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India's high growth potential, significant economic development wants and large agricultural sector is seen to constrain the government's financial capacity to drive its carbon transition. As per Moody's Investors Service, this will give more room to private companies and investors for driving the transition.
In its latest environmental risks report on India, Moody's stated that India's policy challenges could hinder its momentum towards net-zero which could put an onus on the private sector and investors.
Moody's report stated that large, nonfinancial companies across sectors like auto, chemicals, steel, and utilities, have announced their own net-zero targets and are well ahead of the Indian government's goal. Also, the report said, government-linked companies are lagging.
The US-based rating agency added that additional policy signals by the government to encourage transition would drive higher private investment.
Nishad Majmudar, a Moody’s Assistant Vice President and Analyst in the research note said, India's high growth potential, significant economic development needs, and large agricultural sector will likely weaken the government's policy resolve and financial capacity to drive the economy's carbon transition.
He further said, the country's planned emissions reductions will be conditioned upon low-cost, long-term private capital.
Pointing out India's planned threefold increase in renewable energy capacity by 2030, Moody's in its report said, "will be credit negative for large coal-fired power plants."
While Abhishek Tyagi, vice president, and senior credit officer at Moody's believe that the pace of transition toward renewable energy from coal depends on the extent to which the Indian authorities can balance energy affordability and reliability needs against their emissions reduction commitments.
Reduced storage costs and scalability of renewable projects with storage, in Moody's opinion, could support a faster transition.
Further, Moody's believes that Indian banks' significant loans to the carbon-intensive sector expose them to transition risks.
As per Moody's, banks may navigate a challenging path amid pressure from investors to decarbonize their loan books.
During the same time, it states that green financing is a substantial lending opportunity for the banks given their dominant role in providing credit in the country.
Moreover, Moody's states that India's chase of its target is conditional upon the economy reviving as much as $1 trillion in climate finance from external donors, adding, "an unlikely prospect." This brings forth a huge role for the private sector and private capital in driving emissions reduction.
Also, Moody's highlighted continued access to cheap Russian oil amid the conflict in Ukraine, by stating that it could support India in the near term. However, Moody's also stated that this would also reduce the urgency to adopt renewable energies or more advanced production technologies.