Government support for fossil fuels in India declined to five times the level of clean energy in financial year 2024, marking the narrowest gap in five years, as subsidies for renewables rose sharply, a new report has found.
According to Mapping India’s Energy Policy 2025, released by the International Institute for Sustainable Development (IISD), clean energy subsidies increased by 31 per cent year-on-year to nearly INR 32,000 crore in FY 2024. The rise reflects sustained policy backing for renewable energy deployment, grid upgrades and clean power integration across the country.
In contrast, fossil fuel subsidies fell by 12 per cent, representing the steepest reduction since the Covid-19 pandemic. However, the report notes that this decline was largely influenced by short-term price movements rather than long-term structural reforms. Despite this, the combined effect of rising renewable support and easing fossil subsidies has helped India cross a major climate milestone, with non-fossil electricity capacity surpassing 50 per cent in 2025—five years ahead of its national target.
The report highlights that while the trend signals progress in India’s energy transition, long-term momentum will depend on deeper changes within energy-related public sector undertakings (PSUs). Public financial institutions such as the Rural Electrification Corporation and Power Finance Corporation have expanded lending for renewable energy and power distribution reforms. However, capital spending by central energy PSUs remains overwhelmingly directed towards fossil fuels.
In FY 2024, around 83 per cent of total capital expenditure by central energy PSUs continued to be channelled into coal mining, refinery expansion, and oil and gas development. Clean energy diversification among state-owned enterprises remains limited in scale, raising concerns about locking in carbon-intensive infrastructure that may not align with India’s long-term climate and energy security goals.
The study also finds that electricity subsidies reached a record high of INR 2.1 lakh crore in FY 2024, an increase of 18 per cent, even though electricity demand grew by only 7 per cent. This widening gap between supply costs and consumer tariffs continues to place pressure on state finances, indicating that efficiency improvements and distribution sector reforms have yet to fully rein in subsidy growth.
At the same time, fossil fuels remain a major source of government revenue. In FY 2024, fossil fuel-related taxes and levies generated nearly INR 9 lakh crore, accounting for about 16 per cent of total government revenue across the centre and states. Coal, petroleum products and related taxes contributed roughly 90 per cent of all energy-related revenues, leaving public finances exposed to global fuel price volatility and complicating efforts to establish stable funding for clean energy investments.
The report notes that a significant share of fossil fuel tax revenue is ultimately borne by consumers, and recent tax changes have weakened the application of the polluter-pays principle. This, it argues, underscores the need to better align fossil fuel taxation with social and environmental costs while exploring alternative revenue sources to protect household purchasing power.
To address these challenges, the IISD report outlines three priority actions. These include improving the targeting of electricity subsidies through smart metering, direct benefit transfers and performance-linked grants to states; redirecting PSU capital expenditure towards clean energy technologies such as offshore wind, battery storage and green hydrogen; and building fiscal resilience by diversifying government revenues through measures such as green taxes and broader tax-base reforms.
Together, these steps could help India accelerate its clean energy transition while safeguarding fiscal stability and supporting inclusive economic development.
