India's first ever green bonds will focus on funding solar power, wind and small hydro projects, as part of its attempt to tap the domestic debt market to finance clean projects, news agency Reuters reports. A debt market is one in which investors buy and sell debt securities, mostly in the form of bonds. A debt security is a financial asset that defines the terms of a loan between an issuer (the borrower) and an investor (the lender). India's debt market is one the largest in India.
Green bonds are debt securities designated to finance projects that are environmentally friendly, and help in ecosystem restoration or pollution control. According to a Reuters report, the proceeds from the Indian government's green bonds will not be used to fund hydropower plants larger than 25 megawatts, nuclear projects and power generation projects that use biomass originating from projected areas. The green bond framework was released on Wednesday, November 9, 2022.
Where will India use its green bonds?
Union Finance Minister Nirmala Sitharaman announced the plan to issue sovereign green bonds in the 2022/2023 budget, as part of the overall market borrowing. The intention of the government is to use these funds to build green infrastructure.
The Indian government aims to issue bonds worth INR 160 billion till March next year. A green finance working committee will select public sector projects for green financing from those submitted by government departments. The committee is headed by Chief Economic Adviser V Anantha Nageswaran, and will be guided by environment specialists and representatives of the Union Ministry of Environment Forests and Climate Change for choosing projects.
Every year, the green bonds will be used to fund fresh projects identified by the committee.
It is the panel's job to ensure that proceeds from the bonds will be allocated within 24 months from the date of issuance, the report says.