The energy transformation in India is characterized by both momentum and paradox. While public investment still strongly favors fossil fuels, government support for clean energy is growing at a rate never seen before. According to a new report by the International Institute for Sustainable Development (IISD), India’s clean energy subsidies soared 31% in the 2023–24 financial year, reaching nearly ₹32,000 crore. Fossil fuel subsidies decreased by 12% over that period, bringing the gap between the two to its lowest level in five years. This change has helped India reach a significant milestone: according to India’s revised Nationally Determined Contribution (NDC 2.0), non-fossil energy sources now make up more than 50% of installed power capacity, five years ahead of schedule.

However, IISD warns that beneath this advancement lies a more serious structural problem: public-sector investment patterns remain primarily focused on fossil fuels, endangering long-term climate objectives.

What Explains the Sharp Rise in Clean Energy Subsidies?

Although support for policies has grown, it still falls short of support for fossil fuels.

Principal causes of the rise:

• Budgetary push: In 2023–2024, central government funding for grid improvements, renewable energy, and power sector reforms increased dramatically.
• Transition priorities: To incorporate renewable energy sources into the grid, support is focused on solar, wind, and transmission infrastructure.
• Early capacity target achievement: Years of cumulative policy support are reflected in the increasing percentage of non-fossil capacity.

However, IISD highlights that even as India’s clean energy subsidies soared 31%, government support for fossil fuels remains roughly five times higher. This disparity highlights the extent to which India still needs to match its long-term climate objectives with its fiscal interests.

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Why Do Fossil Fuel Subsidies Remain So Dominant?

Market realities, not significant reforms, were the driving force for the decrease in fossil fuel subsidies.

Realistic explanations for the persistence of dominance:

• Global price fluctuations: In 2023–2024, lower global fuel prices decreased the need for fossil fuel subsidies.
• Policy risk: If global prices rise once more, subsidies might soon recover in the absence of structural reforms.
• Revenue dependence: Fossil fuels are financially appealing because they generated over ₹9 trillion in revenue for the government in 2023–2024.

Approximately 90% of energy-related income for both federal and state governments still comes from fossil fuels. Concerns about equity arise from the fact that consumers pay about 79% of the taxes on fossil fuels. Additionally, IISD points out that recent policy changes, such as the elimination of the GST compensatory cess on coal and the reduction of taxes on automobiles with internal combustion engines, have undermined the polluter-pays concept. As a result, even India’s clean energy subsidies soared 31%, fossil fuels continue to dominate both subsidies and revenues.

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How are Public Sector Undertakings Shaping India’s Energy Future?

Infrastructure related to fossil fuels continues to receive disproportionate public sector funding.

Essential conclusions from IISD:

• Capital expenditure bias: Fossil fuel operations accounted for 83% of capital expenditures by central government energy PSUs in 2023–2024.
• Limited diversification: Clean energy initiatives are vastly outnumbered by investments in coal mining, refinery expansion, and oil and gas development.
• Lock-in risk: If fossil fuel spending persists, assets may become stranded, slowing India’s energy transition.

Although PSU investment methods have not yet completely changed, public financial institutions such as the Rural Electrification Corporation and Power Finance Corporation have increased lending for renewable energy. Stronger policy signals are required to guide state-owned businesses toward significant sustainable energy diversification, according to Swasti Raizada of IISD. This contradiction is stark: India’s clean energy subsidies soared 31%, yet the bulk of public capital continues to reinforce fossil fuel pathways.

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What is Happening in the Electricity Sector, and Why Does It Matter?

Increasing electricity subsidies are not the result of rising demand but rather of structural inefficiencies.

Important topics mentioned in the report:

• Record subsidies: In 2023–2024, electricity subsidies totaled ₹2.1 lakh crore, an 18% increase from the previous year.
• Demand mismatch: Despite increased subsidies, electricity demand grew by only 7%.
• State-level stress: State finances are still under pressure due to persistent discrepancies between the cost of supply and consumer tariffs.

These inefficiencies undermine the financial stability of distribution businesses and divert funds that could be used to promote the growth of sustainable energy. Even though India’s clean energy subsidies soared 31%, IISD contends that, in the absence of specific measures such as smart metering and direct benefit transfers, rising subsidies could offset the gains.

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What Reforms Does IISD Recommend to Sustain Progress?

Align public funds, income, and investments with the objectives of clean energy.

Priority actions recommended:

• Target electricity subsidies more effectively: To reduce inefficiencies, use direct benefit transfers and smart meters.
• Redirect PSU investment: Increase financing for green hydrogen, battery storage, and offshore wind.
• Diversify government revenues: Gradually introduce green taxes and carbon pricing to reduce fossil dependence.
• Give clear policy signals: Ensure that capital expenditures by state-owned businesses align with India’s long-term transition strategies.

Without these adjustments, IISD cautions that, even as renewable capacity grows, advances in clean energy could be jeopardized by ongoing public investment in fossil fuels. This risk remains acute despite the fact that India’s clean energy subsidies soared 31% in a single year.

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Final Thoughts

India is at a crucial juncture in its energy transition. Unquestionably, there has been progress, as seen by the significant increase in clean energy subsidies and the installation of more than 50% non-fossil capacity. However, a more nuanced picture emerges from the deeper structure of public finance, where fossil fuels continue to dominate public-sector investment, income, and subsidies. The IISD research indicates that momentum alone is insufficient. Fiscal policy, PSU investment strategies, and changes in the electrical sector must all move in the same direction if India is to remain on course to meet its climate targets. Otherwise, the promise signaled when India’s clean energy subsidies soared 31% risks being diluted by the weight of continued fossil fuel dependence.

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Frequently Asked Questions (FAQs)

Q1. Does India’s 31% increase in clean energy subsidies indicate that fossil fuels will soon be phased out?

No. Despite the notable increase, public investment still favors fossil assets, and support for fossil fuels is still almost five times higher.

Q2. Why do fossil fuels still contribute significantly to government revenue?

In 2023–2024, fossil fuels generated around ₹9 trillion, creating fiscal reliance and accounting for a significant portion of federal and state government revenue.

Q3. If PSU investments stay the same, what is the biggest risk?

Sustained investment in fossil fuels may force India to build unprofitable or out-of-step infrastructure, delaying the country’s energy transformation.

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