NEW DELHI: The Indian government is mulling mandating the Life Insurance Corporation of India (LIC) and sovereign pension fund to invest 1% of their assets under management in bonds issued by state-run power lending companies to finance green projects, multiple sources said.

According to two government officials who declined to be named, the federal power ministry has written to the finance ministry requesting that the LIC and Employees' Provident Fund Organization (EPFO) be mandated to invest in such bonds issued by Power Finance Corp (PFC), REC Ltd, and Indian Renewable Energy Development Agency (IREDA).
Together, LIC and EPFO are in charge of 50 trillion rupees ($604.87 billion) in assets. Two of the biggest funds in the nation committing billions of dollars in bonds would be essential to closing the estimated $3 trillion investment gap needed to achieve net zero emissions by 2070.

One of the officials stated, "The government is putting together a proposal seeking investment of 1% of the market value of assets managed by LIC and EPFO in the bonds that would be created to fund green initiatives."
An additional government representative stated that the finance ministry was considering ways to promote climate financing.

According to one of the officials and a lawyer at a law firm, the idea may need to go through the investment committees of both LIC and EPFO if it is authorised.

According to Harvinder Singh, a partner at DSK Legal, "If the government is proposing to mandate investing in bonds issued by PFC and REC, it can suggest the same to LIC and its investment committee." He said, "LIC's investment committee will have the freedom to adjust its investments as necessary."

The power ministry has also suggested lowering the rates for sovereign guarantees on foreign currency loans obtained by three state-run power financiers from international markets from 1.2% to 0.1% to 0.6%.

In order to reduce the cost of hedging, the power ministry has asked the three power financiers to offer foreign currency loans to Indian borrowers for payments to international suppliers.

According to the source, the electricity ministry has requested that the three companies be permitted to issue tax-paid bonds, in which the issuer pays taxes rather than the investor to entice investment.

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