India’s plans to develop a taxonomy for classifying climate finance will bring relevant and appropriate agendas to the forefront while presenting Indian standards globally, according to Ajay Seth, secretary of the finance ministry’s department of economic affairs. In a wide-ranging interview with Mint, Seth outlined the government’s thinking and plans on developing the climate finance taxonomy, improving India’s sovereign credit ratings, recalibrating the infrastructure financing framework, and simplifying overseas investment routes for foreign investors.
“We are a country with a high population-per capita income, and if we are compared with a country with a smaller population and a higher per capita of over $50,000, climate finance interactive dynamics will be different for us as compared to what it is for them,” Seth said, adding that the planned standards for classifying climate finance will address such issues. “When we talk about standards, disclosures will have to be made. It is not just the investment-related issues, but also usage-related issues have to be addressed, and decisions will have to be provided,” Seth added.
In her budget speech on Tuesday, finance minister Nirmala Sitharaman said India will develop a taxonomy for climate finance to enhance the availability of capital for climate adaptation and mitigation, which will support the achievement of the country’s climate commitments and green transition. The climate finance taxonomy will identify the assets, activities and projects needed to deliver a low-carbon economy consistent with the goals of the Paris Agreement, which are mitigation, adaptation and finance commitments to reach the climate goals.
On sovereign credit ratings, Seth said the government is in regular conversation with credit rating agencies to convince them for better ratings on the back of the strength of the Indian economy. India has maintained that its economic health has improved considerably since the pandemic, and finance ministry officials have met rating agency officials to press for an upgrade. A sovereign credit rating measures a government’s ability to repay its debt. A higher rating indicates greater trust in the ability to repay and, consequently, lower borrowing costs. While S&P and Fitch rate India at BBB-, Moody’s rates the South Asian country at Baa3, which indicate the lowest possible investment grade.
However, in May, S&P Global sparked hopes for a long-awaited sovereign ratings upgrade for India, raising its country outlook to positive from stable after 14 years. “The next stage is the ratings upgrade, but coming back to bring the debt to a more sustainable level, we intend to have enough focus, enough space so that if another crisis of the proportion which we saw four years ago (coronavirus pandemic) were to come forward, there should be space available for fiscal policy to respond. Overall, the goal is to bring the total debt to a more sustainable level,” Seth said. “The idea is to let the economy grow at a fast pace and an inclusive manner for a long time. So, the need for investment will be more. We have the potential to sustain high debt for the longer term, but not at the current level of 56%,” he added. The central government’s debt stood at just over 56% of GDP at the end of FY24, lower than 57.1% at the end of March 2023.
Meanwhile, a committee on infrastructure financing headed by Bibek Debroy, chairman of the PM-EAC (Prime Minister’s economic advisory council), in which Ajay Seth is a member, has undertaken a comprehensive assessment of the characteristics and parameters defining the infrastructure financing framework. The committee is preparing a framework for infrastructure financing under both public and private financing setups and broad approaches for various sectors, Seth said. “The committee is looking at financing different sectors like roads, railways and ports. What should be our approach for public versus private financing? How can the private sector be incentivised to invest?” Seth said. The Debroy-led expert committee has had a series of stakeholder consultations and is finalising its recommendations. The committee’s final report is expected this year.
Seth also said that an easing of overseas investment rules is expected in the coming three months to ease investment norms for foreign portfolio investors (FPIs) and overseas arms of Indian companies. “Most sectors are already under the automatic route and opened up to FDI (foreign direct investment) to the extent of 100%. But there are a whole lot of regulations on how inflow of capital gets regulated under FEMA (foreign exchange management act). There are rules and regulations we intend to simplify so that it becomes easier to invest,” Seth said. “While measures are under discussion with the RBI and Sebi, common grounds have been found. We expect, over the next three months, these would come out in the open. These changes on rules would be notified by the government while the regulators would make required changes in regulations,” he added.
At present, FPIs are allowed to hold up to 10% of stocks in an Indian company, and any increase in shareholding beyond this level either has to be diluted in a time-bound manner or such investors have to apply afresh as a foreign direct investor, complying with another set of rules and regulations. Similarly, currently norms don’t exist for classification of investment that an overseas company of an Indian entity wishes to make in India without any linkages with the parent.
