Paper: III
For Prelims: Green Bonds.
For Mains: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
 
 
Context of News:

• Recently, RBI said that Issuing Green Bonds in India is generally high in India as compare to any other bonds due to asymmetric information circulating in India.
• Explaining further, RBI said; the average coupon rate for green bonds issued since 2015 with maturities in between (5 -10) years have been higher than any other government bond or corporate bonds.

Green Bonds:

• Green bonds are debt securities issued by financial, non-financial or public entities where the proceeds are used to finance 100 per cent green projects and assets.  In order to scale up the environmentally sustainable investment.
• A green bond is like any other bond where a debt instrument is issued by an entity for raising funds from investors. However what differentiates a Green bond from other bonds is that the proceeds of a Green Bond offering are 'ear-marked' for use towards financing ‘green’ projects.

Why Higher Cost of Green Bonds is Setback for India:

• Green Bonds is the Key for India’s  Clean Energy Ambition:

• Green bonds are an effective vehicle to raise capital for renewable energy projects while meeting the environmental targets of the investors and climate targets of the Government of India.
• India aims to install 175 GW of renewable energy by 2022, which will require an estimated $264 billion of investments.

• India is at a critical juncture in scaling renewable energy to provide energy access to its growing cities and vast rural communities. Financing remains the principal barrier to the rapid expansion of India’s clean energy market.

• Green bond is real Investment prospects:

• Green bonds are competitive with traditional bonds based on economic merit. Offering a similar risk-return profile compared to traditional bonds, green bonds provide lower cost, stable funding opportunities for renewable energy projects regardless of the policy support for clean energy.
• Higher cost of green bond is really a worrisome situation for India. If India don’t act swiftly and decisively in reducing the price of green bond, it will hamper India’s aspects of Clear Energy Polices.

Suggestive Measurers for Expanding Green Bonds in India:

• Standardization of Corporate Bond and Removing Misinformation:

• Deepening of corporate bond market, standardization of green investment terminology, consistent corporate reporting, and removing information asymmetry between investors and recipients can make a significant contribution in addressing some of the shortcomings of the green finance market.
• Green bonds can tap into international resources to leverage a wider investor base such as pension funds, sovereign wealth funds and insurance companies, need to be scaled up.

• Setting up of Green Trust:

• Issuing green bonds overseas can help realise the goal of creating a clean environment. The government can do well by setting up a Green Investment Trust, an agency for green financing, to fund green infrastructure projects.
• The trust can tap green funds abroad and channel the same towards green projects in India. The financial incentives in terms of low-cost funds will trigger infrastructure investments in clean transport.  

For Further Reading, Click Below Mention Links
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