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Green Bond Target
Context:
The Indian government is set to increase its sovereign green bond issuance to ₹25,000-26,000 crore in the next financial year (FY26), marking a 25% rise from the ₹20,000 crore target for FY25.
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- This move aligns with efforts to boost financing for climate-friendly and sustainable infrastructure projects, according to sources familiar with the matter.
Key Highlights
- Increased Borrowing Plans: The proposed green bond issuance for FY26 reflects a 25-30% increase compared to FY25.
- The rise is driven by growing demand for sustainable investment options, particularly among foreign portfolio investors (FPIs).
- Global Index Inclusion: India’s sovereign bonds were recently added to the JPMorgan Government Bond Index-Emerging Markets in June 2024, with phased inclusion to be completed by March 2025.
- Indian bonds are also set for inclusion in the Bloomberg Emerging Market Local Currency Government Index starting January 2025.
- These developments are expected to attract substantial FPI interest in sovereign green bonds.
- Previous Issuances: In FY24, the government issued ₹20,000 crore in green bonds.
- For FY25, ₹12,000 crore was planned for the first half, but actual proceeds were lower due to inconsistent investor interest.
Challenges in Green Bond Market
- Investor Demand and Pricing Issues: A 10-year green bond auction was canceled in June 2024 after the market failed to meet the desired premium.
- In November, ₹3,497.985 crore of green bonds devolved on primary dealers, reflecting tepid market interest.
- Commitment to Price Discipline: Despite these challenges, the government has maintained strict pricing discipline, underscoring its commitment to building a credible green bond market.
- Experts view this as a step towards establishing sovereign green bonds as a benchmark asset class in the ESG investment landscape.
Government Vision for Green Bonds
- Targeting Sustainable Growth: Green bonds are expected to fund renewable energy and other climate-resilient infrastructure projects.
- Policymakers anticipate strong utilisation of funds, given the pipeline of public sector projects.
- Building a Credible Framework: The government’s approach focuses on creating a consistent and sustainable market for green bonds.
- Competitive pricing against conventional benchmarks aims to attract long-term institutional investors.
- Expert Insights: Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap LLP, noted the government’s intent to build a reliable framework for green bond issuances.
- By prioritising market credibility, the government seeks to position green bonds as a key instrument within the ESG domain.
Conclusion
The planned increase in sovereign green bond issuance highlights India’s commitment to leveraging sustainable financing for its climate goals. While challenges remain in balancing investor demand and pricing discipline, the government’s deliberate approach aims to establish green bonds as a cornerstone of its ESG investment strategy, attracting global and domestic investors alike.
