind.