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The Indian carbon market may have already crossed the $5 billion mark, but there is still no proper regulatory framework to govern the market or clarity on whether the income earned by selling carbon credits will become taxable. Representations have been made to Reserve Bank of India by banks, seeking clarity on a number of issues involved in funding clean development mechanism (CDM) projects undertaken by corporates to reduce their carbon emissions.
Banking sources said RBI is considering these recommendations and is likely to come out with guidelines for the sector sooner or later.
Currently, neither the income earned by corporates by selling their carbon credits in the global market is taxable, nor are banks clear on whether the procedures involved in technology transfer for CDM projects, among others, fall under ECB (external commercial borrowing) norms.
"We still do not know if carbon credits are to be treated as a commodity or a financial instrument. Both fall under different regulations," said a banker.
Banks like the IDBI, SBI, Exim Bank, Rabo India Finance, among others, have come out with plans to fund CDM projects and assist firms in the carbon trading process.
Carbon credits involve international trade and companies entering in to forward contracts on sale of carbon credits. But, banks are finding it difficult to provide funds given the lack of clarity on the regulatory front.
Sources said even though the World Bank is willing to extend cheaper lines of credit to Indian firms, it is unlikely to do so in the absence of proper norms.
"Participation of banks in the growth of India's carbon market is important, otherwise we could be left behind in the global pecking order," said a banker. India currently contributes 20-22% of the global carbon market ($30 billion in 2006), and has the largest number of CDM projects.
Money Management Consultants Ltd
New Delhi, India
Free Member, Joined :05/11/2007
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