Union Budget 2022-23: Green bond push likely to bring in investors

The government’s green bond issuance is likely to attract a new set of investors to India’s debt market even as the Budget was silent on India’s inclusion in global bond indices.

Green bonds are regular bonds but their proceeds are used for financing environmentally-sustainable projects.  

The details of the green bonds are not spelt out yet, but it is clear that the bonds will be part of the gross borrowing programme of Rs 14.95 trillion. The sovereign green bonds will likely be issued by the Reserve Bank of India (RBI), but whether they will be part of the same auctions as regular government securities remains to be seen.

While the modalities of the sovereign green bonds are yet to be spelt out, bond dealers say the investor class itself will likely be different and it would be targeted towards foreign institutional investors even as the bonds will be issued locally.

Foreign investors, focused on ESG (Environmental, Social, and Governance) financing, scout globally for such bonds as they are mandated to invest only in green bonds. 

Such ready availability of investor class has pushed Indian companies to issue these bonds in the overseas markets in great numbers owing to lower cost of funds. 

However, the government moving into the space, starting with the domestic market, may bring in overseas investors to register as long-term investors in India, say experts. 

“A green sovereign bond issuance from India would find a lot of traction with investors now, besides enhancing the ecosystem for green investing in the country,” said Sandeep Bhattacharya, India project manager, Climate Bonds Initiative.  

“This would demonstrate the political will to fulfil the announcements at COP — and hence also get the country some diplomatic leverage,” Bhattacharya said.

The green bonds will mobilise resources to finance infrastructure, and will boost the flow of funds for infrastructure, said Madan Sabnavis, chief economist of Bank of Baroda.  

 “The clarity on concerns of standardisation, valuation and benchmarking would support their issuances,” Sabnavis said.

 Even as there has been no sovereign green bond issuance in the country, public sector units regularly issue such bonds. But they have not been able to attract active foreign investor participation. That may change with the government issuing its own bonds, and will also ease pressure on the bond market, experts say.

 According to the Bloomberg data, in FY22, $2.7 billion worth of green bonds were issued by Indian companies, both domestically and abroad, against $3.1 billion in FY21 and $3.13 billion in FY20.