Green Finance: A Key Initiative for Sustainable Rural Development

in India

Darshan Subherwal

and Anuradha Goswami

Department of Management, The Bhopal School of Social Sciences, Bhopal, India

Department of Commerce, The Bhopal School of Social Sciences, Bhopal, India

Keywords: Green Finance, Climate Change, Sustainable Development, Rural Development.

Abstract: Ever since the Industrial Revolution in the 18th century, the world has observed, of late, that the cost of all

industrialization has slowly and gradually resulted in climate change which is posing a great threat in the form

of continuous rise in the Earth’s temperature. To mitigate the threats of climate change, it is necessary to shift

economic development to the path of low carbon emissions. To oblige the commitment made by India in the

Paris Agreement and to accomplish the Sustainable Development Goals (SDGs), an investment to an extent

of two and a half trillion dollars will be required by India between 2015 to 2030, according to an estimate.

India being an agrarian economy, the vast rural population is being adversely affected by the climate variations

because the agriculture and allied sectors are climate sensitive. Therefore, it is necessary to induce the rural

economy with resources, majorly financial, that results in climate change resilience and sustainable

development. Green Finance refers to the financial investment in projects that promote nature friendly

infrastructure and adopt climate change action plan commitments. The present study aims at knowing the

green financing strategy in rural sectors, its application areas and the initiatives taken by the government in

this field. The study is descriptive and based on secondary data collected from various reports of government

and other agencies, research journals and research articles on websites.

1 INTRODUCTION

Ever since the Industrial Revolution in the 18th

century, the world has observed, of late, that the cost

of all industrialization has slowly and gradually

resulted in climate change which is posing a great

threat in the form of continuous rise in the Earth’s

temperature. During the industrial revolution,

exhaustible resources were used exorbitantly leading

to high carbon emissions in the environment. The

increased industrialization used more machines,

persuading more consumption of electricity

generated by fossil fuel consumption leading to more

carbon emissions. The industrial revolution has

helped the global economy to solve the economic

problems of food, clothing, shelter and other

necessary amenities. But the increased use of

mechanized transportation, high standards of living

based on increased use of electricity for gadgets etc. -

all have impacted the environment negatively. India

being on the path of economic development has been

facing the environmental degradation threat even

more because not only India needs to increase its pace

of development keeping in consideration the needs of

its vast population but also, has to prevent its natural

resources from excessive depletion. Further, the

development in the urban areas due to

industrialization leading to environmental pollution

has been showing negative impacts on the lives of

common people. At the same time, the rural areas are

being underdeveloped due to multiple reasons- the

one being, lack of modernized agriculture

characterized by monsoon dependency. Since, the

majority of population in India resides in rural areas

and dependent on agriculture, the devastating impacts

of climate change are worse and more threatening for

the rural population. To mitigate the climate change

adversities, it is necessary to shift economic

development to the path of low carbon emissions.

According to the UN Sustainable Development Goals

Agenda, an action plan was decided by the world

leaders to combat climate change and its impact. The

government of India has designed a National Action

Plan on Climate Change (NAPCC) to fulfill its

commitment towards SDG agenda 2030 that will help

to attain economic and environmental goals in a

612

Subherwal, D. and Goswami, A.

Green Finance: A Key Initiative for Sustainable Rural Development in India.

DOI: 10.5220/0012499400003792

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 1st Pamir Transboundary Conference for Sustainable Societies (PAMIR 2023), pages 612-617

ISBN: 978-989-758-687-3

sustainable manner. India being an agrarian economy,

the vast rural population has been adversely affected

by the climatic variations because the agriculture and

allied sectors are climate sensitive. Therefore, it is

necessary to induce the rural economy with resources,

majorly financial, that results in climate change

resilience and sustainable development. The financial

investment in projects that promote environment

friendly infrastructure and adopt climate change

commitments are termed as Green Finance and

includes innovative financial devices and policies,

such as pro-environment banking, environment

friendly fiscal policies, green fin techs, green fixed

income securities, green loans and aids, carbon

pricing instruments, etc. (Sachs, et al., 2019, p.3).

Green finance can contribute significantly towards

the environment, society and mitigating climate

change (Ozili, 2022).

Green Finance is an innovative pathway to invest in

green activities that protect the environment. It

includes funds needed to develop alternative

technologies that do not cause much harm to the

environment as against existing technology. Financial

instruments that help in investing in green

infrastructure or green projects are termed as green

instruments. Green finance combines economic

profits with environmental sustainability.

2 REVIEW OF LITERATURE

The concept of Green Finance is in early stage of

development and many more thoughts are being

added as it is evolving. The United Nations

Conference on Sustainable Development happened

during 20 to 22 June, 2012 in Brazil, quoted the term

‘Green Economy’ for sustainable development and

elimination of poverty. Green Economy means

growth oriented by investments in infrastructures and

energy sectors that generate desired efficiency with

less carbon effusions ensuring protection of natural

bio diversity and ecosystems (UNEP, n.d.). Green

economy encourages activities for promoting nature

friendly development and prevents environmental

deterioration. Green Finance depicts investment in

specific infrastructural areas that promote

development with less carbon footprints, methods,

techniques and technology which are environment

friendly. There are terms that analogue to green

finance and has been described by UNEP as:

Sustainable finance which entails social, economic,

natural or environmental and issues relating to

governance. Climate Finance is a part of Green

Finance but the latter is a wider term relatable to

investing in projects leading to sustainable

development (ISO, n.d., p.3). Green Finance, as

defined by the International Development Finance

Club, refers to the direct inflow of funds in

environment-conscious development projects and

policies for promoting sustainable economy with the

purpose of achieving pollution free low cost energy

and other objectives like conservation of water bodies

and coastal areas, sustainable agriculture, reducing

climate change disasters, systematic waste disposal

etc. (UNEP Inquiry, 2016).

Green Finance is an innovative pathway to invest in

green activities that protect the environment. It

includes funds needed to develop alternative

technologies that do not cause much harm to the

environment as against existing technology. Financial

instruments that help in investing in green

infrastructure or green projects are termed as green

instruments. Green finance combines economic

profits with environmental sustainability.

2.1 Objectives of the Study

The present study aims at knowing the green

financing strategy in rural sectors, its application

areas and the initiatives taken by the government in

this field.

2.2 Research Methodology

The study is descriptive and based on secondary data

collected from various reports of government and

other agencies, research journals and research articles

on websites.

3 DISCUSSION

3.1 Green Finance and India

India is predominantly an agro-based economy where

the majority population resides in rural areas and

engaged in agricultural activities. According to

Global Climate Risk Indicator 2020, climate change

cost India around 37 billion dollars and agriculture is

the worst hit sector due to climate change (GIZ,

2021). For achieving sustainable rural development

and mitigating climate change impacts, the

government of India is focusing on the concept of

green growth. The union Budget 2023-24 announced

various schemes representing India’s climate action

Green Finance: A Key Initiative for Sustainable Rural Development in India

613

response that target towards achieving following five

nectar elements (panchamrit):

● Achieving non-fossil electricity capacity

building of 500 Gigawatt by 2030

● Meeting 50% of energy requirements

through renewable energy sources by 2030

● Reduction in overall estimated carbon

emissions by one billion tones (from2021)

till 2030

● Reducing carbon footprints in economy by

45% over 2005 levels by 2030

● Carbon Neutrality in economy by2070

The above targets will require green finance for

which National Clean Energy Fund and National

Adaptation Fund are established along with Climate

Change Finance Unit as central coordinating agency

(Centre for Budget and Governance Accountability,

2017, p.11).

3.2 Initiatives Taken by the

Government of India in Green

Finance Sector

As a part of her commitment to reduce carbon

emissions, India put forward a 5-elemental approach

(named as ‘Panchamrit’) as climate action aggressive

plan. This was presented in Glasgow at COP 26

(Conference of Parties) at the United Nations

Framework Convention on Climate Change

(UNFCCC). India’s commitment to the 2015 NDC

(Nationally Determined Contribution) to

UNFCCC contains three quantitative milestones to be

achieved by 2030 relating to non-fossil based

electricity capacity building, reducing carbon

emissions intensity of economy and creation of

additional carbon sequestration of around 3 billion

tons of CO2 equivalent by raising additional forest

cover (PIB, 2022). Accordingly the focus of fiscal

Budget 2023-2024 has been on programmes and

policies relating to green fuel, green energy,

organic/green farming, green transport, green

buildings, and green equipment (Government of

India, Budget 2023-2024, 2023).

The major initiatives declared by the Government of

India in relation to green growth and green finance

are:

● Green Initiatives relating to Clean Energy

infrastructure development in rural areas

● Scheme for ensuring renewable energy to

farmers and rural community called as

“Pradhan Mantri KisaanUrza Suraksha

evamUtthaanMahaabhiyan”

This scheme, popularly known as PM-KUSUM, was

started in 2019 with the aim of ensuring energy

security to Indian farmers and it provides for

installing 10,000 MW of “Decentralized Grid

Connected Renewable Energy Power Plants” on

barren land; installing 17.50 Lakh stand-alone solar

pumps for agricultural purposes; and for converting

10 Lakh agriculture pumps, which are grid connected,

into solar ones (Government of India Ministry of New

and Renewable Energy, n.d.).The farmers can sell the

surplus power to the grid and earn income. They will

also get a subsidy on the cost of solar pumps.

● Green Initiatives relating to waste

management and green energy

● Setting up of “waste to wealth” plants under

GOBARdhan Scheme

In 2018, “Galvanizing Organic Bio-Agro Resources

dhan” scheme has been launched for effectively

managing cow dung and other biodegradable waste in

rural areas. It is an important part of the bio-fuel

strategy of India wherein bio-waste including cattle

waste, kitchen leftovers, crop residue and market

waste is converted into biogas. In Union Budget

2023-24, government announced the installation of

500 new ‘waste to wealth’ plants under GOBARdhan

scheme that provides for putting up 200 compressed

biogas plants, 75 in urban areas, and rest in rural, and

also 300 community-based plants having total

investment of Rs 10,000 crores (IIFL Securities,

2023). The whole purpose is to facilitate farmers and

rural households with economic and resource

benefits. This helps in creating livelihood

opportunities in rural areas by enhancing the income

of farmers and the rural community. It will give

encouragement to rural entrepreneurship by

involving young local entrepreneurs in the setting up

and operation and management of biogas plants.

● Green Initiatives relating to make Agriculture

sustainable and more productive

● Scheme for promoting biofertilizers and

organic farming methods for restoring soil

fertility and protecting it from chemical

overuse

This scheme (named as PM PRANAM) purports to

persuade green growth by discouraging use of

chemical fertilizers and encouraging the use of bio-

fertilizers and organic fertilizers (Ministry of Finance,

2023, February 01). The states using alternative

fertilizers and reducing the use of chemical fertilizers

shall be incentivized in the form of grant equivalent

to half of the savings in subsidy on chemical

fertilizers. It does not carry any separate budget.

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3.3 Green Credit Programme

A Green Credit Programme was announced under

Union Budget 2023-24 with the aim of providing

incentives to voluntary environmental activities

undertaken at individual, company or corporation or

local association level and makes them more

resourceful for such activities (Tripathi, 2023). This

program will be implemented under the provisions of

the Environment Protection Act. As against carbon

credits that primarily focus on CO2 emissions

depletion, the Green Credit mechanism is market

based where these can be tradable. It encourages

farmers to adopt practices that minimize chemical

fertilizers and pesticides, promote soil health, and

enhance biodiversity.

3.4 Encouragement to Climate

Resilient Crops like Millet

Millets are categorized as climate resilient crop since

it can grow in dry areas of sub-tropical, tropical and

temperate regions. Millets is a collection of small-

seeded grasses, grown to be known since Indus

Valley civilization as crops for human consumption

and as fodder. Millets are considered as nutritious

cereal and hence included in ‘Poshan Mission

Abhiyan’ by the Ministry of Women and Child

Development, Government of India. After India

observed 2018 as the National Year of Millets, the

United Nation Organisation was requested to observe

2023 as the International Year of Millets. In 2019, out

of total production of millets in Asia of 215 lakh tons,

India produced 173 lakh tons; having average yield of

1239 kg/ ha as against global average yield 1229

kg/ha (Ministry of Agriculture and Farmers Welfare,

2022, p. 3)

● Green Initiatives relating to Coastal

Protection

● Scheme for rejuvenating coastal ecosystems

and biodiversity through mangroves called as

“Mangrove Initiative for Shoreline Habitats &

Tangible Incomes.” It is called MISHTI. This scheme

is to create a mangrove ecosystem on around 540

square kilometers area across the 11 states and 2

Union Territories during a 5 year period starting from

Financial Year 2023-24. Mangroves are distinctive

ecosystems having enormous bio- diversity and the

scheme estimates to reduce carbon footprints to an

equivalent carbon sink of 4.5 million tons (Ministry

of Environment, Forest and Climate Change, 2023).

3.5 Amrit Dharohar:

Underlining the importance of wetlands in

maintaining aquatic biodiversity, enhancing carbon

pool in wetlands, promoting ecotourism and

generating earning opportunities for local

communities, the government has announced this

scheme in Union Budget 2023-24. The duration of

scheme implementation is three years to achieve

sustainable ecosystem creation in wetlands (Jha,

2023).

4 SUGGESTIONS

The study recommends following points:

4.1 Green Growth Policy

A policy framework should be developed to decide

the scope, nature and sources of green finance. The

policy framework should be functional on national,

state and in alignment with the UNEP framework for

better cooperation and collaboration. Since climate

change is a global issue, so are its impacts and

therefore, solutions and/or efforts should also be

collaborative to be effective.

4.2 Diversification of Green Financial

Sources

As India is marching towards developing the rural

areas, the correct approach should be to equip villages

and sub-urban areas with sufficient renewable

resources to combat climate change impacts. The

rural electrification, crop management, livelihood

sources, waste management, provision of basic

amenities for healthy living should all be done in a

way that it will not intervene in the process of

revamping nature’s treasure of five elements. For

achieving all this, the amount of funds needed come

under the scope of green finance. There is a need for

diversifying the green financial sources like green

bonds, green insurance, green mutual funds, green

cooperative funds, green loans etc.

4.3 Capacity Building of Green

Financial Institutions

As a huge amount of funds are needed for sustainable

and green growth of rural areas since green

infrastructure costs more than traditional one due to

expensive green technologies and operations,

Green Finance: A Key Initiative for Sustainable Rural Development in India

615

capacity building of rural banks and other financial

institutions for green finance is essential.

4.4 Greening the Private Financial

Sources

Though public finance plays a lead role in financing

the green infrastructure projects, it is not sufficient.

Therefore, mobilizing private finance through

public–private partnerships in green initiatives is

desirable. Both at institutional and individual

investment level, green investors should be

incentivized appropriately. For rural areas, green

cooperative credit programs should be initiated.

4.5 Social Entrepreneurship Model for

Green Innovation

Rural population in India has been struggling with

many problems relating mainly to insufficient

infrastructure for agri-business, education and health.

Social problem solving through entrepreneurship

should be encouraged that would provide for better

job opportunities for rural youth. Green venture funds

should be made available on priority. Innovations

based on green technologies and production methods

should be encouraged.

4.6 Corporate Social Responsibility

(CSR) Contributions by Companies

in India Can Be Linked to Green

Investments

Mandatory contributions towards CSR activities as

per the Company Law of India for companies can be

linked to investments in activities contributing

towards green growth in rural sectors. This should be

linked to Green Credits also.

5 CONCLUSION

Majority of India’s population resides in rural areas

where the main source of livelihood is agriculture.

According to Global Climate Risk Indicator 2020,

climate change cost India around 37billion dollars

and agriculture is the worst hit sector due to climate

change. While marching towards development of

rural areas, it has to be reckoned that there should be

sustainable development accommodating all

elements mitigating climate change impacts. For

sustainable rural development, green finance and its

innovative instruments like green reserves, green

fixed income securities, green insurance should be

inducted into financial market and concerned

institutions should be capitalized. However, the

concept of green finance is in its evolutionary stage

and has not gained perfect clarity but it involves

directing financial flows into eco friendly

technologies, natural resource based green

economies, clean and green energy, organic farming

etc. For achieving green and sustainable development

in rural areas, the government of India has initiated

several projects that fall in line with Sustainable

Development Goals 2030. India’s Green Credit

Programme acknowledges every effort done

complementing the environment; both at individual

and institutional level, wherein voluntary actions

towards the environment shall be incentivized in the

form of green credits. There is ample scope of

achieving sustainable rural development in areas of

farming methods, clean energy sources, green

technologies etc. This can be achieved by infusing

green finance in the rural economy.

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