Currency Hedging Adds 6-8% Cost to India's Green Project Financing
A report by the India Sustainability Taskforce warns that currency hedging could add 6-8% to the annual financing costs of green projects in India, making it more expensive for foreign capital and potentially discouraging global institutional investors from committing funds at scale.
The taskforce, a joint initiative of the Confederation of Indian Industry (CII) and IIM Ahmedabad, notes that most green projects in India generate revenues in Indian rupees, while international investors typically lend in hard currencies such as the US Dollar or Euro. This creates a currency mismatch that raises the effective cost of overseas financing.
The report says that hedging long-term currency exposure is 'effectively impossible or very costly' and can add 6-8% to annual financing costs, making it more expensive for foreign capital. The taskforce proposes a dedicated foreign exchange (FX) risk facility backed by public, multilateral or blended-finance capital to address the issue.
The report highlights that reducing the cost of capital is crucial for adopting new green technologies at scale and notes that even mature clean-energy segments such as solar and wind face financing costs in India more than double those in advanced economies.