Foreign Direct investment (FDI) in India’s renewable energy sector stood at $949.45 million (₹75,555 million) in the first quarter (Q1) of the financial year (FY) 2022-23, an increase of 269% compared to $257.09 million (~₹20.49 billion) during the same period last year. With nine more months to go, this could be the best year for foreign direct investments in the sector.

The FDI flows marked a 129% quarter-over-quarter (QoQ) increase from $414.76 million (~₹33.06 billion) in Q4 2022.

The renewable sector has witnessed a steady increase in FDI in the past few years, increasing from $1.2 billion (~₹92.05 billion) in FY 2017-18 to $1.44 million (~₹110.53 billion) in FY 2018-19. However, in FY 2019-20, it reduced to $1.4 billion (~₹97.73 billion) and $797.21 million (~₹58.87 billion) in FY 2020-21. Foreign investments increased to $1.6 billion (~₹121.05 billion) in FY 2021-22.

There has been no FDI in coal production after 2013-14, while investments in petroleum and natural gas have been stable. The FDI in the petroleum and natural segment stood at $3.19 million (~₹254 million) in Q1 FY 2023, while for the power segment, the total FDI was $509 million (~₹40,506).

The cumulative FDI inflow in the renewable sector stood at $11.75 billion (~₹889.29 billion) from April 2010 to June 2022. Foreign investments of up to 100% in the renewable sector are permitted under the automatic route, with no prior approvals required.

India’s renewable sector is fast turning into an attractive destination for investors. India aims to become a net-zero economy by 2070 and has set a target of installing a non-fossil energy capacity of 500 GW by 2030.

With such an ambitious target, the need for cash inflow into the solar sector acquires greater significance.

India’s transition toward a net-zero economy can contribute over $1 trillion (~₹79.72 trillion) by 2030 and $15 trillion (~₹1,195.8 trillion) by 2070 in economic impact. The transition to a low-carbon energy regime has the potential to account for $5 trillion (~₹398.61 trillion)-$7 trillion (~₹558.05 trillion) worth of economic opportunity.

In March this year, the Parliamentary Standing Committee on Energy recommended that the Ministry of New and Renewable Energy (MNRE) work proactively to explore innovative financing mechanisms and alternative funding avenues for the renewable energy sector. It estimated that India would need an annual investment of ₹1.5 trillion(~$19.72 billion)-₹2 trillion (~$26.29 billion) in the renewable energy sector until 2030