Green industrial policy under financial constraints: Insights from India’s state-led decarbonization

State financing in different forms is the core of green industrial policy. In spite of severe domestic and international financial constraints, India’s green industrial policy has delivered a rapid scale-up of both solar installation and manufacturing. Here, I explore how this unanticipated success was possible. I contribute to the literature on how state-led decarbonization can be funded in the global South by examining current assumptions regarding states’ ability to finance industrial policy. I find that India’s approach can be summarized as ‘state-organized financing with limited fiscal expenditure.’ Direct fiscal expenditures by the state are kept at a minimum and narrowly scoped to specific technologies. Instead, most state financing comes from state-owned enterprises and state-owned financial institutions, alongside financial de-risking by state-owned distribution companies. This is complemented by state-ensured demand and import barriers. Through this approach, fiscal spending makes up a low proportion of overall state financing in India’s green industrial policy. This finding suggests that green industrial policy may be feasible in countries under financial constraints, supporting an emerging research agenda on state agency and policy maneuverability for steering a green transition in the global South.