India's Green Projects Face 6-8% Financing Hike Due to Currency Hedging

A new report by the India Sustainability Taskforce has found that currency hedging could add 6-8% to the annual financing costs of green projects in India. The taskforce, a joint initiative of the Confederation of Indian Industry (CII) and IIM Ahmedabad, noted that most green projects generate revenues in Indian rupees while international investors typically lend in hard currencies like the US Dollar or Euro.

This creates a currency mismatch that raises the effective cost of overseas financing. The report said 'Hedging long-term currency exposure is effectively impossible or very costly: rolling short-term hedges can add 6-8% to annual financing costs.'

The taskforce proposed a dedicated foreign exchange (FX) risk facility backed by public, multilateral or blended-finance capital to address the issue. The recommendation forms part of the broader financing framework proposed for a Green Finance Institution (GFI), which would seek to mobilise investment at scale and reduce the weighted-average cost of capital for green infrastructure projects.