India’s Clean Energy Subsidies Rise 31% in 2024 to Nearly ₹32,000 Cr: IISD

Government financial support for fossil fuels fell to five times the level of clean energy in the financial year (FY) 2024—the smallest gap in five years—as clean energy subsidies rose sharply. In FY 2024, quantified government support to energy in India was at least INR 6.3 lakh crore (USD 75 billion), growing 15% over the previous year.

The International Institute for Sustainable Development (IISD) highlighted the narrowing gap in its latest report, as subsidies for clean energy rose sharply. According to Mapping India’s Energy Policy 2025, clean energy subsidies increased 31% year-on-year to nearly Rs 32,000 crore ($3.9 billion) in FY 2024, driven by continued policy support for renewable energy.

Subsidies

Renewable energy subsidies are deployed in the form of capital subsidies, viability gap funding (VGF), accelerated depreciation, inter-state transmission system (ISTS) charge waivers, and concessional loans.

In FY 2024, renewable energy subsidies stood at INR 16,581 crore (USD 2 billion), marking a 16% increase over FY 2023. This rise was primarily driven by increased deployment and uptake of solar subsidies under active government schemes for grid-connected solar and solar irrigation, particularly the Pradhan Mantri Kisan Urja Suraksha evam Utthan Mahabiyan (PM-KUSUM) scheme. Notably, in FY 2024, subsidy uptake under PM-KUSUM overtook grid-connected wind projects for the first time in India.

While subsidy uptake under PM-KUSUM had been slow earlier, it rose sharply by 19% in FY 2024 over the previous year to cross the INR 1,000 crore (USD 121 million) mark in a single year, led by demand from states such as Haryana, Maharashtra, Uttar Pradesh, and Rajasthan.

For renewable energy, the report noted that subsidies are particularly valuable because most costs are incurred upfront, making projects capital expenditure (CapEx)-heavy with low operating expenses (OpEx). It noted that since FY 2018, developers in both wind and solar projects have been eligible to claim 40% accelerated depreciation in the first year of commissioning. The estimated tax expenditure from this subsidy for solar photovoltaic (PV) and wind projects amounted to INR 5,895 crore (USD 712 million) in FY 2024, as government estimates were not available.

Clean Energy Struggles With Long-Term Funding

In FY 2024, the report found a spike in electricity subsidies to an all-time high of INR 2.1 lakh crore (USD 25 billion), an 18% increase, despite electricity demand growing by only 7%. 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 have been insufficient to contain rising subsidy burdens.

At the same time, fossil fuel dependence remains high, with India generating nearly Rs. 9 lakh crore (USD 108 billion)—about 16% of total government revenue across the Centre and states—from fossil fuels. Fossil fuels account for 90% of the country’s energy-related revenues through excise duties, VAT, and GST, primarily collected on coal. This dependence exposes public finances to global fuel price volatility and complicates the creation of stable, long-term funding mechanisms for clean energy.

“Fossil fuel use imposes significant social costs, but 79% of India’s fossil fuel tax revenue is paid by consumers,” said Saumya Jain, policy analyst at IISD and co-author of the report. “The recent removal of the GST compensation cess on coal and reductions in taxes on ICE vehicles have diluted the polluter-pays principle. The government should align fossil fuel taxation more closely with social and environmental costs, while exploring tax reforms in other goods and services to boost consumer purchasing power. Some of the additional fossil fuel tax revenues could be used to scale up clean energy.”

Fossil Fuel Subsidies Fell by 12%

The IISD report also highlighted a 12% decline in fossil fuel subsidies, driven primarily by temporary price dynamics rather than policy reform—marking the sharpest drop since the pandemic. Together, these trends helped lift India’s non-fossil electricity capacity above 50% in 2025, five years ahead of schedule, a key milestone under India’s updated Nationally Determined Contribution (NDC) 2.0, the study noted.

While these trends signal progress in India’s energy transition, sustaining momentum will require diversification across major energy-related public sector undertakings (PSUs). Public financial institutions such as REC and PFC are already expanding lending for renewables and power distribution reforms.

However, PSU capital allocation remains heavily skewed toward fossil fuels. In FY 2024, 83% 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 infrastructure misaligned 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 lead author. “New investments in fossil assets are increasingly moving onto the balance sheets of 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 strategies.”

Citing the example of renewable energy financing, IISD noted that following a fresh equity infusion from the Government of India in 2022, the Solar Energy Corporation of India (SECI) recorded an annual trading volume exceeding 42 TWh. In FY 2024, SECI reported a consolidated turnover of INR 13,119 crore, a 21% increase, and a profit after tax of Rs. 511 crore, reflecting 35% growth.