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Building on the priorities of the previous year, the Budget announced on 1 February 2025, continues to place energy security and energy transition at its core. With significant investments in renewable energy, electric vehicle infrastructure, and pivotal policy reforms aimed at nuclear energy and green hydrogen, the budget unveils a multi-faceted approach to transforming India’s energy landscape. But as the government pushes forward with these transformative initiatives, the real question lies in how these plans will unfold in practice and whether they can address the challenges that remain.
Energy security
India is taking significant strides in diversifying its energy mix, with nuclear power playing a crucial role in its energy transition agenda. Last year, approximately INR 22.28 billion was allocated for nuclear power projects. This year, the finance minister introduced the Nuclear Mission for Viksit Bharat, aiming for 100 GW of nuclear capacity by 2047.
To encourage greater private sector involvement, the government plans to amend the Atomic Energy Act, and Civil Liability for Nuclear Damage Act to ease supplier liability provisions, making the sector more attractive to investors. However, this policy shift has not been matched by increased funding, as the Department of Atomic Energy’s budget has been reduced from INR 249 billion to INR 240 billion.
To encourage greater private sector involvement, the government plans to amend the Atomic Energy Act, and Civil Liability for Nuclear Damage Act to ease supplier liability provisions, making the sector more attractive to investors.
Additionally, INR 200 billion has been earmarked for research and development of small modular reactors, with a target of deploying five indigenous reactors by 2033. However, India’s track record with nuclear expansion raises concerns about feasibility as 10 reactors announced in 2017 still remain non-operational. Achieving these ambitious targets will require strong policy backing and close collaboration with the private sector.
New and Renewable Energy
The Budget for FY26 significantly increased allocations for the renewable energy sector, with budget estimates reaching INR 256.49 billion for MNRE. This marks a 39 percent increase against the initial budget estimates of INR 191 billion from last year. The solar sector shined bright, securing the largest share of this allocation at INR 241 billion. This allocation includes INR 1.5 billion earmarked for solar power (grid) and INR 2.6 billion for the PM KUSUM, a scheme supporting farmers by subsidizing standalone solar pumps and solarizing existing grid-connected pumps to reduce diesel dependence.
The lion’s share of this funding was directed towards PM Surya Ghar Muft Bijli Yojana, which witnessed a remarkable 81 percent increase in the allocation, increasing from INR 110 billion in FY25 to 200 billion in FY26. Launched last year, this ambitious scheme aims to provide up to 300 units of free electricity monthly, while simultaneously promoting the adoption of RTS amongst one crore households. The scheme targets lower- to middle-income families and offers substantial financial assistance, covering 60 percent of the cost for 2 kW systems and 40 percent for those with capacities ranging from 2-3 kW.
This scheme has proven instrumental in advancing the uptake of RTS in the residential sector. As of December 2024, an impressive 6,30,000 installations have been completed, marking a substantial increase in the monthly installation rate, which now stands at 70,000. However, its impact has been uneven across states. Gujarat leads with 281,769 installations (46 percent of the total), while states like Telangana face lower subsidy uptake due to persistent technical glitches in the rooftop solar portal and challenges faced by DISCOMs.
Green hydrogen holds immense potential to transform India’s energy landscape, but its success will depend on the creation of a comprehensive ecosystem, including the establishment of electrolyzer manufacturing capabilities and the strategic development of hydrogen hubs.
Moreover, the National Portal reveals that many applications are for systems with capacities averaging around 4 kW, exceeding the original design specifications. This indicates that residents of larger homes are more likely to benefit, while poorer households, often lacking property ownership or terrace space, both eligibility prerequisites, face significant barriers. These and other issues must be addressed to ensure the continued success and equitable implementation of this initiative.
The expansion of and modernization of grid infrastructure was also deemed pivotal for renewable energy integration. Revamped distribution sector scheme, aimed at enhancing the efficiency and financial stability of DISCOMS through prepaid smart metering and infrastructure upgrades was allocated INR 160 billion. To support the integration of renewable energy into the grid, INR 60 billion has been allocated for Green Energy Corridors (GECs), ensuring the smooth transmission of solar and wind power. The budget also supported power sector reforms by allowing states to borrow an additional 0.5 percent of their GSDP to strengthen the financial health of electricity distribution companies.
In tandem with these initiatives, the National Green Hydrogen Mission has witnessed a significant boost in funding, receiving INR 6 billion in the latest budget which is double the revised estimate of 3 billion for FY25, underscoring the government’s commitment to accelerating the green hydrogen economy. Green hydrogen holds immense potential to transform India’s energy landscape, but its success will depend on the creation of a comprehensive ecosystem, including the establishment of electrolyzer manufacturing capabilities and the strategic development of hydrogen hubs.
Strengthening the domestic manufacturing system and supply chains
This budget places significant emphasis on the supply side of electric vehicles, introducing transformative indirect tax reforms to augment domestic manufacturing and fortify the EV value chain. The removal of Basic Customs Duty on vital materials such as cobalt, lithium-ion battery scrap, lead, zinc, and 12 other essential minerals is expected to lower the costs for EVs, clean energy, and electronics manufacturing. Complementing this, the National Critical Minerals Mission, led by the Ministry of Mines, has been allocated 41 billion for FY26. Additionally, the budget also proposes a plan for extracting critical minerals from mine tailings, presenting an opportunity to create job opportunities in regions with limited industrial growth. Success will depend on MSME support and workforce skilling initiatives to strengthen resource recovery and circular economy practices.
These supply-side reforms, along with initiatives like the Prime Minister’s Electric Drive Revolution in Innovative Vehicle Enhancement (PME-DRIVE), are expected to foster long-term self-reliance and make EVs more affordable.
Furthermore, the budget allocation for the Production-Linked Incentive (PLI) Scheme under the National Program on Advanced Chemistry Cell Battery Storage has been substantially increased from INR 1.54 billion to INR 15.58 billion. The government has also significantly raised the budget for the PLI scheme for Automobiles and Auto Components, from INR 34.69 billion in FY25 to INR 281.88 billion in FY26. These supply-side reforms, along with initiatives like the Prime Minister’s Electric Drive Revolution in Innovative Vehicle Enhancement (PME-DRIVE), are expected to foster long-term self-reliance and make EVs more affordable.
The Finance Minister also launched the National Manufacturing Mission to provide policy guidance, execution roadmaps, and governance frameworks to MSMEs. Aimed at advancing climate-friendly development, the mission will prioritize clean technology manufacturing, fostering domestic value creation in sectors such as solar PV cells, EV batteries, wind turbines, and grid-scale batteries. This is a welcome initiative as limited access to finance remains a key bottleneck for MSMEs for clean energy adoption.
What is missing?
India’s energy transition journey is deeply tied to its commitment to energy efficiency, which has evolved beyond mere conservation to become a cornerstone of energy security, infrastructure modernization, and economic competitiveness. Despite its critical role in reducing import dependence and advancing climate goals, budgetary allocations for energy efficiency programs remain disproportionately low at INR 160 billion as compared to renewable energy.
While ambitious in scope, the budget presents a mix of opportunities and hurdles on India’s path to a greener future.
Overall, this year’s budget reinforces India’s push toward a greener future, with a strong emphasis on renewables, electric mobility, and domestic manufacturing. The substantial funding, tax reforms, and policy measures lay the groundwork for long-term transformation. However, challenges persist, particularly in ensuring equitable implementation and infrastructure readiness. While ambitious in scope, the budget presents a mix of opportunities and hurdles on India’s path to a greener future.
Gopalika Arora is an Associate Fellow with the Centre for Economy and Growth at the Observer Research Foundation
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