According to the International Institute for Sustainable Development (IISD) report, “Mapping India’s Energy Policy 2025,” India has reached a historic milestone by crossing 50% non-fossil installed electricity capacity five years ahead of its 2030 target.
However, the report highlights a critical structural challenge: while direct clean energy subsidies surged 31% to reach ₹31,967 crore ($3.9 billion) in FY 2024, the broader financial landscape remains heavily weighted toward fossil fuels. Specifically, 83% of capital expenditure from central energy-related public sector undertakings (PSUs) is still flowing into fossil fuel assets, such as new coal mining and oil refinery expansions. This creates a significant risk of “carbon lock-in,” where massive state-owned balance sheets are committed to infrastructure that may become stranded as the global transition accelerates.
The report also notes that electricity subsidies reached a record high of ₹2.1 lakh crore ($25 billion) in FY 2024, an 18% increase that far outpaced the 7% growth in electricity demand.
To address these systemic inefficiencies, the IISD sets out three priority recommendations for reforming the sector. First, the report calls for improving the targeting of electricity subsidies through smart metering, direct benefit transfers (DBT), and performance-linked grants to states. These measures are designed to maintain affordability for those in need while strengthening the financial health of distribution companies (DISCOMs) and providing clearer price signals for renewable energy integration.
Second, the authors argue that the government must guide PSU capital expenditure toward clean energy priorities, such as offshore wind, battery storage, and green hydrogen, to leverage their catalytic potential.
Third, the report recommends building fiscal resilience through revenue diversification, suggesting next-generation measures like targeted carbon pricing and green taxes to reduce the state’s reliance on volatile fossil fuel revenues, which currently contribute roughly 16% of total government revenue.
Lead author Swasti Raizada, Senior Policy Advisor, IISD, said, “India’s budget shows encouraging signs of a gradual shift toward clean energy, but larger public financial flows reveal a deeper issue. 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.”
Co-author Saumya Jain added that the current tax system often dilutes the polluter-pays principle, noting that “79% of India’s fossil fuel tax revenue is paid by consumers,” and suggested that revenues from higher fossil taxation should be strategically used to scale up clean energy programs.
