Answer

India, contributing around 7% of global emissions (IEA, 2023), faces a dual challenge of achieving economic growth and meeting its Net-Zero target by 2070. The Union Budget FY26 plays a pivotal role in integrating climate competitiveness with fiscal policies to foster sustainable economic growth, addressing climate gaps like the 203 GW renewable energy gap.

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Role of the Union Budget in Fostering Sustainable Economic Growth while Addressing India’s Climate Commitments

• Climate-Linked Investments: The Budget directs funds toward green infrastructure like solar, wind energy, and green hydrogen, fostering both sustainable growth and meeting climate goals.
  For example: The FY24 Budget allocated ₹35,000 crore for priority capital investments toward energy transition initiatives.
• Export Competitiveness:By supporting decarbonization efforts, the Budget helps industries comply with global climate norms like CBAM, ensuring international trade remains viable.
  For example: The Budget can replicate Japan’s Green Transformation Fund to decarbonize vulnerable MSMEs contributing 45% of India’s exports.
• Circular Economy: Promoting resource efficiency and waste minimization fosters sustainable growth while reducing emissions and ensuring economic benefits.
  For example: A 150% deduction on investments in recycling technologies could yield ₹40 lakh crore annual profit by 2050.
• Climate Resilience: Low-cost climate-linked insurance policies enhance resilience for vulnerable communities, protecting livelihoods and fostering economic stability.
  For example: Tax incentives for climate-linked insurance could address declining insurance penetration, currently at 3.7%, as per the IRDAI FY24 report.
• Green Finance Taxonomy: Standardizing green finance builds investor confidence and attracts capital for sustainable projects, enabling long-term growth.
  For example: Introducing differential tax treatment for taxonomy-aligned investments could unlock India’s $2.5 trillion climate funding gap.

Implementation Gaps in Schemes like PM Surya Ghar Muft Bijlee Yojana

• Low Completion Rates: Only 4.37% of registered households completed installations due to logistical and financial barriers.
  For example: Out of 1.45 crore registrations, only 6.34 lakh households have completed installations under the scheme.
• High Upfront Costs: Initial costs remain prohibitive for low-income households, deterring wider adoption of solar energy systems.
  For example: Fiscal support for Renewable Energy Service Company (RESCO) models could transform upfront expenses into manageable operational costs.
• Domestic Manufacturing Constraints: India’s domestic solar module production fulfills only 40% of demand, leading to supply gaps.
  For example: Production-linked incentives (PLI) for solar manufacturing could reduce domestic costs, currently 65% higher than imported modules.
• Lack of Public-Private Collaboration: Untapped renewable energy opportunities like railway land banks remain underutilized due to limited PPP frameworks.
  For example: Railways’ corridors can host 5 GW solar and wind installations but require PPP investments.
• Insufficient Awareness: Limited outreach and awareness about benefits and financial schemes hinder broader participation in renewable programs.
  For example: Targeted capacity-building campaigns could improve awareness, particularly in rural and semi-urban areas.

Fiscal Policy Interventions to Accelerate the Green Energy Transition and Bridge Implementation Gaps

• Expanding PLI Schemes: Scaling PLI incentives across the solar supply chain enhances manufacturing capacity, bridging supply-demand mismatches.
  For example: Enhanced PLI could lower production costs and expand capacity beyond the current domestic 40% coverage.
• Innovative Financing Models: RESCO models and credit guarantees reduce financial barriers for lower-income households, enabling broader solar adoption.
  For example: Fiscal allocations to RESCO models could improve adoption rates from 4.37% to significant coverage.
• Leveraging PPP Models: Encouraging private-sector investments in renewable infrastructure, like Railways’ corridors, unlocks untapped solar and wind potential.
  For example: A public-private partnership model could develop up to 5 GW solar and wind capacity along railway lands.
• Green Bond Frameworks: Establishing sovereign green bonds could finance circular economy infrastructure and renewable energy projects.
  For example: Green bonds could support recycling technologies and refurbishments, yielding ₹40 lakh crore annual profits by 2050.
• Tax Incentives: Weighted deductions and lower GST rates on green infrastructure encourage private-sector investments and reduce costs for renewable adoption.
  For example: 150% deduction on recycling investments could drive resource efficiency, reducing greenhouse emissions by 44%.

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India’s 2030 climate commitments demand immediate action through targeted fiscal policies, as recognized by the IPCC 6th Assessment Report (2023). Prioritizing green energy transition, MSME decarbonization, and circular economy incentives via the Union Budget will align economic growth with sustainability, ensuring climate resilience and global competitiveness.

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