Greening India's budget

26 June 2009

V Raghuraman, The Climate Group's Advisor in India, and Rajeev Palakshappa, Programme Manager, The Climate Group in India, report

Following an historic mandate achieved at the recent national elections, the Government of India is preparing its first budget for presentation to Parliament on 6 July. It remains to be seen whether the budget statements will provide funds to support the aspirations of the national action plan on climate change. It is also to be seen whether the fiscal stimulus envisioned by the Minister of Environment and Forests, Mr. Jairam Ramesh, would result in a green GDP oriented shift towards sustainable development.

The financial community is increasingly interested in green investment opportunities, with a recent United Nations Environment Programme (UNEP) report estimating that world-wide US$ 155 billion was invested in clean energy projects in 2008. Of this US$ 4.1 billion was invested in India, representing a 12% increase on the previous year.

This trend can continue and accelerate with the appropriate budgetary statements. The upcoming budget will set out key spending areas, with rural development, education and the social sector at its core. Climate change is a pervasive issue and will require a similarly pervasive approach to ensure fiscal policy supports a shift towards a low- carbon economy.

The budget not only provides an opportunity to signal medium-term aspirations to 'green' India, but due to the annual cycle provides an excellent review point. There is a need to rationalize energy taxes and direct subsidies to support weaker sections of the economy. This will help in stimulating a consumer shift to green products and services.

Some of the provisions for accelerated depreciation could be expanded to include clean technologies which are yet to be covered under the Income Tax Act. To avoid implementation delays, the temptation to justify proposals based on revenue neutrality (through balancing potential taxation losses in one area through gains in another) needs to be resisted and long-term positive effects of green growth factored in.

The Bureau of Energy Efficiency has come up with an energy labelling programme, which could support the up-take of energy efficient and renewable products through differential excise duty. The CDM revenues scheme, as well as energy efficiency trading incomes, should be given tax breaks. Innovative financing schemes need to be introduced to promote energy efficiency and renewable energy penetration.

Addressing a Joint Session of Parliament the President of India, Pratibha Patil, said that we "must leave behind the dreary sands of dead habit" and called for the next ten years to be declared the decade of innovation. The national solar mission and technological innovation centres propsed by India at the April Bonn conference could be kick-started with the incentives for venture capital to take care of the risks and encourage innovation.

This is an opportune time for the Indian Government to show leadership to usher in a green future that can provide jobs, generate skills and also tap a growing range of global opportunities. The finance minister needs to take the opportunity to present a 'greener' budget to lay down a green path for India.

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