Currency Hedging Hikes Green Project Financing Costs in India

A taskforce led by the Confederation of Indian Industry (CII) and IIM Ahmedabad has found that currency hedging may increase financing costs for green projects in India by 6-8%.

This is due to a mismatch between the currencies used by most green projects, which generate revenues in Indian rupees, and international investors who typically lend in hard currencies such as the US Dollar or Euro.

The taskforce proposed a dedicated foreign exchange (FX) risk facility backed by public, multilateral or blended-finance capital to address this issue. This would help absorb part of the currency risk more efficiently than individual project investors.