Foreign Direct investment (FDI) in India’s renewable energy sector stood at $251 million (~₹20.5 billion) in the third quarter (Q3) of the financial year (FY) 2023, a 46% decline compared to $461.5 million (~₹37.7 billion) in Q2 FY 2023.

The decrease in investments can be attributed to the geopolitical situation resulting from the conflict between Russia and Ukraine and high inflation leading to more restrictive monetary policies in the FDI-source countries.

For the past few quarters, the renewable energy sector has received a steady flow of FDI, with approximately $500 million (~₹40.86 billion) being invested each quarter. However, in Q1 FY 2023, the FDI inflow spurted to $949.4 million (~₹77.5 billion).

As of December 2022, the cumulative FDI in India’s renewable sector was $12.47 billion (~₹1 trillion).

There has been a steady growth in foreign investment flows into the renewable sector in the last few years. In FY 2018, India received $1.2 billion (~₹98 billion) worth of investments. FY22 saw the inflow increase to $1.6 billion (~₹130.7 billion). The figure at the end of the first nine months of FY 2023 stood at $1.66 billion (~₹135.65 billion).

In contrast to the interest global investors have been showing in India’s renewables expansion, coal has largely been ignored since FY 2014, when the sector attracted an investment of $2.96 million (~₹241.88 million). In FY23, an FDI of ₹1.19 billion (~$14.56 million) was made for one coal mine in Jharkhand, according to the Ministry of Coal. Investments in petroleum and natural gas have remained stable in the last few years.

At the end of Q3 FY 2023, FDI in the petroleum and natural gas segment was $104.9 million (~₹8.5 billion), while it was $691 million (~₹56.47 billion) in the power segment.

Recently, the Indian Renewable Energy Development Agency (IREDA) announced plans to finance renewable energy projects in foreign currency for which an office would be established in Gujarat International Finance Tec-City in Gandhinagar. IREDA Chairman and Managing Director Pradip Kumar Das said the office would be classified as an overseas office. He stressed the importance of the green taxonomy raising approximately ₹250 million (~$3 million) for green projects by the end of the current decade.

In March last year, the Parliamentary Standing Committee on Energy had advised the Ministry of New and Renewable Energy (MNRE) to explore creative financing mechanisms and alternative funding sources for the renewable energy sector. The committee had observed that India would need an investment of ₹1.5 trillion (~$14.6 billion) – ₹2 trillion (~$24.4 billion) annually in the renewable energy sector until 2030, which was twice the ₹750 billion estimated in the past few years.