India’s power and renewable energy supply chain are emerging at a time when the equity valuation gap versus broad emerging markets is also at its narrowest in five years. Marcus Weyerer, Director of ETF Investment Strategy EMEA at Franklin Templeton ETFs shares their view, that India continues to be an appealing long-term allocation within EM portfolios.
As the world’s fastest-growing major economy and home to almost 1.5 billion people, India has built energy networks and infrastructure that are increasingly central to sustained economic growth and industrial development.
Rapid urbanisation, industrial expansion and rising household demand are placing renewed urgency on power efficiency and the development of scalable, sustainable, power-generation solutions.
The Russia–Ukraine war re-routed global energy flows and oil price volatility, sharpening attention to India’s depending on imported crude. More broadly, oil price shocks have a material impact on gross domestic product (GDP) growth.
In the United States, a US$10 increase in oil prices is estimated to reduce GDP growth by up to 40 basis points, even though oil imports account for only 35% of total consumption.
By contrast, India imports more than 88% of its domestic oil consumption, leaving the economy far more exposed to external price shocks and supply disruptions.
As such, India’s accelerating shift toward renewable energy is not only a sustainability agenda, but a powerful macroeconomic lever, lowering structural power costs for manufacturers, strengthening resilience to emerging carbon-linked trade regulation, and reducing vulnerability to volatile global energy markets.
Together, we believe these implications underpin more durable growth and long-term competitiveness.
From fossil dependence to green ambition
India’s energy mix remains anchored in fossil fuels and supported by imports.
This month’s US-India trade breakthrough, which cut reciprocal tariffs and was accompanied by commitments from India to boost purchases of US energy supplies – including higher imports of American crude, liquified natural gas, coal and oil together supply about 70% of total energy, while oil imports account for 88% of domestic oil consumption.
Minimal domestic production has led India to become the third-largest energy importer globally, leaving the economy exposed to geopolitical disruption and global-fuel price volatility. Strengthening energy diversification is therefore critical.
The International Renewable Energy Agency (IRENA) estimates that alignment with the Paris Agreement under the United Nations Framework Convention on Climate Change (UNFCCC) could lift global GDP by an average of 1.5% annually and generate 40 million additional energy-sector jobs by 2050.
Against this backdrop, India has set ambitious targets to expand renewable generation, aiming for energy independence by 2047 and net-zero emissions by 2070.
As India approaches the Union Budget 2026, policy is expected to focus on green energy manufacturing and sustainable industrial transformation.
Anticipated fiscal incentives, such as group tax consolidation regimes and direct tax relief, are intended to create a more favourable economic environment for sustainability innovation.
In addition, the government is pursuing a more targeted commitment to produce green energy set out by the National Green Hydrogen Mission, which targets 500 gigawatts (GW) of non-fossil electricity capacity by 2030 and positions green hydrogen as a viable alternative in hard-to-abate industrial sectors.
In the context of COP28’s pledge to triple global renewable capacity to 11,000 GW by 2030, India’s proposed expansion represents a meaningful contribution to global decarbonization efforts green hydrogen as a viable alternative to fossil fuels in hard-to-abate industrial sectors.
Implications of the green transition
We propose that India’s energy transition has three important investment implications: cost-competitiveness, reduced regulatory costs, and a greater resilience to energy shocks.
1. Cost competitiveness for manufacturing and industry
Once viewed as a capital-intensive alternative to fossil fuels, green energy is quickly emerging as an affordable source of power. On a levelized cost of energy (LCOE) basis, 91% of newly commissioned utility-scale renewable capacity now delivers electricity at a lower cost than the cheapest new fossil fuel-based alternative.
This cost advantage translated into an estimated US$467 billion in avoided fossil fuel expenditure globally in 2024, with further savings expected as innovation accelerates.
In India, the National Green Hydrogen Mission alone is projected to reduce fossil-fuel imports by over €11.4 billion by 2030 and create 600,000 jobs in this time. As the green energy sector develops, we believe India’s transition represents a structural economic opportunity.
2. Reduced future regulatory and trade-related costs
Beyond improving near-term cost competitiveness, we believe the use of renewable energy also strengthens the long-term positioning of India’s manufacturing sector by reducing exposure to increasingly stringent global trade regulations.
A clear example is the European Union’s (EU’s) Carbon Border Adjustment Mechanism (CBAM), which places a carbon price on imports of carbon-intensive goods entering the EU. While emissions reporting requirements have applied since 2023, this year marks the first for full implementation.
CBAM was not formally addressed in the EU–India trade agreement concluded in January, as it remains a unilateral EU climate policy outside the scope of negotiations agreement included a €500 million EU pledge over the next two years to support emissions reduction and clean-energy adoption.
This cooperation provides India with an important window to prepare its manufacturing base for CBAM-related costs, reinforcing the need to scale renewable power generation to preserve export competitiveness.
While implementation will be gradual, initial charges will target products with a high chance of carbon leakage.
For India, with significant production in listed sectors such as iron, steel and cement, this has direct implications for its export-orientated industries. Estimates suggest that CBAM could increase costs for Indian steel manufacturers by approximately €551 million by 2034.
As carbon quietly becomes a trade barrier, access to clean energy is essential for Indian firms to be able to align with existing trade requirements and proactively prepare for more stringent climate-linked regulation in the future.
3. Greater resilience via lower exposure to imported energy shocks
A further investment implication of India’s green energy transition presents an opportunity to attain greater economic resilience through reduced exposure of global energy shocks.
A high dependency on imported oil has historically exposed India to geopolitical trade-offs in periods of global disruption.
Following the advent of the war in Ukraine, crude prices rose to almost US$120 per barrel, prompting India to sharply increase imports of discounted Russian oil from around 1% to 2% of total crude imports prior to the conflict to 40% in 2024.
While this strategy helped to contain energy costs, it attracted increased international scrutiny and resulted in a brief 50% tariff hit from the United States. To avoid future geopolitical trade-offs, domestic energy production can act as a powerful hedge against external energy shocks.
Additionally, for domestic firms, a stable energy supply translates into more predictable operating costs, improved margin stability, and greater confidence in long-term capital investment decisions.
Recent engagement through the EU–India Summit and renewed momentum in free-trade agreement discussions have sharpened investor focus on India’s energy exposure and economic resilience firmly.
This represents not only an environmental consideration, but a structural shift with tangible investment implications.
We believe India is responding with the right policy framework, one that simultaneously improves cost competitiveness, reduces exposure to carbon-linked trade and regulatory pressures, and enhances resilience to external energy shocks, while also providing a meaningful source of domestic economic stimulus.
Together, we believe these dynamics should support more durable corporate earnings at a time when India’s earnings-per-share growth is projected to remain in double-digit territory this fiscal year.
These opportunities across India’s power and renewable energy supply chain are emerging at a time when the equity valuation gap versus broad emerging markets is also at its narrowest in five years.
As such, in our view, India continues to be an appealing long-term allocation within EM portfolios.
Main image: india, globe, joshua-olsen-zR3wTk9End8-unsplash
