India’s Green Transition: AIIB Chief Economist Outlines Path Forward
India, the largest borrower from the Asian Infrastructure Investment Bank (AIIB), must accelerate its transition away from coal power infrastructure through coordinated policy reforms and by attracting foreign green capital, according to the bank’s Chief Economist, Erik Berglöf.
Key Challenges in India’s Green Transition
Despite remarkable progress in low-cost renewable energy installation driven by the private sector, India faces significant hurdles:
- Phasing out coal-based power infrastructure remains a major challenge
- Substantial investment required in transmission grids and demand-side management
- Insufficient action in attracting foreign investment compared to other emerging economies
Berglöf emphasized that “domestic resource mobilisation must be at the core of this transition—getting the banking system and private sector more deeply involved.”
Learning from Global Success Stories
The AIIB economist pointed to Egypt’s successful approach, where the country placed its entire renewable energy pipeline on a transparent platform visible to multilateral development banks and private investors. This strategy attracted innovative financing instruments like performance-linked bonds tied to policy commitments.
“Instruments like this could complement existing forms of green finance in India,” Berglöf noted during his interaction with Pushpita Dey.
AIIB’s Growing Engagement in India
As AIIB’s largest client, India recently received approval for a $1.1 billion project in Maharashtra focusing on off-grid solar and grid investments. However, Berglöf identified coordination challenges: “We work across many Indian states, and engagement is strong, but somewhat uncoordinated. There are multiple approaches and not always mutually consistent targets.”
The bank has introduced policy-based lending for climate, which could prove valuable for India by providing financing against policy actions that advance green agenda.
Global Green Financing Landscape
Despite uncertainty in US climate policy, Berglöf remains optimistic about global momentum. “There are several new coalitions forming around climate action. Europe is trying to take a more assertive role, and Asia too has an opportunity to integrate economies around a shared mission of reducing climate vulnerability.”
He highlighted that uncertainty creates space for other actors to step up, with substantial international capital still seeking climate investment opportunities in countries with credible policies.
Addressing Debt Vulnerabilities
Post-COVID debt levels have left many countries vulnerable to interest rate fluctuations. However, Berglöf sees strong potential for international collaboration, particularly between Europe and Asia.
“Europe brings sophisticated policy frameworks and demand management; China brings world-leading technologies. These strengths could converge in India, helping the country achieve the climate goals set by the Prime Minister,” he concluded.
