Govt may raise up to Rs 22k crore through green bonds in FY24

India is likely to borrow about Rs 20,000-22,000 crore through sovereign green bonds in this financial year, higher than the Rs 16,000 crore in 2022-23 when it had floated such papers for the first time, said a person aware of the matter.

About half of the green bond proceeds are expected to be deployed in railways in this fiscal, followed by projects in new and renewable energy (32%), housing and urban affairs (15%), environment and climate change (1%) and others.

A final announcement on the exact borrowing size and calendar will be declared in September, the person told ET.

According to the expenditure plan prepared by the finance ministry for 2023-24, the funds raised through such bonds will be spent for financing green projects worth Rs 23,764 crore, he said.

Given that the funds raised will have to be used strictly for green projects, the spending will be kept higher than the actual borrowing. This will remove any apprehensions about the green bond proceeds not being utilised fully for the purpose for which they are being raised, the person indicated.

As for railways, the funds will be spent in the production of energy-efficient electric locomotives, among others.

The green bonds will form a part of the central government’s overall market borrowing plan for the second half of this fiscal. The government had announced that it would borrow a total of Rs 8.88 lakh crore from the market through dated securities in the first half of 2023-24, which constituted 57.6% of the full-year target.

In 2022-23, the government issued the green bonds through two equal tranches of Rs 8,000 crore each.

A green finance working panel, headed by chief economic adviser V Anantha Nageswaran, has been mandated to select projects from the proposals submitted by various government departments.

Finance ministry officials had earlier ruled out tax concessions for the 2023-24 issuances, despite fresh demands from a section of market participants.

India’s first-ever issuance of sovereign green bonds in January drew a robust response, with orders exceeding the offer size of Rs 8,000 crore by more than four times.

It earned the bonds 5-6 basis points in “greenium”, which essentially means a favourable yield spread compared to similar issues without green credentials. Foreign investors kept away.

According to the framework already approved by finance minister Nirmala Sitharaman, the sovereign green bonds will focus on financing public projects across nine areas, including renewable energy, climate change, clean transportation, sustainable water, waste management and pollution control.