By Shailaja Shukla Williams & Priya Mishra, IIMA Ventures
The Union Budget 2024-25 brought several reliefs and boosts to the startup ecosystem. Abolishment of the angel tax and the announcement of INR 10 Bn (1000 Cr) fund to boost the space economy has been received with much enthusiasm.
<aside> 🛠 But what else is in it for startups? The budget also assured the operationalisation of the Anusandhan National Research Fund. This can further boost innovation driven entrepreneurship in the country as it will provide support for research and prototype development. The Finance Minister also promised to set up a mechanism to stimulate ‘private sector-driven research and innovation at commercial scale’ supported by a financing pool of INR 100 billion.
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Anything specific for Climate Tech startups? Definitely!
The budget proposed to develop a taxonomy for climate finance (money and investments dedicated to addressing climate change), aimed to address the lack of standardisation that has been burdening the ecosystem. This move is expected to enhance the availability of capital for climate mitigation and adaptation specifically and support the achievement of the country’s climate commitments. This can also boost the startup funding in the sector which, at present, isn’t commensurate with the urgency of the need to tackle climate change.
<aside> 💡 Climate action can be classified into 3 categories - mitigation (things that are reducing emissions), adaptation (things that are allowing people to adjust) and resilience (things that are helping recover faster from climate impact). According to the Climate Policy Initiative (2021), climate finance in India needs to increase by 590 percent to meet internationally agreed climate objectives by 2030.
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The budget made provisions in four main sectors - agriculture, energy generation and management, industry and manufacturing, and waste & circularity.
How to read the table: in agriculture, the budget makes no provisions for emission mitigation, while in waste and circularity, no provisions are made for aiding adaptation or resilience building.
While key sectors were covered in the budget, the transport sector that accounts for nearly 10 percent of the country’s emissions hardly saw a mention! The FAME3 scheme has been in the works and eagerly awaited by the sector.
To adapt to the reality of changing weather patterns and recognising the immense burden the Indian agriculture sector is laden with, the budget has made provision to strengthen regional irrigation efforts and catalyse movement of farmers towards natural farming.
****To build resilience, promote crop diversification and ensure the country’s food security, the budget aims to introduce over 100 new high-yielding and climate resilient varieties of over 30 field and horticulture crops. There is also provision to establish up to 10,000 bio-input resource centres in the country. Additionally, there has been a reduction in import duty of feed and other inputs for aquafarming. India's seafood exports touched an all-time high of INR 600 Bn in the last financial year, and frozen shrimp accounted for 2/3rd of these exports.
<aside> 🛠 What’s missing? Agricultural emissions account for more than 12 percent of the country’s CO2e emissions, with livestock accounting for more than 50 percent of total agricultural emissions!
****It is urgent to mitigate agricultural emissions. There is neither private sector nor government led efforts towards mitigating agricultural emissions. The current budget does not make any provisions towards supporting development nor adoption of technology/solutions that mitigate emissions from the sector.
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The reduction suggested in the budget is a step towards boosting domestic production further. However, it could pose a potential threat to the domestic aquamarine ecosystem resulting from over-farming which is a risk that we should guard against.
The union budget also marked a 48 percent increased allocation towards the solar power sector. As of December 2023, the installed rooftop solar (RTS) capacity in commercial and industrial sectors accounted for almost 80 percent of the grid connected RTS capacity in the country. Apart from the other schemes announced earlier this year, the budget launched PM Surya Ghar Muft Bijli Yojana aims to enable over 1 crore households to obtain up to 300 units of free electricity every month. Additionally, to support the energy transition and promote the domestic manufacturing value chain of solar panels, multiple adjustments have been made in the custom duty structure.
Despite government efforts to diversify the energy mix and increase the share of renewable sources, thermal power, mainly coal, remains the primary source of electricity generation. Thermal power accounted for 73 percent of the total electricity generated during 2022-23. As a result of high dependency on coal, the sector is the highest contributor to the country’s emission at over 40 percent share in national emissions. The budget announced a joint venture between NTPC and BHEL to set up a 800 MW thermal power plant using advanced ultra supercritical technology, with a potential to reduce “coal consumption / CO2 emissions by about 11 percent as compared to supercritical plants”.
To continue to diversify the energy mix in the country however, the budget identifies nuclear energy to hold the potential to form a significant share. Currently nuclear energy accounts for less than 2 percent of the energy mix. The budget has proposed for the government to partner with the private sector with a focus on R&D, supported by the announced R&D funding.
<aside> 🛠 What’s missing?
The current grid infrastructure, while may be improving due to initiatives such as the National Smart Grid Mission, is still inadequate to support a large-scale adoption. As electricity demand grows and the adoption of various renewable energy sources like solar and wind increases, dynamic smart grids are essential for integrating renewable resources into the existing power system. Smart grids manage decentralised power generation, ensuring a seamless transition to a cleaner energy mix and reducing reliance on fossil fuels. The budget does not make provisions to aid adoption of smart grids.
Renewable energy (RE) faces a major challenge: the temporal mismatch between production and consumption. This problem is often made worse by RE's inconsistent power generation. Hence, the need for Battery Energy Storage Systems (BESS). Reliable storage technologies are crucial for making the most of renewable energy and supporting the shift to cleaner power. However, despite its importance, this hasn't received much attention in the budget too.
Lastly, India’s renewable energy potential is drastically different across states.
Four states account for over half of India’s renewable potential: MoSPI
Rajasthan, Maharashtra, Gujarat and Karnataka account for more than half of the country’s RE potential. The budget did not see any updates on the Green Energy Corridor initiative that is aimed at enhancing the intra-state energy transmission system.
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Over the years, substantial investments have been in India’s digital and physical infrastructure. To continue this momentum, the Budget targets construction for housing and urban development, resilient infrastructure for flood-prone areas in northern and eastern states, and boosting domestic manufacturing capacity across multiple sectors.
These initiatives will necessitate a substantial amount of raw materials such as cement, steel, and bricks, as well as critical minerals such as lithium, copper, cobalt, and rare earth elements, which are vital for sectors including nuclear energy, renewable energy, space, defence, telecommunications, and high-tech electronics. These constitute the ‘hard to abate’ sectors due to the energy-intensive nature of manufacturing of such materials in addition to embedded emissions.
To address this, the budget outlines a roadmap to transition 'hard to abate' industries by focusing on the overall emission intensity of these industries, and not just by way of energy transition. The yet to be established ‘Indian Carbon Market’ will play a critical role in this direction.
<aside> 🛠 What’s missing? The budget could have pressed harder on abating emissions that will result from producing materials to meet infrastructural growth and enhanced domestic manufacturing. While enhanced production initiatives are crucial for development, they come with a significant environmental cost that isn't adequately addressed. The budget fails to provide a comprehensive strategy for decoupling this development from carbon footprint.
There's an urgent need for innovative, sustainable approaches that can support growth while minimising emissions. This could include advanced low-carbon production techniques, breakthrough technologies in material science, etc. Without such measures, the increased production activities risk substantially increasing India's overall emissions, potentially undermining climate goals.
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The budget also proposes establishing a Critical Mineral Mission for domestic production, recycling, and overseas acquisition of critical mineral assets. Additionally, there will be efforts to develop indigenous capacity for producing high-grade steel and other advanced metallurgy materials, aligning with decarbonization goals and supporting sustainable industrial growth.