The Finance Ministry had proposed to issue sovereign green bonds worth Rs 16,000 crore for the financial year 2023-24
By Riya R Alex | November 19, 2023
India’s sovereign green bonds see low demand among retail investors due to lack of awareness and limited incentives given by the government, according to bond experts.
Sovereign green bonds are debt securities issued by the government to raise money for environmentally and climate friendly projects.
Retail investors are hesitant to invest in green bonds as they are unaware about the purpose served by these bonds , said Harikrishnan V, forex trading head at Yes Bank.
The Finance Ministry had proposed to issue sovereign green bonds worth Rs 16,000 crore for the financial year 2023-24. The amount raised will be invested in green projects in the public sector according to the Framework for Sovereign Green Bonds released by the Reserve Bank of India.
The demand for green bonds has not been very lucrative as the interest rate is low at 7.25% in comparison to other bonds, said a government official who did not wish to be named.
“Green bonds did not perform as per the expectations of the Reserve Bank of India or the government due to low participation by retail investors,”Harikrishnan said,” these investors determine the overall performance of a security”. There are around 97 lakh active retail investors in India, according to National Stock Exchange data.
The retail investors usually prefer sovereign gold bonds over other bonds as they offer an inherent subsidy of 2% on interest rate, said Vinay Joshi, senior vice president and circle head at Axis Bank.
The green bonds will attract investors only if the government provides incentives with these bonds ,otherwise it will not work, said Shashank Goel, financial market analyst at LCX.
Presently, sovereign green bonds do not have any tax exemptions. Any appreciation in the bond price will be taxed at 10% if the security is sold before maturity and if it is held for more than a year.
The union budget for the current fiscal year laid emphasis on ‘green growth’ that focuses on a set of green projects such as Green Hydrogen Mission, PM Pranam among others. The government has initiated many green projects but the public investment in such projects is minimal, Harikrishnan said.