By Sarthak Takyar and Sakshi Bansal
Subsidies, or central financial assistance, are a key policy tool to increase the uptake of clean energy and clean mobility. Over the years, various incentives have been given to different energy segments. However, to achieve a true energy transition, it is important that broader energy sector subsidies encompassing oil, gas and coal are reduced. Renewable Watch takes a look at subsidy trends and strategies in the country, and also provides a global perspective on the issue…
CFA disbursement trends for select renewable energy segments from 2019-20 to 2024-25
Over the past six financial years, from 2019-20 to 2024-25 (till December 2024), the total CFA disbursed across renewable energy projects (solar parks, rooftop solar, PM KUSUM, central public sector undertakings [CPSUs]), solar off-grid, small-hydro, green energy corridors, biomass, waste-to-energy and biogas) has increased steadily, as per Lok Sabha questions (March 2025). With a growth rate of 87.6 per cent, the CFA in 2024-25 (till December 2024) reached Rs 92,212.2 million, up from Rs 11,460.6 million in 2019-20 (Graph 1). Notably, the CFA in the current financial year has approximately doubled from the level in 2023-24 (Rs 48,941 million).
The total CFA disbursed during the past six financial years amounts to Rs 229,746.5 million. The top three beneficiaries have been the rooftop solar segment (Rs 114,726 million), PM KUSUM (Rs 44,050.5 million) and CPSU projects (Rs 23,306.2 million) (Graph 2). Over this period, the solar segments have received 91.3 per cent of the CFA disbursed, followed by green energy corridors (5.9 per cent), bioenergy segments (1.91 per cent) and small-hydro (less than 1 per cent). Rooftop solar received almost 50 per cent of the CFA disbursed, primarily due to increased allocation under the PM Surya Ghar Yojana (Graph 3).
Overall, from 2019-20 to 2024-25 (till December 2024), CFA disbursement has increased 21 times for rooftop solar, around 12 times for PM KUSUM, and 77 times for waste-to-energy. Meanwhile, CFA disbursement has consistently fallen for solar off-grid and small-hydro during this period. Almost 60 per cent of the total CFA in the past six financial years was disbursed to just three states – Gujarat, Maharashtra and Rajasthan – which received Rs 75,349.9 million, Rs 31,170.8 million and Rs 31,159.5 million respectively (Graph 4).
Apart from CFA for projects, the renewable energy sector has received financial assistance to promote domestic manufacturing of solar photovoltaics (PV) and battery storage with advanced chemistry cells (ACC) through production-linked incentives (PLI). The total outlay for solar PV is Rs 240 billion. However, no money has yet been disbursed to manufacturers. According to the Ministry of New And Renewable Energy (MNRE), the approximate outgo under Tranches I and II is likely to be Rs 45 billion and Rs 140 billion respectively. Meanwhile, the total outlay for PLI on ACC battery storage is Rs 181 billion for a capacity of 50 GWh. A total of 40 GWh in two tranches has been allocated to four PLI beneficiaries, according to a government press release dated March 11, 2025. The PLI are disbursed after the production starts from the manufacturing plants. According to the demand for grants for the Ministry of Heavy Industries (2025-26) for this scheme, the actual allocation in Union Budget 2023-24 was a modest Rs 0.077 billion (only revenue expenditure), while the budget estimate for 2025-26 is Rs 1.55 billion (only revenue expenditure).
Another major trend over the years has been the increase in financial assistance for the green hydrogen sector. The total outlay under the National Green Hydrogen Mission is Rs 197.44 billion. According to the demand for grants for the MNRE (2025-26), actual allocation in Budget 2023-24 was Rs 1 billion, the revised estimate in Budget 2024-25 was Rs 3 billion, and the budget estimate for 2025-26 is Rs 6 billion (all amounts are revenue expenditure).
The bioenergy sector receives financial support for the collection of biomass and the development of pipeline infrastructure for the injection of compressed biogas into the city gas distribution network. According to the demand for grants for the Ministry of Petroleum and Natural Gas (2025-26), the budget estimates for 2025-26 are Rs 1.5 billion and Rs 2.5 billion for biomass collection and CBG pipelines respectively. Furthermore, the government has sanctioned viability gap funding (VGF) for offshore wind energy projects with a total budget of Rs 74.53 billion. This includes Rs 68.53 billion for 1 GW of offshore wind energy projects and and Rs 6 billion for the enhancement of port infrastructure.
While the above segments cover direct CFA disbursements for renewable energy projects, the clean energy and clean mobility sectors have also received several indirect subsidies, including tax exemptions and concessional GST rates. The next section covers the overall subsidy trends from 2014 onwards. We have referred to different reports jointly published by several think tanks, including the International Institute for Sustainable Development; Overseas Development Institute; ICF; Council on Energy, Environment and Water; and Global Subsidies Initiative, in 2017, 2020, 2021, 2022 and 2023 (released in 2024).
Renewable subsidies see a surge, followed by cuts and a cautious comeback
Subsidies for renewable energy experienced significant growth between FY 2014 and FY 2016, rising from Rs 26.07 billion to Rs 93.1 billion. By FY 2016, nearly two-thirds of these subsidies were delivered through tax exemptions, including excise and customs duty waivers, and income tax benefits. At the same time, direct budgetary support under various renewable energy schemes expanded by nearly 400 per cent between 2012 and 2016. However, this upward trajectory was reversed after FY 2017, when subsidies peaked at Rs 153.13 billion. By FY 2019, subsidies had dropped 35 per cent to Rs 99.3 billion, largely due to the increased competitiveness of grid-scale solar and wind, which affected incentives such as viability gap funding and tax breaks. Policy interventions such as the solar safeguard duty also contributed to the slowdown. In FY 2020, subsidies dropped modestly to Rs 85.77 billion, with notable shifts in disbursement patterns. Many schemes saw reduced payouts, although support for wind projects and the CPSU scheme grew through generation-based incentives and tax benefits. Continued sluggishness in solar deployment and modest growth in wind power contributed to the downward trend, with subsidies declining further to Rs 67.67 billion in FY 2021 – a 59 per cent drop from the FY 2017 peak. This trend could possibly be due to the transition from feed-in tariffs to e-reverse auctions, and the sudden drop in tariffs for wind and solar projects.
Recently, subsidies have rebounded slightly, reaching Rs 148.43 billion in FY 2023 – an 8 per cent increase over FY 2022. This increase has been attributed to central budgetary allocations for ongoing programmes such as solar parks, PM-KUSUM, the CPSU scheme and the rooftop solar initiative, which have now been extended to March 2026 due to delays relating to land, infrastructure and supply chain challenges – although no additional funding is planned due to underspending. Other forms of support, including accelerated depreciation, transmission charge waivers and credit assistance via the Indian Renewable Energy Development Agency, also continue to play key roles in driving renewable energy adoption.
Rising EV subsidies making India a fast-growing electric mobility hub
Electric vehicle (EV) subsidies, though modest initially, have grown rapidly over the past decade. From just Rs 38 million in FY 2014, subsidies rose to Rs 790 million in FY 2016 and then jumped to Rs 16.73 billion in FY 2019 — an over 400-fold increase since 2014. In FY 2019, the bulk of subsidies came from the concessional GST rate on electric two- and three-wheelers (worth Rs 14.82 billion), and allocations under the Faster Adoption and Manufacturing of Electric Vehicles scheme (Rs 1.45 billion). However, the total allocation under FAME-I was Rs 8.95 billion (revised estimate) for the period April 1, 2015-March 31, 2019. This included Rs 3.59 billion for EVs, Rs 2.8 billion for buses and Rs 430 million for charging stations. EV support amounted to Rs 11.41 billion in FY 2020 and Rs 8.49 billion in FY 2021. While EV subsidies still represented just 0.4 per cent of total quantified energy subsidies, support continued through GST concessions, especially for electric buses (Rs 1.08 billion in FY 2021). The most significant surge occurred in FY 2023, with subsidies hitting a record Rs 97.98 billion. According to Niti Aayog, this momentum was supported by the FAME-II scheme from April 2019 to 2024, with a revised estimate of Rs 115 billion. The subsidy expenditure included Rs 49.24 billion on electric two-wheelers, Rs 11.16 billion on electric three-wheelers, Rs 5.37 billion on electric four-wheelers, Rs 30.09 billion on e-buses and Rs 9.13 billion on charging stations. The government is now backing the sector through a mix of demand incentives, PLIs for advanced automotive technologies and fiscal measures. To this end, it has allocated Rs 109 billion for the PM E-DRIVE scheme from October 2024 to March 2026. This includes Rs 17.72 billion for electric two-wheelers, Rs 1.92 billion for e-rickshaws and e-carts, and Rs 7.15 billion for electric three-wheelers under the L5 category. This scheme has subsumed the Electric Mobility Promotion Scheme that ran from April 2024 to September 2024.
According to the demand for grants for the Ministry of Heavy Industries, the budget estimate for PM E-DRIVE for 2025-26 is Rs 40 billion, while that for the PM-eBus Sewa-Payment Security Mechanism for procurement and operation of e-Buses by public transport authorities is Rs 5.1 billion.
Fossil fuel subsidies declined initially; but rebounded due to geopolitical tensions
To promote clean energy and clean mobility, it is crucial to reduce fossil fuel subsidies in order to disincentivise their uptake. Oil and gas subsidies have experienced significant shifts over the past decade. In FY 2014, these were the largest category of energy subsidies, focused primarily on consumption, totalling Rs 1,576.78 billion. By FY 2016, they had declined sharply to Rs 446.54 billion – a nearly 75 per cent drop, driven by a combination of declining global oil prices and domestic subsidy reforms targeting petrol, diesel, LPG and kerosene. This downward trend continued over the next two years, with subsidies falling to Rs 407.62 billion in FY 2017 and reaching a low of Rs 399.1 billion in FY 2018. However, subsidies began to rise again thereafter, with rising international oil prices and increasing household LPG usage, reaching Rs 676.79 billion in FY 2019 and Rs 553.47 billion in FY 2020. A slight decline followed in FY 2021, with subsidies amounting to Rs 552.5 billion, reflecting both volatile oil prices and progress in phasing out diesel and kerosene subsidies. In FY 2023, oil and gas subsidies surged once more to Rs 706.92 billion, marking a 63 per cent increase over FY 2022. Over time, the focus of support has shifted – from broader price controls on petrol and diesel untill FY 2015 to targeted subsidies for domestic LPG in recent years. As per the demand for grants for MoPNG (2025-26), the actual budget allocation for LPG subsidies was Rs 122.4 billion in 2023-24, while the budget estimate for 2025-26 is Rs 111 billion.
Between FY 2014 and FY 2021, coal subsidies in India remained relatively stable, with only minor fluctuations. In FY 2014, total coal subsidies were estimated at Rs 157.91 billion, declining slightly to Rs 149.79 billion in FY 2016 and then hovering around Rs 154.56 billion in FY 2019 and Rs 149.08 billion in FY 2020. By FY 2021, subsidies fell further to Rs 129.76 billion, reflecting a downward trend. The concessional customs duty on the import of coal; the concessional excise duty and GST rates on coal production; non-compliance with coal washing requirements; and funding for mine safety, conservation, exploration and employee benefits contributed to the total subsidy package in FY 2019, 2020 and 2021.
However, this trend shifted sharply in FY 2023, when coal subsidies surged to nearly Rs 500 billion – a 17 per cent increase over FY 2022, driven largely by expanded tax concessions and a growing reliance on coal. This spike paralleled coal’s growing share in India’s primary energy supply, which rose from 43 per cent in 2018 to 45 per cent in 2022, underlining coal’s continued centrality in the country’s energy mix despite efforts to promote cleaner alternatives.
Global fossil fuel subsidies fall short of phase-out expectations
Fossil fuel subsidies have long been a costly burden on both the global economy and the environment. Back in 2018, the International Energy Agency (IEA) reported that governments spent over $400 billion supporting fossil fuel consumption. But that was only part of the picture. With environmental and health damages taken into account, the IMF estimated total fossil fuel subsidies to be a staggering $5.2 trillion.
This trend continued due to a series of global shocks. As per the IEA, by 2022, fossil fuel subsidies had skyrocketed to over $1 trillion, the highest ever recorded. The surge was largely driven by Russia’s invasion of Ukraine, which disrupted energy markets and sent fuel prices soaring. In response, many governments ramped up subsidies to protect consumers from rising costs. The subsidies in 2022 were twice the amount in 2021, and nearly five times that in 2020.
But this response came with consequences. Despite their public pledges, the G20 countries – responsible for 80 per cent of global emissions – poured a record $1.4 trillion into fossil fuel subsidies in 2022, according to the International Institute for Sustainable Development. The IMF went further, estimating that fossil fuels received $7 trillion in total subsidies that year – 7 per cent of the global GDP. The majority of these were implicit subsidies (the hidden costs of fossil fuel use, such as damage from climate change and air pollution), making up 80 per cent of the total. Explicit subsidies, which directly lower fuel prices, also doubled in 2022. But these largely benefited wealthier households, leaving poorer populations behind. Overall, despite repeated international promises to phase out subsidies and align fossil fuel prices with their true environmental costs, progress has been slow and inconsistent.
Taking the bull by the horns: India aims to reduce electricity freebies with financial support for renewable projects
Despite being a developing economy, India has taken an environmentally responsible stance and has increased incentives for the renewable energy sector while also attempting to reduce fossil fuel subsidies.
In fact, in Union Budget 2025-26, more funds have been allocated for the MNRE than the Ministry of Power. The government aims to not only promote sustainable development, but also address some of the legacy issues of electricity freebies for residential and agricultural consumers through financial incentives on renewable energy projects.
The increased CFA for rooftop solar (primarily due to the PM Surya Ghar scheme) is the central government’s attempt to counter some states’ agenda to provide free electricity up to a certain number of units. The government has been trying to convince these states to use their funds to subsidise residential rooftop solar plants and reduce consumers’ electricity bills instead. An alternative model involving infrastructure development to subsidise citizens’ bills can be adopted to counter freebies.
The PM-KUSUM scheme, with its growing CFA disbursements over the years, also offers a counter to the policy of providing free and subsidised electricity to farmers. While such policies may be defended to some extent on grounds of ensuring social equity, providing free electricity without a sunset clause not only drains the treasury but also leads to excessive water and electricity consumption, impacting soil health and the power distribution segment.
Such freebies are also often misused for political reasons and vote bank gains. Thus, a change in strategy by providing subsidies to farmers for solar irrigation pumps and ensuring feeder-level solarisation under PM-KUSUM offers an alternative political and policy model that promotes clean energy uptake, leading to a gradual phase-out of direct subsidies.
By providing significant financial incentives for the promotion of renewables, the country is driving sustainable development while solving the legacy issue of freebies.
Nguồn: https://renewablewatch.in/2025/06/20/energy-subsidy-trends-incentivising-renewables-development/