India has a re-rethink on green bonds. And a new strategy.

This suggests a turnaround in the government’s thinking from a few months earlier, when it was considering a plan to fall back on conventional government securities and other debt instruments for green financing as green bonds have delivered only modest returns.

Green bonds, a type of fixed-income investment, are used to finance projects with positive environmental impacts.

The government’s plan to increase its 2025-26 target for issuing sovereign green bonds will depend on India’s so-called greenium, or green premium, landscape, the two people mentioned above said, speaking on condition of anonymity. 

Greenium is the difference between the yield or returns investors receive on a green bond versus a similar conventional bond. The yield on a green bond is lower due to investors’ willingness to accept lower returns in exchange for the perceived benefits of investing in a green instrument.

While many developed markets achieve a greenium of 3-8 basis points over conventional bonds, in India this has been limited to 2-3 bps. One basis point is a hundredth of a percentage point.

After its earlier hesitance, the government anticipates a higher green premium this fiscal year, driven by stronger investor interest in sustainable investments, policy initiatives to boost green financing, and the need to fund climate-related projects and infrastructure.

However, if actual demand falls short, the government may fall back on conventional bonds for green financing.

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“The initial target (of ₹25,342.31 crore) for green bonds in FY26 (2025-26) may be revised upward, which would also depend on demand and project implementation timelines," said one of the people aware of the government’s thinking. “The emphasis will be on back-loading funds to ensure that critical green infrastructure projects receive adequate financing during the second half of the year."

Back-loading—where a significant portion of expenditure is shifted towards the latter part of a fiscal year—is a strategy to align disbursement with project execution milestones. 

This is to ensure that funds raised through green bonds are deployed effectively towards renewable energy, sustainable transportation, and climate-resilient urban infrastructure.

India aims to achieve 500 gigawatt (GW) of non-fossil-based energy capacity by 2030, covering renewables like solar, wind, biomass, and small hydro power, alongside nuclear and large hydro power.

India’s sovereign green bonds

Green bonds have found takers in advanced economies like Germany, the European Union, China, and Singapore, where the greenium has been 3-8 bps due to robust policy support, clear regulatory mandates, and, in some cases, tax incentives.

In India, the central government introduced an annual target for raising green bonds starting in 2022-23, incorporating it into the annual budget, amid growing concerns over climate change and environmental challenges.

Over the past three years, the central government, through the Reserve Bank of India, has issued about ₹58,000 crore in sovereign green bonds, with an additional ₹25,342 crore earmarked for FY26.

This includes ₹16,000 crore in FY23, ₹20,000 crore in FY24, and an expected ₹21,697 crore in FY25. As of January, only about ₹16,697.39 crore had been raised via green bonds, according to RBI data. Another ₹5,000 crore was raised in February,

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The central government has proposed ₹25,342.31 crore to finance eligible projects through green bonds in FY26, though the final issuance amount is to be announced separately.

Last week, the government announced plans to raise ₹8 trillion through dated securities in the first half of FY26 (April-September 2025), accounting for 54% of the full fiscal-year target, including ₹10,000 crore via sovereign green bonds.

“The green bond was introduced amid discussions on investors’ willingness to accept a fixed yield, provided the funds were allocated exclusively to green investments in line with global best practices," said the second person mentioned above, also speaking on condition of anonymity. “The government is hoping for stronger appetite from investors (on green bonds) during FY26."

A spokesperson for the Union ministry of finance didn’t immediately respond to emailed queries.

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