India will soon begin issuing sovereign green bonds in order to fund public infrastructure projects that will help to decarbonise the economy. The announcement was made during Finance Minister Nirmala Sitharaman’s Budget Speech for the Union Budget 2022-2023.

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“As a part of the government’s overall market borrowings in 2022-23, sovereign Green Bonds will be issued for mobilising resources for green infrastructure. The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy,” Sitharaman had stated in Parliament.

What are green bonds?

Green bonds are government or company-issued borrowings and securities that are floated to fund and finance government debt. Just like any other debt instrument and conventional fixed-income security that it is bought by investors who provide the principal that the issuer requires and receive interest upon the maturity of the bonds.

The way that green bonds differ from more conventional securities is in the way that the issuer pledges to use the amount raised purely towards financing projects that have a net positive contribution to the environment.

For the green bonds that are going to be issued by the Indian government, the proceeds will go towards projects in the public sector with an aim of reducing the carbon intensity of the economy. The Indian economy is the third biggest carbon emitter in the world.

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Why are they needed?

Financing green, environmental projects often involve a significant sum of capital investment. In order to meet these burgeoning expenses governments world over are now turning to issue these green bonds to meet the requirements of turning to greener infrastructure.

The United Nations’ Intergovernmental Panel on Climate Change has estimated about $3 trillion of investment every year to 2050. A bulk of these investments are expected to come through green bonds with countries like the US already issuing hundreds of billions of dollars worth of green bonds each year.

India’s green bond initiative is also being lauded by experts who welcome the move from the government towards greener investments.

"The budget proposal to issue sovereign green bonds has several benefits, principal among which is signalling the country's seriousness in pursuing climate action. India will now join a select group of countries, primarily European, which have issued such bonds," said Gagan Sidhu, Director, Council on Energy, Environment and Water-Centre for Energy Finance (CEEW-CEF), to news agency IANS.

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(Edited by : Aditi Gautam)