India’s ambitious net zero target for 2070 requires annual energy sector investments to triple to around US$200 billion. However, the country’s current annual state expenditure for all renewable energy is only US$1.8 billion, with minimal international capital support. Despite these financial constraints, India has successfully expanded its green industrial policy, particularly in the solar power sector, by using state-organised financing tools outside the conventional budget.
India recently became the world’s second-largest manufacturer and installer of solar panels. Solar module manufacturing capacity rose from 15 GW in 2020 to 74 GW by March 2025, and solar installations reached 26 GW in 2024, accounting for 71 percent of all power sector additions. The country’s approach, described as ‘state-organised financing with limited fiscal expenditure,’ distinguishes between direct state budget spending and other government-led financing mechanisms, strategically leveraging the latter to scale up investment.
Direct fiscal spending is minimal and focused on specific technologies, exemplified by the Production Linked Incentive (PLI) scheme, which supports domestic solar manufacturing. The majority of financing comes from state-owned enterprises investing in renewable energy projects, state-owned financial institutions providing concessional and commercial lending, and state-owned electricity distribution companies offering long-term power purchase agreements and renewable purchase obligations. These measures de-risk investments, create predictable returns, and incentivize private sector participation without significantly impacting the state budget.
India also implements complementary non-financial policies to strengthen the solar sector, including the Approved List of Models and Manufacturers (ALMM) and tariffs on solar imports. These policies encourage the use of domestically manufactured equipment, reduce reliance on foreign alternatives, and improve competitiveness for Indian solar manufacturers.
India’s model demonstrates that ambitious green industrial policy can succeed even under severe fiscal constraints. By strategically using state-owned enterprises, financial institutions, and distribution companies to mobilize investment and de-risk projects, the government has achieved significant scale without large budgetary expenditure. This approach offers valuable lessons for other emerging markets and developing economies, where fiscal resources are limited but state ownership and market influence can be leveraged to drive green industrial growth.
The key takeaway from India’s experience is that governments with constrained public resources can still lead in green industrial development by organizing finance, creating demand, and aligning policy incentives, rather than relying primarily on large-scale budgetary spending. This model shows that ambitious climate and industrial goals can be pursued effectively even in financially constrained environments.
