New Delhi, Dec 16 (NationPress) The government's backing for fossil fuels in India has reduced to five times the support for clean energy in the fiscal year (FY) 2024, marking the narrowest gap seen in five years, as clean energy subsidies have surged, according to a report released on Tuesday.

Subsidies for clean energy have risen by 31 percent year-on-year, reaching nearly Rs 32,000 crore ($3.9 billion) in FY 2024, reflecting ongoing policy support for renewable energy, as stated in the report titled Mapping India’s Energy Policy 2025 by the International Institute for Sustainable Development.

In contrast, subsidies for fossil fuels have declined by 12 percent, the most significant drop since the pandemic, driven more by temporary price fluctuations rather than strategic policy changes.

These developments have contributed to India’s non-fossil electricity capacity surpassing 50 percent by 2025, five years ahead of the target, representing a major milestone under India’s updated nationally determined contribution 2.0.

While these trends indicate progress in the energy transition, maintaining this momentum relies on diversifying major energy-related public sector undertakings (PSUs).

Public financial institutions in India, including the Rural Electrification Corporation and Power Finance Corporation, are already increasing their lending for renewable projects and distribution reforms.

However, the capital allocation among PSUs remains heavily biased towards fossil fuels. In FY 2024, a staggering 83 percent of capital expenditure by central energy-related PSUs was directed towards fossil fuel sectors such as coal mining, refinery construction, and oil and gas development.

The clean energy diversification efforts among state-owned enterprises (SOEs) are still limited, raising concerns about locking in energy infrastructure that may not align with India’s long-term climate goals.

“The budget shows promising signs of a gradual shift towards clean energy, yet the broader public financial flows highlight a more profound issue,” remarked Swasti Raizada, senior policy advisor at IISD and a lead author.

“New investments in fossil assets are increasingly appearing on the balance sheets of India’s state-owned enterprises due to weak market signals. As vital state actors in enabling a fair and equitable energy transition, SOEs require robust policy signals and comprehensive diversification plans to engage actively in India’s clean energy shift.”

The report also indicates that electricity subsidies soared to an unprecedented Rs 2.1 lakh crore ($25 billion) in FY 2024, an 18 percent rise, even though electricity demand only grew by seven percent.

This widening gap between the cost of supply and consumer tariffs continues to pressure state finances, suggesting that efficiency improvements and financial reforms in the power distribution sector are failing to manage rising subsidy liabilities.