Green Finance in India: Progress and Challenges


Megha Chhaochharia

Research Scholar, In MBA (Finance), Chaudhry Charan Singh University, Meerut.

*Corresponding Author Email:



This paper deals with the developments in green finance in India as well as globally. Variety of data sources have been used to assess both the extent of public awareness and financing options for green projects. The findings conclude that while there have been improvements in the public awareness and financing options in India, a reduction in asymmetric information through better information management systems and increased coordination amongst stakeholders could pave a way towards a greener and sustainable long term economic growth.


KEYWORDS: Green Finance, Sustainability, Public policy, Green lending, Green bonds, Borrowing costs, Information asymmetry.




Green growth takes into consideration the harmony between the economy and the environment and hence aims to achieve the goal of a low-carbon economy. The concept of Green Finance basically refers to the financial arrangements which are specific to the use of the projects that are environmentally sustainable and the projects that adopt the aspects of climatic changes. The projects that are environmentally sustainable includes the production of energy from renewable sources like solar, biogas and wind; waste management which includes recycling, conversion of energy and efficient disposal clean transportation which involves lower greenhouse gas emission and energy efficient projects like green building.


The projects that are defined sustainable under the disclosure requirement for Green Debt Securities includes sustainable water and waste managements, climatic changes adaptation, biodiversity conservation and sustainable land use including forestry and agriculture. Hence the new financial instruments namely green bonds, carbon market instruments including carbon tax and new financial institutions including green banks and green funds came into limelight to meet the financial needs of the above environmentally sustainable projects. These new financial instruments together constitute green finance.


Green finance is a phenomenon which combines the word finance and business with environmentally friendly behavior. The rapid economic development is generally achieved at the cost of the environment, however green finance is about avoiding the promotion of any business or activity that could be damaging to the environment now or even for the future generations. The sustainable economic growth is often challenged with the continuous degradation of the environment, depletion of the natural resources and pollution or contamination which are hazardous to public health too. In order to promote environmentally sustainable projects it is essential to take initiative to free the funds from the conventional industries which should be channelized into green and environment friendly sectors. In order to achieve these objectives, targets have been set and policies have been formed in most of the countries involving all stakeholders of economic growth including corporates, governments and central banks.  



In India emphasis was laid on Green finance as early as 2007. The Reserve Bank of India issued a notification in December 2007 on “Corporate Social Responsibility, Sustainable Development and Non-financial Reporting- Role of Banks” thereby mentioning the importance of global warming and climate change in the context of sustainable development. In 2008, the National Action Plan on Climate Change (NAPCC) was formulated with a vision to outline the broad policy framework for mitigating the impact of climate change. The Climate Change Finance Unit (CCFU) was formed in 2011 within the Ministry of Finance to work as a coordinating agency for the various institutions responsible for green finance in India. The major strategic move since 2012 included implementation of the sustainability disclosure requirements. However, SEBI made it mandatory for top 100 listed entities based on market capitalization at BSE and NSE to publish annual business responsibility reports since 2012 and therefore revised it from time to time.


There have been several fiscal and financial incentives at work in India. The Government of India offers 30% of the installation cost of the rooftop solar panels as subsidy to the institutional, residential and social sectors in most of the states. In some of special category states (which includes Uttarakhand, Sikkim, Himachal Pradesh, Jammu and Kashmir, Lakshadweep as of May 2019) the susbsidy is upto 70% of the installation cost. In addition to it the beneficiaries can avail a generation based incentive wherein they can receive generally Rs. 2 per unit of generation (different for respective states), if the generation exceeds 1100kWh- 1500kWh per year and the excess power can be sold at a tariff set by the government. The Government of India has launched two phases of Faster Adoption and Manufacturing of Hybrid and Electric Vehicles scheme in 2015 and 2019. This has been done basically to enhance the flow of credit, reducing the up-front purchase price of all the vehicles and developing the infrastructures to encourage green vehicle production and sales. The State Bank of India has also introduced a ‘green car loans’ scheme for electric vehicles with 20 basis points lower interest rate and longer repayment window, compared to the existing car loans in order to counter the high-up front cost of such vehicles. A Production Linked Incentive Scheme has also been brought by the Government for manufacturing of high efficiency modules in the area of renewable energy.


Several proactive policy measures have been taken by the Reserve Bank of India to promote and support green finance initiatives. It has included the small renewable energy sector under its Priority Sector Lending Scheme in 2015. Under this Scheme, the firms in renewable energy sector are eligible for loans upto Rs. 30 crore while the households are eligible for loans upto Rs. 10 lakh for investing into renewable energy. In September 2019, India announced a target to reach 450 GW of renewable energy generation by 2030.



Improvements in general awareness:

Basically there is a paucity of data for assessing the awareness regarding green finance and sustainable development from the conventional sources. However, google trends can be a powerful tool for understanding the pattern of google searches made in different locations at different point in time.



Chart 1: Google SearchRelated to Green Finance: India’s comparative Score


Chart 1 show that the intensity of Google searches related to the climate change and green finance in India is no less than those in advanced and major emerging economies. The chart shows that India’s comparative score is higher than the advanced economies. While normalising, the country with the maximum value of the search intensity is set to 100, then later the search intensity of other countries are proportionately adjusted. The country scores in Chart 1 represent the weighted average of these scores for the five keywords, where the weights are the percentage shares of searches on a particular keyword in the total number of searches across these five words.


Green Lending:

The Database on the Indian Economy by the Reserve Bank contains publicly available data on policy rates, aggregate credit, sectoral credit and key financial ratios relating to Scheduled Commercial Banks (SCBs) in India. As a part of the green finance initiative, the Reserve Bank has included the small renewable energy sector under its Priority Sector Lending (PSL) scheme in 2015. At the end of march 2020, the aggregate outstanding bank credit to the non conventional energy sector was around Rs. 36,543 crore, constituting 7.9% of the outstanding bank credit to the power generation compared to 5.4% in March 2015. The commercial banks exposure to the non conventional energy sector varied among bank groups and the major states in India.



Public Sector Banks

Private Sector Banks

Foreign Banks

All Banks

Amount outstanding (Rs. Cr.)





As per cent of power sector credit





As per cent of total bank credit (excluding personal loans)





Note: Excludes Regional Rural Banks and Small Finance banks

Source: BSR, RBI, Authors, calculations


Green Bonds:

The bonds which are issued by any sovereign entity, inter governmental groups or alliances and corporates with the aim that the proceeds of the bonds are utilised for projects classified as environmentally sustainable are known as Green bonds.


India started issuing green bonds since 2015. AS of February 12, 2020 the outstanding amount of green bonds in India was US$ 16.3 billion. India issued green bonds of about US$ 8 billion since January 1, 2018 which constituted about 0.7% of all the bonds issued in the Indian financial market and the bank lending to the non conventional energy constituted about 7.9% of the outstanding bank credit to the power sector, as on March 2020. Although the value of the green bonds issued in India since 2018 constituted a very small portion of the total bond issuance, Indian maintained a favourable position compared to several advanced and emerging economies.



The integrated policy approach towards green finance is definitely gaining momentum. Although in India, there have been improvements in public awareness and financing options, the major challenges could be borrowing costs, false claims of environmental compliance, plurality of green loan definitions, maturity mismatches between long term green investment and relatively short-term interests of investors.


The cost of issuing green bonds has generally remained higher than the other bonds in India. Most of the green bonds in India are issued by the public sector units or corporates with better financial health. The higher borrowing cost of green bonds in India could be on account of asymmetric information, higher risk perception and other governance issues. As the existing information it is evident that green projects often have a high up-front cost with some cost saving features only applicable in the long-term. Absence of universal definition of green finance and information asymmetry often result in “green washing”, wherein the investors end up receiving false signals about the green bonds.


The large size of the domestic market and much smaller penetration of green instruments so far, thereby leave vast opportunities to be tapped. Some of the policy measures such as deepening of corporate bond market, standardisation of green investment terminology, consistent corporate reporting, and removing information asymmetry between investors and recipients can make a significant contribution in addressing the shortcomings of the green finance market.



Green finance is emerging too fast as a priority for public policy. As we review the developments of green finance in India it is clearly evident that there definitely have been certain improvements in public awareness and financing options in India in the recent years. A reduction in the asymmetric information regarding Green Projects through better information management systems and increased coordination amongst the stakeholders could pave the way towards sustainable long term economic growth.


As the entire world including India is fighting COVID-19 today, the negative impact that it has created for the past one and half years on the global economic growth is huge. COVID-19 crisis has shown that the growth must however be both inclusive and sustainable in the long run. The crisis also provides an opportunities to the stakeholders to rethink about the policies, and financial as well as operational strategies and change their approach which would be more environmentally sustainable in the long run. Recently, a special economic package of INR 20 lakh crores for ‘Atma Nirbhar Bharat’ or ‘self-reliant India’ which was announced by the Prime Minister will help to integrate India much better with the world. However, the recovery packages in this pandemic will provide opportunity for India to take the much awaited steps to green the economy in sectors that have maximum impact on sustainable development. Both the sustenance and sustainability have to be the cornerstones of economic recovery as India responds to this crisis.


Green Finance is definitely an important mean that can facilitate such a shift towards sustainable economic growth. 



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Received on 20.08.2021         Modified on 18.09.2021

Accepted on 14.10.2021      ©AandV Publications All right reserved

Res.  J. Humanities and Social Sciences. 2021; 12(4):223-226.

DOI: 10.52711/2321-5828.2021.00039