Stories to Watch: On the Union Budget 2021

The Budget for 2021-22 was highly anticipated in light of the fallout from the COVID-19 pandemic, which had sent India on a downward spiral into an economic recession. One underlying question was how the budget would address environmental objectives – particularly air quality management, which has gained substantial political traction in recent years.

At the outset, Finance Minister Nirmala Sitharaman earmarked Rs. 2,217 crores for 42 urban agglomerations (having a population of more than 1 million) for tackling air pollution. Rs. 20 crore has been allocated to the recently-constituted Commission for Air Quality Management (CAQM) that regulates air quality in the NCR and adjoining areas. In addition to financial support, the Finance Minister also launched the much-awaited vehicle scrappage policy, with a view to replace old and polluting vehicles with those that are compliant with the BS-VI fuel standard. Private vehicles that are older than 20 years and commercial vehicles older than 15 years will be subject to testing at an automated fitness centre. This is a welcome move, since vehicular transportation accounts for an average of 18% of the PM2.5 emissions in 20 major cities in India. However, on the flip side, the Finance Minister has slashed the amount allocated to LPG subsidies by over 60%. This has a significant bearing on household emissions – the single largest source of air pollution exposure in India.

In the energy sector, the Finance Minister announced the Hydrogen Energy Mission with a view to generate hydrogen from green power sources. Additionally, the Finance Minister allocated Rs. 1,000 crores to the Solar Energy Corporation of India (SECI) and Rs. 1,500 crores to the Indian Renewable Energy Development Agency, in adherence to its commitment under the International Solar Alliance. Further, to encourage domestic manufacturing, the Finance Minister announced that they would be raising customs duty on solar invertors by 15% and solar lanterns by 10%. The Finance Minister also recognized the need for reform in power distribution. In order to promote consumer choice and prevent monopolies, the Minister indicated that a framework will be announced to afford consumers with the right to choose among more than one DISCOM. Rs. 3,05,984 crores over 5 years has been earmarked for a results-linked power distribution scheme, with a view to encourage power infrastructure, including pre-paid smart meters. While this allocation seems promising, there is also a cautionary tale in it being similar to the UDAY scheme, which has been unable to resolve long-standing operational issues, such as theft or low tariffs.

Announcements made in the financial sector could also have a significant bearing on the energy sector. First, the Finance Minister announced the constitution of an Asset Reconstruction Company which would relieve public sector banks of their stressed assets, a big share of which belong to the generation sector. Second, with the view to reduce its fiscal deficit, the Finance Minister has announced strategic disinvestment in several public assets including transmission assets to the tune of Rs. 7,000 crores. These changes are expected to attract private investors, raise money for the exchequer and create space for new investments by public sector banks.

Environmentality is a collection of ideas, perspectives, and commentary by researchers at the Initiative on Climate, Energy and Environment, Centre for Policy Research, New Delhi. Views and opinions expressed in this blog are solely those of the authors. They do not represent institutional views.

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