Representative image of solar panels.
Credit: Reuters File Photo
Mumbai: The government support for fossil fuels in India fell to five times the level of clean energy in financial year (FY) 2024—the smallest gap in 5 years—as clean energy subsidies rose sharply, according to a new report by the International Institute for Sustainable Development.
Clean energy subsidies increased by 31 per cent year-on-year to nearly Rs 32,000 crore ($3.9 billion) in FY 2024, reflecting continued policy support for renewables, according to the report titled 'Mapping India’s Energy Policy 2025'.
“India’s budget shows encouraging signs of a gradual shift toward clean energy, but larger public financial flows reveal a deeper issue,” said Swasti Raizada, senior policy advisor at IISD and a lead author.
“New investments in fossil assets are increasingly moving onto the balance sheets of India’s state-owned enterprises due to weak market signals. As critical state actors in ensuring a just and equitable energy transition, SOEs will need stronger policy signals and robust diversification plans to actively participate in India’s clean energy transition,” Raizada said in a press statement.
Fossil fuel subsidies, by contrast, fell by 12 per cent —the sharpest decline since the pandemic—although this drop was driven by temporary price dynamics rather than strategic policy reforms.
India’s public financial institutions, such as the Rural Electrification Corporation and Power Finance Corporation, are already expanding lending for renewables and distribution reforms.
However, among PSUs, total capital allocation remains heavily skewed toward fossil fuels.
In FY 2024, 83 per cent of capital expenditure by central energy-related PSUs continued to flow into fossil fuel sectors, including coal mining, refinery construction, and oil and gas development. Clean energy diversification among state-owned enterprises (SOEs) remains limited in scale, raising the risk of locking in energy infrastructure that may not align with India’s long-term climate objectives.
India continued to rely heavily on revenue from fossil fuels, which brought in nearly Rs 9 lakh crore ($108 billion)—about 16 per cent of all government revenue across the centre and states. Fossil fuels still make up 90 per cent of the country’s energy-related revenues, through excise duties, VAT, and GST collected on coal. This heavy dependence exposes public finances to global fuel price volatility and makes it harder for governments to create stable, long-term funding for clean energy.
“Fossil fuel use imposes significant social costs, but 79 per cent of India’s fossil fuel tax revenue is paid by consumers,” said Saumya Jain, policy analyst at IISD and co-author.
“The recent removal of the GST compensation cess on coal and reduction of taxes on ICE vehicles has diluted the polluter-pays approach. The government should align fossil fuel taxation measures to better reflect social and environmental costs, while exploring other goods and services where tax cuts can increase buying power for consumers. Some of the revenues from higher fossil taxation can be used to scale clean energy,” added Jain.