India has set ambitious climate goals, targeting net-zero emissions by 2070 and a 50-percent reduction in emissions intensity by 2030. As the country pursues ‘Viksit Bharat’ (Developed India), resilient development is no longer just an option—it is an economic imperative, with climate risks threatening a staggering 24.7-percent GDP loss by 2070.[1] Amid shifting global climate leadership—especially after the United States’ withdrawal from the Paris Agreement—India is in the spotlight to drive decisive climate action. The Union Budget 2025-26 arrives at a critical moment: Does it reflect the urgency of the challenge? While the government reiterates its commitment to sustainability, does the budget deliver on the scale required? This explainer dissects the Budget allocations for climate action, unpacking the milestones as well as the shortfalls, and what lies ahead in India’s climate-resilient development trajectory.
Energy Transition
- Green transition dominated environmental allocations, with the Ministry of New and Renewable Energy receiving INR 26,549.38 crore, up from INR 19,100 crore last financial year, reinforcing India’s ambitious target of 500 GW non-fossil fuel capacity by 2030.
- The Nuclear Energy Mission emerged as a standout, with INR 20,000 crore allocated to develop 100 GW through Small Modular Reactors (SMRs) by 2047—a big stride towards energy security. However, the expansion of nuclear energy under the Nuclear Energy Mission raises concerns about the safety and security of nuclear power plants, as well as the disposal of radioactive waste. A key challenge is the lack of permanent waste disposal facilities in India.
- The Surya Ghar Yojana saw an 80-percent hike to INR 20,000 crore; for KUSUM, the allocation is up to INR 2,600 crore—boosting the adoption of rooftop and agricultural solar power. While these initiatives promise decentralised energy access in rural areas, the absence of a clear implementation roadmap raises concerns about their long-term impact.
- Green hydrogen funding doubled to INR 6,000 crore, signalling India’s bid for global leadership in this emerging clean fuel sector. However, high production costs and weak distribution infrastructure threaten its scalability.
- Hydropower, grid and non-grid combined received a funding of INR 51 crore, unchanged from the previous year’s allocation. With a potential capacity of 14,500 MW and a 60 percent load factor, the sector could generate about 85,000 MW to meet energy demand. However, unlocking this potential will require increased investments in grid modernisation, new projects, and maintenance of existing infrastructure.
- Wind energy faced a 37.5-percent funding cut to INR 500 crore, despite India holding the fourth-largest wind energy capacity globally. Key states like Rajasthan, Gujarat, Tamil Nadu, and Karnataka have the highest wind potential areas, yet continue to be untapped.
- Biofuel found little mention in the budget. The Pradhan Mantri JI-Van Yojana saw a stark gap between allocation and actual spending, with no change in target for this year—despite the government’s pledges in the previous year.
Infrastructure
- The 2025-26 Budget positioned capital expenditure as a key development driver, allocating INR 11.11 lakh crore with the aim of attracting private sector participation. However, these investments lack a climate-resilient focus, despite nearly half of public infrastructure across the country being vulnerable to climate risks.[2] Without integrating green infrastructure, India risks locking into a high-carbon development path.
- A positive step is the INR 25,000-crore Maritime Development Fund, supporting shipbuilding and green shipping practices. Recycling incentives covering 40 percent of a ship’s scrap value aim to drive sustainable investments and promote eco-friendly maritime operations.
- The Urban Challenge Fund of INR 1 lakh crore seeks to transform cities into economic hubs through green urban development, signalling a push towards sustainable infrastructure and low-carbon growth. However, the absence of clear climate adaptation strategies in urban planning raises concerns about long-term resilience.
- While the budget introduced tax cuts for EV components to promote electric mobility, it lacks specific allocations for expanding EV charging infrastructure. This gap could slow EV adoption by failing to address range anxiety and accessibility issues critical for scaling clean transportation.
- The National Manufacturing Mission, with an aim of clean technology manufacturing, was launched in the 2025-26 Budget. It aims to improve and build the ecosystem for solar PV cells, EV batteries, electrolysers, and other components of EVs. While the budget emphasises clean-tech manufacturing, it lacks clear implementation plans such as policy support to industries, timelines, and sectoral goals.
Mobility
- Electric mobility schemes saw a 20-percent increase in funding, signalling the government’s commitment to supporting cleaner transportation. However, this increase is tempered by uneven allocations across key initiatives, pointing to a fragmented approach that could hinder long-term sustainability.
- The PM-eBus Sewa Scheme received a boost, from INR 500 crore in FY2024-25 (Revised Estimates) to INR 1,310 crore in FY25-26 (Budget Estimates), aimed at expanding electric bus fleets in urban centres. While this contributes to reducing urban transport emissions, the full potential of e-buses may not be realised without parallel investments in charging infrastructure.
- A sharp decline in FAME-II funding, from INR 4,000 crore in FY24 to INR 2,058 crore in FY25 (Revised Estimates), with no allocation for FY26, signals a rollback in EV incentives. This undermines efforts to boost private EV adoption and delays progress towards the 30-percent EV market penetration target by 2030.
- The Electric Mobility Promotion Scheme, with a short-term allocation of INR 500 crore until July 2024, was completely discontinued in FY26. This removal eliminates essential subsidies for battery-fitted EVs, slowing the transition to cleaner personal vehicles.
- The budget has introduced tax incentives and full exemption from the Basic Custom Duty (BCD) on critical minerals such as cobalt powder, lithium-ion battery waste and scrap, lead, zinc, and 12 other critical minerals. These resources are essential for producing batteries, semiconductors, and renewable energy equipment. Given that EV batteries constitute nearly 40 percent of production cost, these measures are expected to make EVs more affordable.
- Despite these mixed signals, India’s transport emissions—accounting for 75 percent of total sector emissions—demand aggressive EV expansion to meet Viksit Bharat’s 2030 goals. The lack of sustained financial support could derail the broader decarbonisation strategy for the transport sector.
- A truly effective transition requires more than just EVs adoption. It requires better urban planning, increased adoption of public transportation services and non-motorised transportation methods such as cycling lanes which are equally important. However, with the Smart City Mission receiving INR 2,400 crore in the last budget but with no funding this year, the budget lacks a clear push for urban mobility planning.
ESG and Supply Chains
- There was no push to strengthen Environmental, Social, and Governance (ESG) compliance. Despite the SEBI-mandated Business Responsibility and Sustainability Reporting (BRSR) framework requiring top public sector units and leading companies to report emissions, it lacks robust KPIs, leaving sustainability claims unchecked and undermining accountability.
- Reducing customs duty on solar cells from 25 percent to 20 percent and on smart meters similarly aims to make clean energy technologies more affordable. This move could stimulate broader adoption of solar solutions and energy efficiency measures. However, it risks increasing dependence on imports, potentially slowing domestic manufacturing growth.
Climate Finance
- The green finance framework expanded with INR 20,000 crore in sovereign green bonds and tax concessions to encourage green investments. However, the scale of issuance remains insufficient compared to India’s large climate financing needs.
- India’s underdeveloped carbon market limits its potential to attract investments and incentivise emissions reductions. A regulated carbon trading system, linked with international markets, would enhance efficiency and support decarbonisation.
- The absence of a climate finance taxonomy in the budget risks misallocating funds and promoting greenwashing, hindering progress towards net-zero targets.
- Key adaptation programmes, such as the National Adaptation Fund (NAF) and the National Mission on Himalayan Studies (NMHS), were shifted to the secretariat budget with no clear allocations.
- The budget heavily prioritised mitigation, focusing on renewable energy and decarbonisation, neglecting the urgent need for adaptation finance amid increasing climate vulnerabilities.
Climate Adaptation
- The National Mission for a Green India (NMGI) retained its INR 220 crore allocation from last year, with funding focused solely on afforestation and forest fire management, while the Sovereign Green Fund—crucial for scaling green finance—received no allocation. There are concerns that the funding under the mission remains underutilised; of last year’s allocated budget of INR 220 crore, only INR 160 crore was utilised.
- Biodiversity conservation funding increased by 30 percent, reflecting a stronger commitment to ecosystem protection and endangered species preservation.
- The National Jal Jeevan Mission was given a stronger focus in this budget, allotting INR 67,000 crore aiming for 100-percent rural tap water coverage by 2028. However, it lacks provisions on strengthening water security beyond its frameworks, such as groundwater depletion, source sustainability, and climate resilience, which are crucial for ensuring long-term access to safe drinking water beyond infrastructure expansion.
- National Coastal Mission funding was reduced by 96 percent, from INR 50 crore to INR 2 crore. This would weaken efforts in coastal protection and resilience-building amid growing sea-level rise and cyclone risks.
- Key adaptation programmes like the NAF, Climate Change Action Plan (CCAP), and NMHS were moved to the secretariat budget, earmarked as administrative expenses rather than key programmatic initiatives within the budget. This dilutes climate adaptation efforts, with the budget being heavily tilted towards mitigation initiatives.
- The O-SMART programme, critical for modelling oceanic climate changes, received no allocation for the second consecutive year, limiting India’s ability to monitor changes in vulnerable coastal ecosystems.
The Road Ahead
While the Union Budget 2025-26 makes incremental progress in advancing India’s climate commitments, its fragmented approach and funding disparities raise concerns about the long-term viability of India’s low-carbon and climate-resilient growth. To ensure that financial allocations translate to tangible climate action, the following steps are critical:
- Strengthen Adaptation Finance: The budget remains heavily tilted towards mitigation, overlooking the urgent need for climate adaptation in vulnerable regions. A dedicated NAF with clear allocations must be reinstated to safeguard communities from climate-induced disasters.
- Enhance Climate-Resilient Infrastructure: The push for capital expenditure must align with climate-resilient urban planning. The Urban Challenge Fund needs a climate risk lens, ensuring that new infrastructure developments integrate heat mitigation, flood resilience, and nature-based solutions.
- Mainstream Nature-Based Solutions: The drastic cut in National Coastal Mission funding and stagnant afforestation budgets undermine conservation efforts. India must expand investments in coastal resilience, ecosystem restoration, and community-led conservation, ensuring that nature-based solutions are central to climate adaptation strategies.
- Scale Up Green Finance: The issuance of sovereign green bonds is a step forward, but India’s climate financing needs far exceed current allocations. A climate finance taxonomy must be introduced to prevent greenwashing, and carbon markets should be strengthened to attract private investments in emissions reduction.
- Fix Policy and Implementation Gaps: Increased funding for renewable energy and electric mobility is promising, but the lack of clear implementation roadmaps, sectoral targets, and regulatory clarity could stall progress. Fast-tracking regulatory approvals and ensuring state-level coordination will be key to unlocking the full potential of green investments.
- Accelerate Renewable Energy and Grid Modernisation: While solar and hydrogen saw increased allocations, the cut in wind energy funding and stagnant hydropower investments indicate an imbalanced path to energy transition. Strategic focus on grid modernisation, hybrid renewable projects, and domestic manufacturing incentives is essential to meet the 500 GW non-fossil target by 2030.
- Foster Sustainable Mobility Beyond EVs: While tax cuts on EV components are welcome, the rollback on FAME-II and the Electric Mobility Promotion Scheme threatens progress. Investments should extend beyond EVs to include public transport expansion, cycling infrastructure, and pedestrian-friendly urban spaces, ensuring a holistic decarbonisation of India’s mobility sector.
India stands at a critical juncture—balancing economic growth with climate resilience. The 2025-26 budget is commendable for its focus on a few important climate sectors, but without decisive policy actions, robust financing mechanisms, and a more integrated climate action strategy, the country risks falling short of its sustainability ambitions. The coming years will be crucial in translating budgetary commitments into on-ground climate action that is inclusive, scalable, and future-proof.
Endnotes
[1] Asian Development Bank, Asia-Pacific Climate Report 2024: Catalyzing Finance and Policy Solutions, October 2024, https://www.adb.org/climate-report/editions/2024.
[2] CBRE South Asia Pvt Ltd, “Infrastructure Management Conference 2024” (paper presented at the Infrastructure Management Conference, Confederation of Indian Industry, New Delhi, India, September 18, 2024).
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