India stands at a defining moment in its industrial transition. As the country pursues its ambition of becoming a global manufacturing powerhouse while advancing towards its net-zero commitments, industrial decarbonisation has become both an economic imperative and a strategic opportunity.

Industry accounts for nearly 36% of India’s greenhouse gas emissions, with hard-to-abate sectors such as steel, cement, chemicals and fertilisers expected to determine whether India’s long-term growth ambitions can be aligned with its climate goals. Steel, in particular, exemplifies both the opportunity and the challenge. Contributing around 2% of India’s GDP while remaining one of its most emissions-intensive industries, it is a natural starting point for thinking about industrial decarbonisation finance.

The encouraging news is that the technological pathway is increasingly clear. Technologies such as green hydrogen-based direct reduced iron (DRI), carbon capture, utilisation and storage (CCUS), high-temperature industrial electrification, and advanced waste heat recovery are no longer theoretical concepts. However, the challenge remains whether they can become commercially viable and attract investment at scale.

The financing challenge is often described as a shortage of capital. However, the real challenge is bankability. Most industrial decarbonisation projects currently sit within the Technology Readiness Level (TRL) 5-8 range, where technologies have demonstrated technical feasibility, but lack the commercial track record required by investors. Projects continue to face challenges such as uncertain revenues, limited market demand, and significant execution risks.

Green steel illustrates this challenge well. While international markets are increasingly rewarding lower-carbon products, India’s domestic market remains underdeveloped, with buyers continuing to prioritise conventional steel at the lowest possible cost. At the same time, measures such as the European Union’s Carbon Border Adjustment Mechanism (CBAM) are making carbon intensity an increasingly important determinant of export competitiveness. Over time, the commercial case for green steel is therefore likely to be driven more by export demand than domestic consumption.

This creates a difficult proposition for lenders. Financial institutions are being asked to finance first-of-a-kind projects characterised by higher capital expenditure, longer payback periods and limited operating history, but often without the long-term offtake agreements or predictable cash flows that traditionally underpin project finance. Weak demand certainty ultimately translates into weaker credit quality.

Commercial lenders typically require four conditions before financing large industrial projects:

• Predictable revenues
• Creditworthy offtakers
• Policy stability
• Sponsors capable of managing construction and performance risks.

Many industrial decarbonisation projects satisfy only some of these requirements. As a result, substantial climate finance commitments have yet to translate into projects reaching financial close. Industrial decarbonisation is, therefore, less a capital availability challenge than a risk allocation challenge.

India’s renewable energy sector demonstrates how this can be addressed. For example,  the share of renewable energy in India’s total foreign direct investment (FDI) inflows rose from ~1 % in FY21 to ~8 % in FY 2024-25 the RE sector attracted US $3.4 billion in FDI in the first three quarters of FY25. This represents how a mix of supportive policy, assured offtake (e.g., long‑term solar and wind PPAs) and early DFI participation created bankable pipelines at scale. Its rapid scale-up was enabled by a combination of supportive policy, assured offtake, and early-stage risk sharing by public institutions and development finance. Together, these created the confidence required for commercial lenders and institutional investors to participate at scale.

Industrial decarbonisation requires a similar approach, but one tailored to the unique characteristics of sectors such as steel, cement and chemicals.

First, credible demand needs to be created for low-carbon industrial products. Green public procurement can become a powerful market-making instrument by using government purchasing power to generate predictable long-term demand for green steel, cement and other materials used in public infrastructure. This should be supported by clear product standards, labelling systems and robust measurement, reporting and verification (MRV) frameworks that provide confidence to both buyers and financiers.

Second, financing structures need to reflect technology maturity. Early-stage projects require grants, concessional finance and catalytic capital to absorb technology and market risks. As projects mature, blended finance structures, guarantees and credit enhancement mechanisms can crowd in commercial lenders. Once technologies achieve operational maturity and stable revenues, financing can transition towards conventional project finance, green bonds and institutional capital.

Finally, strengthening the broader ecosystem will be critical. Standardised project documentation, common risk allocation frameworks, improved operational performance data and dedicated industrial transition facilities can significantly reduce transaction costs and improve lender confidence. Equally important is closer collaboration between government, multilateral development banks, development finance institutions and domestic financial institutions to design sector-specific de-risking mechanisms.

Industrial decarbonisation represents one of India’s most significant economic opportunities over the coming decade. Unlocking this opportunity will require more than increasing the supply of capital. It demands creating predictable demand, allocating risks appropriately, and designing financing solutions that reflect the maturity of emerging technologies.

If these elements come together, industrial decarbonisation will become a powerful driver of India’s competitiveness. It will strengthen exports, unlock private capital, and position India as a global leader in low-carbon manufacturing.