India's 2025-26 Budget: A Green Energy Perspective

India's Union Budget for the fiscal year 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, has significant implications for the country's green energy and renewable space. This report delves into the key highlights of the budget concerning this sector, analyzing its potential impact on India's clean energy goals and the overall economy.

Current State of Green Energy in India

India has achieved a significant milestone in its renewable energy journey, with the country's total renewable energy capacity crossing 200 GW. This remarkable achievement aligns with the country's ambitious renewable energy target of achieving 500 GW from non-fossil sources by 2030. This growth is largely attributed to the rise of solar and wind energy. As of October 2024, solar power capacity reached 92.12 GW, while wind power reached 47.72 GW.  

Furthermore, the renewable energy sector has emerged as a significant source of employment, with an estimated 1.02 million jobs created in 2023. This highlights the potential of the green energy sector to contribute to India's economic development while addressing climate change concerns.  

Highlights of the 2025-26 Budget for Green Energy & Renewable Space

Incentives for Electricity Distribution Reforms

The budget incentivizes electricity distribution reforms and the augmentation of intra-state transmission capacity by states. States that undertake these reforms will be allowed additional borrowing of 0.5% of their Gross State Domestic Product (GSDP). To further support the integration of renewable energy sources, the government has pledged to enhance the intra-state power transmission network. This move aims to bolster financial health and operational efficiency in India's electricity distribution companies.  

Tariff Reductions

To make clean energy more affordable, the budget has introduced tariff reductions on key renewable energy components. The import duty on solar cells has been reduced from 25% to 20%, while the duty on solar modules has been cut from 40% to 20%, making imports more cost-effective. Additionally, the tariff on smart electricity meters was lowered to 20%, supporting the expansion of efficient power management systems.  

Impact on International Investments

India has been successful in attracting substantial international investments in renewable energy. Major global corporations and international financial institutions are increasingly viewing India as a promising market for green energy investments. The 2025-26 budget, with its focus on green energy and increased allocations, is expected to further enhance investor confidence and attract more foreign capital into India's renewable energy sector.  

Government Policies and Initiatives

The Indian government has implemented various policies and initiatives to promote renewable energy adoption. Some of the key initiatives include:

• Renewable Energy Purchase Obligations (RPOs): These regulations mandate that distribution companies source a certain percentage of their electricity from renewable sources.  
• Green Energy Corridor: This initiative aims to strengthen the grid infrastructure to accommodate the increasing renewable energy generation.  

These policies, along with the budgetary allocations and initiatives announced in the 2025-26 budget, demonstrate India's commitment to achieving its renewable energy targets and transitioning to a more sustainable energy future.

Expert Opinions and Analyses

Economic Impact

The National Manufacturing Mission has been lauded for its potential to boost local production, reduce import dependence, and strengthen supply chains. This is expected to create a more self-reliant economy and position India as a global leader in clean technology manufacturing.  

Technological Advancement

The budget's emphasis on research and development, particularly in emerging technologies like green hydrogen and SMRs, has been recognized as a crucial step towards fostering innovation and technological advancement in the renewable energy sector.  

Sustainability

The increased allocation for renewable energy, coupled with initiatives like the Nuclear Energy Mission, is expected to accelerate India's transition towards a cleaner and more sustainable energy future.  

Other Observations

• Need for Wider Adoption of Alternative Fuels: Some experts have suggested that the budget's focus on EVs should be broadened to include other clean mobility solutions like Auto LPG, hydrogen, and biofuels.  
• Importance of Energy Storage: The need for increased investment in energy storage solutions, such as Battery Energy Storage Systems (BESS), has been highlighted to ensure grid stability and efficient utilization of renewable energy.  

National Manufacturing Mission

This initiative aims to bolster domestic manufacturing of clean technologies, including solar PV cells, EV batteries, wind turbines, and grid-scale batteries. This mission is expected to reduce India's reliance on imports, create jobs, and enhance the country's position in the global clean technology market. The National Manufacturing Mission is a crucial step towards establishing India as a leading clean technology manufacturer in the world, realizing the dream of 'Make in India' and 'Atmanirbhar Bharat'.  

Nuclear Energy Mission

The budget announced a Nuclear Energy Mission with a target of developing at least 100 GW of nuclear power capacity by 2047. This mission includes a ₹20,000 crore allocation for research and development of Small Modular Reactors (SMRs), with at least five indigenous SMRs expected to be operational by 2033. To encourage private sector participation, the government also plans to amend the Atomic Energy Act and the Civil Liability for Nuclear Damage Act. This initiative signals a strategic shift towards nuclear power as a potential substitute for coal, reinforcing India's long-term energy security and sustainability goals.  

PM Surya Ghar Muft Bijli Yojana

This scheme, launched in February 2024, aims to provide free electricity to 1 crore households through rooftop solar installations. The budget increased the allocation for this scheme to ₹20,000 crore, reflecting the government's commitment to expanding solar energy access. This increased allocation is significant as it will help in expanding solar energy access and reducing household electricity bills, contributing to both economic and environmental sustainability.  

National Green Hydrogen Mission

The budget allocated ₹600 crore for the National Green Hydrogen Mission, a 100% increase from the previous year. This mission aims to make India a global hub for green hydrogen production and export, contributing to decarbonization and energy independence. The National Green Hydrogen Mission has the potential to contribute to significant decarbonization of the economy and reduce dependence on fossil fuel imports, positioning India as a leader in the global clean energy transition.  

Balancing the Energy Mix

The budget's focus on a diverse range of energy sources, including solar, wind, hydro, nuclear, and green hydrogen, highlights the importance of balancing the energy mix for sustainable long-term growth. This balanced approach will ensure energy security, reduce reliance on fossil fuels, and contribute to a more resilient and sustainable energy future for India.  

Financial Reforms and ESG Compliance

The government is taking steps to strengthen India's ESG compliance by introducing tax incentives for businesses that adopt net-zero targets and sustainability-linked investments. Additionally, an expanded Green Finance Framework is in the works to provide concessional loans for enterprises engaged in green infrastructure projects. These measures will further incentivize businesses to prioritize sustainability and contribute to India's clean energy goals.  

Maritime and Circular Economy Initiatives

To promote the circular economy, the government plans to overhaul its Shipbuilding Financial Assistance Policy and introduce credit incentives for shipbreaking activities. Additionally, a Maritime Development Fund with a corpus of ₹25,000 crore will be established to support long-term financing in the sector. These initiatives will contribute to resource efficiency and sustainable development in the maritime sector.  

Urban Sustainability and Water Reforms

The government will launch a ₹1 lakh crore Urban Challenge Fund to develop cities as growth hubs, emphasizing water sanitation and sustainability. Furthermore, the Jal Jeevan Mission, which has provided potable tap water to 15 crore rural households, will be extended until 2028 with enhanced funding. These initiatives will improve urban living conditions and ensure access to clean water, contributing to sustainable development.  

Critical Minerals and Battery Manufacturing

Recognizing the strategic importance of critical minerals for India's energy security, the government has announced tax exemptions on importing lithium-ion battery components, cobalt powder, and lead and zinc waste materials. This is aimed at securing a steady supply chain for EV battery manufacturing and bolstering India's position in the global clean energy transition.  

Challenges and Limitations

While the budget has been generally well-received, some challenges and limitations have also been identified:

• Policy and Regulatory Certainty: Sustaining the transition to renewable energy requires consistent policy and regulatory frameworks. Frequent changes in regulations or incentives can create uncertainty and discourage investment in the sector.  
• Competition in Solar Cell Manufacturing: While the ALMM List-2 promotes local solar cell manufacturing, the industry needs to compete with global players on quality and price. Ensuring competitiveness and cost-effectiveness will be crucial for the success of domestic manufacturing initiatives.  
• Dependency on Imports for Battery Storage: Despite reduced tariffs for battery energy storage systems, India still relies on imports for battery cells. This dependency can create vulnerabilities in the supply chain and hinder the growth of the energy storage sector.  
• Uniform Renewable Purchase Obligations (RPOs): There is a need for uniform RPOs and their consistent adherence across states. Discrepancies in RPOs across states can create market distortions and hinder the overall growth of renewable energy.  
• Land Acquisition and DISCOMs: Land acquisition for renewable energy projects often faces delays due to procedural bottlenecks and land ownership issues. This can significantly delay project implementation and increase costs. Additionally, the financial health of DISCOMs remains a concern for integrating renewables into the grid.  

Synthesis

India's 2025-26 budget demonstrates a strong commitment to green energy and renewable space. The initiatives and allocations announced have the potential to significantly accelerate the country's clean energy transition, reduce reliance on fossil fuels, and contribute to economic growth. The budget's focus on domestic manufacturing, innovation, and a balanced energy mix is expected to enhance India's energy security and position it as a global leader in the clean technology market.

However, addressing the identified challenges and limitations will be crucial for realizing the full potential of these measures and achieving India's ambitious renewable energy targets. Ensuring policy and regulatory certainty, promoting competitiveness in domestic manufacturing, reducing import dependency, and addressing land acquisition and DISCOMs' financial health will be essential for the long-term success of India's green energy initiatives. By effectively implementing these measures, India can achieve its clean energy goals and contribute to sustainable economic development.