A significant shift is underway in India's energy landscape, as government support for clean energy is rapidly catching up with long-standing subsidies for fossil fuels. A new report released on Tuesday reveals that the gap between subsidies for the two sectors reached its smallest point in five years during the financial year 2024.
Subsidies Shift: Clean Energy Gains Momentum
The report, titled 'Mapping India’s Energy Policy 2025' from the globally recognised think tank International Institute for Sustainable Development (IISD), provides a detailed analysis. It found that clean energy subsidies increased by a substantial 31% year-on-year, reaching nearly Rs 32,000 crore (USD 3.9 billion) in FY 2024. This surge reflects a continued and strengthening policy commitment to renewable energy sources.
In contrast, subsidies for fossil fuels saw a notable decline of 12%—the sharpest drop since the pandemic. However, the report cautions that this decrease was primarily driven by temporary fluctuations in global fuel prices rather than deliberate, strategic policy reforms aimed at phasing out fossil fuel support.
As a result of these converging trends, the level of government support for fossil fuels fell to five times that of clean energy in FY24. While still a large multiple, this ratio represents a significant narrowing from previous years, signaling a tangible, if gradual, rebalancing of fiscal priorities.
Milestone Achieved, But Structural Challenges Remain
The combined effect of rising clean energy investment and moderated fossil fuel support has propelled India past a critical milestone. The nation's non-fossil electricity capacity has now crossed the 50% mark in 2025, achieving this target a full five years ahead of the original schedule. This is a key component of India's updated nationally determined contribution (NDC) under global climate agreements.
Despite this progress, the report highlights a deep-seated structural issue that could hinder the energy transition's momentum. 83% of the capital expenditure by central energy-related Public Sector Undertakings (PSUs) in FY 2024 continued to flow into fossil fuel sectors. This includes funding for coal mining, refinery construction, and oil and gas development.
"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 of the report. She pointed out that weak market signals are pushing new fossil fuel investments onto the balance sheets of state-owned enterprises (SOEs), which need stronger policy direction to diversify.
Fiscal Dependencies and Policy Recommendations
The report also sheds light on other financial pressures and dependencies. Electricity subsidies climbed to a record high of Rs 2.1 lakh crore (USD 25 billion) in FY 2024, an 18% increase. This rise occurred despite electricity demand growing by only 7%, indicating a growing strain on state finances due to the gap between supply costs and consumer tariffs.
Simultaneously, India remains heavily reliant on revenue from fossil fuels, which contributed nearly Rs 9 lakh crore (USD 108 billion), accounting for about 16% of all government revenue at central and state levels. Fossil fuels still constitute 90% of the country’s energy-related revenues, collected through taxes like excise duties, VAT, and GST on coal. This dependence makes public finances vulnerable to global price swings and complicates the creation of stable, long-term funding 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. Jain noted that recent tax reductions have diluted the 'polluter-pays' principle and called for better alignment of taxation with environmental costs.
To address these challenges and steer government support effectively, the IISD report outlines three priority recommendations:
- Improve targeting of electricity subsidies through smart metering and direct benefit transfers to maintain affordability without uncontrolled fiscal growth.
- Guide SOE capital expenditure toward clean energy priorities like offshore wind and green hydrogen, shifting funds from fossil fuel expansion.
- Build fiscal resilience through revenue diversification by exploring measures like targeted carbon pricing to reduce reliance on volatile fossil fuel revenues.
The findings present a picture of a nation at a crossroads, making measurable progress in its clean energy journey but still grappling with the powerful inertia of a fossil fuel-dependent economy and fiscal system.
