The Budget for FY 2025-2026 should reflect the seriousness of the government in integrating climate competitiveness into India’s fiscal framework.

Expectations from Union Budget 2026

• Balancing Climate and Economic Goals: The 2026 Budget addresses the dual challenge of climate change and economic resilience. 
  • Finance Minister Nirmala Sitharaman must prioritize climate adaptation and mitigation while fostering economic growth.
• Net-Zero Target: With just five years to meet the interim Net-Zero target, urgent action is required to accelerate progress toward sustainability.
• Transformative Policies: The Budget has the potential to:
  • Safeguard vulnerable communities from climate impacts.
  • Enhance India’s global competitiveness through sustainable innovations.
  • Fast-track sustainable development by integrating climate resilience with economic strategies.

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Key Government Initiatives for Renewable Energy and Sustainability

• PM Surya Ghar Muft Bijli Yojana: It promotes solar energy adoption in residential households and enhances energy access while reducing carbon footprints.
  • Over 1.45 crore households have registered, indicating strong public interest.
• National Green Hydrogen Mission: It positions India as a global hub for green hydrogen production. Increased allocation reflects its importance.
  • It aims to decarbonize critical industries like steel, cement, and transportation.
• Viability Gap Funding for Offshore Wind Energy: The government supports offshore wind energy projects to diversify renewable energy sources.
  • It reduces dependency on fossil fuels and enhances long-term energy security.
• Electric Vehicle (EV) Infrastructure Support Investments in EV charging infrastructure to combat range anxiety.
  • It is pivotal for reducing transport sector emissions, addressing urban pollution challenges.

Gaps in India’s Climate Action Plan

• Renewable Energy Capacity Shortfall: India’s renewable energy capacity stands at 203.18 GW, significantly below the 500 GW target for 2030. 
  • Bridging this gap requires massive investment, improved policy frameworks, and effective implementation.
• Challenges in Solar Energy Implementation
  • PM Surya Ghar Muft Bijli Yojana: Over 1.45 crore households have enrolled, but only 6.34 lakh installations (4.37%) have been completed.Bureaucratic inefficiencies, funding shortages, and inadequate monitoring mechanisms have delayed progress.
• Reliance on Imports for Solar Modules: India produces only 40% of its solar module requirements domestically. This reliance on imports raises costs and makes projects vulnerable to global supply chain disruptions. 
  • Domestic solar panels are 65% more expensive than imported ones, slowing down widespread adoption.
• Untapped Renewable Potential in Railways: India’s vast railway network could potentially host up to 5 GW of solar and wind energy.
  • Lack of public-private partnerships and investment incentives has kept this potential largely untapped.
• Inadequate Fiscal and Policy Support: Current fiscal incentives and subsidies are not enough to overcome the challenges, particularly for low-income households. 
  • A broader approach to reducing upfront costs and improving affordability is essential, particularly through models like RESCO.

Transformative Policy Measures

• International Market Challenges: India’s exports to the EU, valued at $8.22 billion annually, could be affected by CBAM set to take effect in 2026.
  • MSMEs, which contribute 30% of GDP and 45% of exports, will face significant challenges. 
• Climate Action Fund: The creation of a Climate Action Fund (modeled after Japan’s Green Transformation Fund) to support industrial decarbonization and enable MSMEs to comply with CBAM regulations.
• Transition to Circular Economy: Adopting a circular economy could lead to potential profits of ₹40 lakh crore annually by 2050 and a 44% reduction in greenhouse gas emissions.
  • The FY26 Budget should incentivize recycling and refurbishment technologies by offering tax deductions and accelerated depreciation.
• Climate Resilience: India’s vulnerability to climate change demands urgent action, especially given the decline in insurance penetration (down to 3.7% in FY24).
• Tax Incentives: Tax incentives for climate-linked insurance policies and reduced GST rates on disaster protection premiums could drive wider adoption.
• Green Finance: The Budget should also focus on standardizing green finance definitions and securing investments to meet India’s climate goals by 2030.
• Solar Manufacturing and Resco support: By introducing financial instruments and credit guarantees, the government can reduce upfront costs, making renewable energy more accessible to low-income households.
  • Expanding Production-Linked Incentives (PLIs) across the solar supply chain will reduce costs and strengthen India’s manufacturing capacity, reducing reliance on imports.

Importance of Climate-Linked Policies

• Increasing Competitiveness: Climate-linked policies are essential for India’s global trade and investment positioning.
• Rising Demand: The demand for low-carbon goods and the alignment of capital markets with sustainability requires urgent action.
• Fiscal Integration: It is crucial to integrate climate competitiveness into India’s fiscal framework to remain competitive.

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Conclusion

By addressing gaps in renewable energy implementation, protecting export competitiveness, fostering a circular economy, and enhancing climate resilience, the government can lay the foundation for a sustainable and thriving future.

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