An Analysis of Green Tax Incentive and Inflow of FDI in India’s Renewable Energy Sector

Green incentives are financial benefits to encourage projects and investments that reduce environmental harm
Green Tax Incentive - FDI in Renewable Energy - Climate Change Policy - Renewable Energy Sector - Emission Reduction Strategies - taxscan

The world is behind the development through sustainability which impacted the formation of sustainability tax measures to reduce emissions, meet their commitments on carbon neutrality and tackle climate change, as well as to raise revenue and fund important policy objectives.

The term “Green Tax” which also refers to environmental or pollution taxes, is an excise duty imposed on products that pollute the ecosystem. The economic theory claims that by incentivising households and businesses to adopt pollution-reduction practices, levies on emissions that create pollution will lessen the harm done to the ecosystem.

Green incentives are financial benefits to encourage projects and investments that reduce environmental harm. They include government cash grants for such projects, and tax incentives that reduce tax liabilities to stimulate investments that mitigate environmental impact.

To foster economic growth and development around the globe, foreign direct investment (FDI) is crucial. For India, one sector that has emerged as an attractive opportunity for investment is FDI in renewable energy.

The Union Minister for New & Renewable Energy and Power has informed about the steps taken to attract Foreign Direct Investment into the renewable energy sector of India. Under the extant Foreign Direct Investment (FDI) policy of the Government of India, FDI in the renewable energy sector is permitted up to 100% under the automatic route.

Steps To Attract Investments, Including FDI In The Renewable Energy Sector

  • Setting up of Project Development Cell for attracting and facilitating investments.
  • Declaration of trajectory for Renewable Purchase Obligation (RPO) up to the year 2029-30,
  • Setting up of Ultra Mega Renewable Energy Parks to provide land and transmission to RE developers for installation of RE projects at large scale,
  • Laying of new transmission lines and creating new sub-station capacity under the Green Energy Corridor Scheme for evacuation of renewable power,
  • Launch of schemes such as Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM), Solar Rooftop Phase-II, 1200 MW CPSU Scheme Phase II, etc.,
  • Launch of National Green Hydrogen Mission to make India a global hub for the production, utilization and export of Green Hydrogen and its derivatives, Notification of Promoting Renewable Energy through Green Energy Open Access Rules 2022,
  • Launch of Green Term Ahead Market (GTAM) to facilitate the sale of Renewable Energy Power through exchanges,
  • Release of Standard Bidding Guidelines for tariff-based competitive bidding process for procurement of Power from Grid Connected Solar PV and Wind Projects,
  • Waiver of Inter-State Transmission System (ISTS) charges for inter-state sale of solar and wind power for projects to be commissioned by 30th June 2025,

There are many reasons why foreign investors are crowding into the Indian renewable energy sector, including the nation’s commitment to sustainable development and its high renewable energy goals. The abundance of renewable sources like solar, wind, hydro, and biomass in India leads to an increase in the inflow of FDI in renewable energy sources. India is the most suitable place with favourable climatical and environmental resources for foreign investors wishing to make money from the renewable energy industry.

The Green tax incentives brought by the Indian government support the investment in renewable energy. FDI in India’s renewable energy sector has an increase of 56% this year. The investment is the highest ever in the Indian renewable sector in a year. According to a World Economic Forum report, India’s transition towards a net-zero economy could contribute over $1 trillion (~₹82.8 trillion) by 2030 and $15 trillion (~1,242 trillion) by 2070 in economic impact.

The Indian Renewable Energy Development Agency announced plans to finance renewable energy projects in foreign currency.

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