Budget 2025: India Considers Credit Guarantee Fund to Boost Green Financing
The Indian government is considering measures to promote green financing and may introduce a credit guarantee fund in the upcoming Union Budget 2025, aimed at supporting clean energy projects. Public sector entities such as the National Credit Guarantee Trustee Company (NCGTC) and the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) are being evaluated to establish this fund. The goal is to guarantee loans for companies transitioning to cleaner energy sources, providing a safety net for lenders and ensuring lower interest rates for borrowers.
A government official explained that the initiative is part of a broader strategy to support green financing, ease financial risks for lenders, and assist companies in reducing their carbon emissions. The proposal could also see backing from multilateral agencies, which would help set the regulations and criteria for classifying eligible loans under this guarantee fund.
Green projects, by their nature, tend to involve newer technologies that are still evolving, making them more challenging to assess in terms of financial and techno-economic viability. This increased risk, when compared to traditional projects, was highlighted by RBI Deputy Governor Rajeshwar Rao in December 2024. He emphasized the need for increased public-private partnerships and blended finance options to address the unique challenges faced by sustainable projects.
Further, a working group of state-run banks, including the State Bank of India, has suggested expanding the scope of sustainable finance, with recommendations that could be integrated into future government plans. These suggestions may help lenders adopt a more structured risk assessment framework, especially once the formal climate taxonomy is finalized, making the classification of climate-related projects clearer.
Finance Minister Nirmala Sitharaman had previously announced in her July 2024 budget speech that a climate finance taxonomy would be developed to help channel capital towards climate adaptation and mitigation. This will support India’s climate commitments and its transition to greener energy sources.
According to a report by the Council on Energy, Environment, and Water (CEEW), India will need an estimated $10.1 trillion in investments to reach its net-zero target by 2070. The country is facing an investment gap of $3.5 trillion, with an annual support requirement of $28 billion over the next few decades to meet this ambitious target.
