India's Energy Shift: Fossil Fuel Support Falls to 5x Clean Energy

Clean energy subsidies increased by 31 per cent year-on-year to nearly Rs 32,000 crore ($3.9 billion) in FY 2024, reflecting continued policy support for renewables, according to Mapping India's Energy Policy 2025, a report by the International Institute for Sustainable Development.

Fossil fuel subsidies, by contrast, fell by 12 per cent -- the sharpest decline since the pandemic -- although this drop was driven by temporary price dynamics rather than strategic policy reforms.

Together, these trends have helped lift India's non-fossil electricity capacity above 50 per cent in 2025, five years ahead of schedule and a key milestone under India's updated nationally determined contribution 2.0.

These trends signal progress in energy transition, but sustaining the momentum hinges on diversifying major energy-related public sector undertakings (PSUs).

India's public financial institutions, such as the Rural Electrification Corporation and Power Finance Corporation, are already expanding lending for renewables and distribution reforms.

However, among PSUs, total capital allocation remains heavily skewed toward fossil fuels. In FY 2024, 83 per cent of capital expenditure by central energy-related PSUs continued to flow into fossil fuel sectors, including coal mining, refinery construction, and oil and gas development.

Clean energy diversification among state-owned enterprises (SOEs) remains limited in scale, raising the risk of locking in energy infrastructure that may not align with India's long-term climate objectives.

"India's budget shows encouraging signs of a gradual shift toward clean energy, but larger public financial flows reveal a deeper issue," said Swasti Raizada, senior policy advisor at IISD and a lead author.

"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."

The report also finds that electricity subsidies climbed to an all-time high of Rs 2.1 lakh crore ($25 billion) in FY 2024, an 18 per cent increase, despite electricity demand growing by only seven per cent.

This widening gap between the cost of supply and consumer tariffs continues to strain state finances, indicating that efficiency gains and financial reforms in the power distribution sector are unable to contain rising subsidy burdens.

- IANS