New Delhi: The government is expected to issue sovereign green bonds during the second half of the next fiscal year, Ajay Seth, secretary of the department of economic affairs, said on Thursday.
Although the interim budget, presented today by finance minister Nirmala Sitharaman, did not specifically mention green bonds, their issuance is expected in the third or fourth quarter of FY2025, Seth said on the sidelines of the post-budget press conference.
Mint reported on 12 January that the government is likely to issue sovereign green bonds worth at least ₹20,000 crore as part of the borrowing program for fiscal 2025 (FY25), with a large portion of these bonds likely to be sold in the second half of the next fiscal year.
Green bonds address the financing requirements for projects in the solar, wind and hydropower sectors. With several financially viable projects in the public sector in the pipeline, policy makers feel that funds raised through this route will be easily utilized.
Interestingly, the budget for FY24 also did not mention sovereign green bonds.
However, the government later included a phase ₹20,000 crore green bond plan for the second half of the borrowing calendar. From this, bonds of ₹ 5,000 crore with a tenure of five years was sold in November 2023, and ₹10,000 crore of bonds with a tenure of 30 years in two tranches of ₹5,000 crore each is expected through January and February 2024; bonds are worth another ₹5,000 crore is expected by March.
Currently, the sustainability-linked bond market is navigating a slowdown amid rising interest rates worldwide. The weakness marks a change from past years when governments and companies raised funds for green initiatives at attractive rates.
For green bonds to support borrowing plans, they must offer a cost advantage over conventional bonds, especially given their eco-label, a senior finance ministry official had earlier told Mint.
The official said that if conventional bonds yield 7-7.2%, green bonds should be at a discount and not have more than 6.8% yield for it to be viable. The yield on the Indian 10-year government bond settled at 7.04% on 1 February.
The yield has jumped in recent months as central banks around the world have tightened monetary policy, affecting demand for emerging market bonds.
The funds obtained by selling green bonds cannot be used for projects related to the extraction, production or distribution of fossil fuels or nuclear energy. They can be used for government investments, grants, subsidies, tax-forgotten or operating expenses to support climate mitigation and sustainable green initiatives to reduce carbon intensity.
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Published: 01 Feb 2024, 19:41 IST