Policy Engagements and Blogs

Comments by CPR-ICEE on the Union Budget 2023-24

February 1, 2023


“This is a ‘stay-the-course’ budget on green growth, with the possible exception of support for hydrogen, but not, as yet, a green transformation inducing budget,” said Navroz K. Dubash, Professor at CPR.

“In several areas, such as hydrogen, battery storage, gas, transmission, it seeks to stimulate green production. But it focuses less on green development – using renewable energy for an inclusive transition and promoting rural productivity,” he added.

On greening the electricity sector:

“Budget allocations for renewable energy evacuation and energy storage are useful to enable India’s renewable energy transition, but enhanced support for distributed energy resources will be critical to inclusive transition, promoting rural productivity, and thus, achieving the vision for Amrit Kaal – an empowered and inclusive economy,” said Dr. Ashwini Swain, Fellow at CPR.

Central allocations to build transmission systems for evacuation of 13 GW RE from Ladakh and provide viability gap funding for 4 GWh (or 1 GW capacity) battery storage will give an impetus to stagnated RE deployment pace in India. Distributed Renewable Energy (DRE) was envisioned as a significant component in India’s 2022 targets and will remain critical to India’s energy transition. Enhanced support for off-grid solar and PM-KUSUM schemes, though from a low baseline, is a good step. DRE based reliable power supply could be a useful complement to the various supports outlined in the budget for economic empowerment of women through self-help groups, PM Vishwakarma Kaushal Samman (PM VIKAS), agricultural productivity, and thus, to unleash the potential of rural economy.

On air pollution and transport – progress in some areas, regress in others

“The budget presents mixed messages on air pollution with substantial progress on adjacent areas such as transport, and an almost total regress in abating household air pollution and mitigating crop residue burning,” said Dr. Bhargav Krishna, Fellow at CPR

In the Finance Minister’s first budget speech of Amrit Kaal that featured green growth as one of its seven key pillars, there are mixed messages on air pollution. While there have been substantial increases in commitment to adjacent sectors such as transport, the almost total phase out of subsidies for LPG signal an end to the initially ground-breaking Pradhan Mantri Ujjwala Yojana. The lack of subsidies, coupled with the substantial increase in prices of LPG over the last year will almost certainly mean more households will revert to using polluting cooking fuels in their homes, harming the health especially of women and children.

On increased funding for NCAP and no allocation to crop residue burning:

“The increased funding for NCAP is welcome, but the lack of attention to crop residue management or crop diversification mean there is unlikely to be any substantial improvement in crop residue burning this winter,” said Dr. Bhargav Krishna, Fellow at CPR

The increase in allocation for the National Clean Air Programme from INR 600 Cr (RE) to IN 756 Cr is a positive step. Coupled with the ongoing 15th Finance Commission grants to urban local bodies for air quality, there is greater momentum on addressing this issue at the city level. Greater scrutiny is needed, however, on how these monies are spent and how the incentive structures of the NCAP align with prioritizing investment in untested techno-fixes such as smog towers and anti-smog guns.

Simultaneously, however, the lack of investment in both crop residue management mechanisms or in crop diversification programmes indicate a shift of responsibility for management of stubble burning from the Union to States. In the absence of a Union governmentled mechanism to facilitate this transition, there is unlikely to be any substantial reduction in crop residue burning this winter.

On battery storage:

“While the viability gap funding for battery storage is intended to cover about 4% of the 2030 CEA storage capacity projections, it is an important step for generating interest and gauging further support needed,” said Dr. Easwaran Narassimhan, Associate Professor at CPR

The budget proposes supporting battery storage systems with a capacity of 4,000 MWH with a Viability Gap Funding (VGF) policy. A 4-hour battery storage utilization translates to 1GW of storage capacity. While this is a small share of the 27GW projected for 2030 by the Central Electricity Authority, this VGF supported tender is likely to generate interest amongst project developers and help gauge the level of policy support needed to meet the 2030 projections.

On capital investments for energy:

“The capital investments towards energy transition, net-zero objective, and energy security appears to be directed towards the MoPNG. This may help with energy security, but it is unclear what the allocation for oil marketing companies means and whether it represents a bet on natural gas as a bridge fuel,” – Dr. Aman Srivastava, Fellow at CPR.

The budget provides 35,000 cr for priority capital investments towards energy transition, net-zero objective, and energy security. While this appears to be a significant allocation, almost all of it seems to go to MoPNG to meet India’s energy security objectives through 5000 cr. of new allocation towards strategic petroleum reserves and 30,000 cr. of capital support for oil marketing companies. Although investment in a strategic petroleum reserve enhances energy security, it is unclear what the huge allocation for oil marketing companies means. For example, if a majority of this allocation would go towards gas exploration, then it signals a bet on ‘gas’ as the bridge fuel to India’s energy transition.

On green hydrogen:

“The outlay for the Green Hydrogen Mission is important to support the feasibility of green hydrogen, but it is not yet clear how this compares against support being provided by other countries to make hydrogen exports competitive,” said Dr. Aman Srivastava, Fellow at CPR.

The outlay of INR 19700 crore for the Green Hydrogen Mission (with an initial allocation of INR 297 Cr) aims to support annual production of 5 MMT by 2030. This public expenditure – which could cover investments, subsidies, and other avenues – is equivalent to about INR 40/kg. In contrast, the US Inflation Reduction Act provides subsidies of up to INR 250/kg to produce green hydrogen. Although the two are not strictly comparable because one is for multiple purposes and the other just for subsidies, it is important to clarify how these outlays will be used to improve the competitiveness of domestic hydrogen.

On electric vehicles and transport:

“While the focus on EV manufacturing and adoption is commendable, a larger green industrial policy strategy is missing as R&D investments to develop indigenous capabilities to climb the EV value chain are non-existent. On transport sector decarbonization, EV deployment and ethanol blending incentives are a plus but support for public transportation is missing,” – Dr. Easwaran Narassimhan, Associate Professor at CPR.

The budget announced a greater outlay for the FAME-II subsidy scheme (up from 2898 Cr to 5172 Cr) and customs duty exemption on capital goods and machinery required to manufacture lithiumion battery cells locally for electric vehicles. Coupled with the vehicle scrappage policy, this would significantly boost domestic manufacturing of clean energy technologies. However, the lack of investments in R&D is a clear miss.

While it is unclear what the INR 30,000 Cr capital infusion to oil marketing companies will be allocated towards, some emphasis on enhancing charging infrastructure through these funds will aid the EV transition. Additionally, while targets on ethanol blending for the transport sector are welcome from an energy security perspective, questions remain on whether these targets will align with our broader goals around air quality, and how quickly a transition to wide use of E20 fuels can be effected.

On the need greater focus on LiFE-consonant urbanization:

“With LiFE a substantial policy focus both internally and externally, there must be greater focus on urban infrastructure development that is consonant with these goals. This means investing in greater adoption of public and non-motorized transport, and building infrastructure that facilitates sustainable urban living,” said Dr. Bhargav Krishna, Fellow at CPR

While the INR 23,175 Cr allocated to building metro systems is laudable, focus on supporting and building last mile connectivity will enhance the adoption of public transportation thereby reducing the contribution of vehicular emissions. Additionally, utilizing funds allocated to AMRUT and urban infrastructure to facilitate the development of non-motorized transport infrastructure and sustainable urban spaces consonant with the Prime Minister’s call for LiFE is the need of the hour.

Missed opportunity on skilling:

“Several reports have highlighted the requirements from a manpower perspective to facilitate improvements in air quality and to meet India’s targets for installed RE capacity. There was a missed opportunity here in dovetailing the story on green growth with that of skill development and employment by mainstreaming training for these roles through the Skill India Mission. This is perhaps an area that could see significant employment potential coupled with environmental co-benefits if the policies across these sectors are joined up” said Dr. Bhargav Krishna, Fellow at CPR.

This article was first published by Environmentality.