Centre Likely to Issue Green Bonds Worth Over ₹25,000 Crore in FY25

The upcoming Union Budget may propose issuing sovereign green bonds worth ₹25,000-30,000 crore as part of the borrowing schedule for FY25, with a significant portion expected to be sold in the second half of the fiscal year. This move highlights the government's commitment to enhancing green finance initiatives.

What Are Green Bonds?

Green bonds are fixed-income financial instruments used to raise funds for environmentally beneficial projects, such as renewable energy, energy efficiency, clean transportation, sustainable water management, and biodiversity conservation. They offer investors the same credit quality and returns as other fixed-income investments while supporting eco-friendly projects.

History and Usage

The European Investment Bank (EIB) pioneered green bonds in 2007 with the "Climate Awareness Bond." In India, Yes Bank issued the first green bonds in 2015. The Indian government entered the market with sovereign green bonds, raising ₹16,000 crore in FY23 and ₹20,000 crore in FY24. The projected issuance of ₹25,000-30,000 crore in FY25 underscores the importance of green finance.

FY25 Borrowing Plans

The government plans to raise ₹12,000 crore from green bonds in the first half of FY25. Despite no initial mention in the FY24 budget, the government later included a phased ₹20,000 crore green bond plan. Notably, bonds worth ₹5,000 crore were sold in November 2023, followed by ₹10,000 crore in two tranches across January and February 2024, and another ₹5,000 crore by March.

Cost Advantage of Green Bonds

Green bonds need to offer a cost advantage over conventional bonds to support borrowing plans effectively. They should yield 6.7%-6.8% compared to 7% for conventional bonds. The yield on the Indian 10-year government bond settled at 6.973% on 21 June, influenced by the RBI's record surplus dividend transfer to the government, raising hopes for a lower fiscal deficit and borrowing.

Conclusion

The anticipated issuance of green bonds worth ₹25,000-30,000 crore in FY25 underscores the Indian government's commitment to green finance. With increasing investor interest and favorable market dynamics, green bonds are set to play a crucial role in India's sustainable development financing strategy.