By Dr Debajit Palit, Centre Head, Centre for Climate Change and Energy Transition, Chintan Research Foundation
Union Budget 2025-26 was presented by the finance minister in the Lok Sabha on February 1, 2025. Like the previous year’s budget, green energy continues to be the government’s priority. However, the uniqueness of this year’s budget for the green energy sector has been the focus on the value chain, with major emphasis provided not just for the deployment of clean energy technologies but also for research, and manufacturing and strengthening the supply chain. The budget also focuses on transformative reforms across six domains – power sector, taxation, urban development, mining, financial and regulatory reforms – to augment India’s growth potential and global competitiveness. With the renewable power sector being primarily steered by the private sector, all these sectoral reforms will positively impact the green energy sector. Furthermore, energy is also considered a “golden thread”, that is, it is a crucial connecting factor between economic growth, social equity and environmental sustainability. A stronger emphasis on renewable energy will steer the country towards a sustainable and Viksit Bharat by 2047.
Increased allocations to power green progress
The allocation for the Ministry of New and Renewable Energy (MNRE) has been significantly increased with a total outlay of Rs 265.49 billion, representing almost one-third of the total energy sector outlay. This is an impressive increase of 39 per cent. Notably, the allocation is substantially more than the Rs 218.47 billion allocated to the Ministry of Power, clearly signalling India’s steady ongoing transition away from fossil fuels towards achieving 500 GW of non-fossil-fuel power capacity by 2030 and a long-term vision to achieve 1,800 GW by the 100th year of
India’s independence.
The increased allocation also aligns with the achievement in the deployment of renewable energy systems in India. Total renewable capacity surged by 191 per cent, rising from 75.52 GW (2004-14) to 220 GW (2014-24). In the solar sector alone, India has successfully installed 100 GW, with another 84 GW currently under implementation (as of February 2025). Additionally, around 48 GW is at the tendering stage, bringing the total solar pipeline to an impressive 232 GW. The sector has grown by a staggering 3,450 per cent in the past 10 years, from 2.82 GW in 2014 to over 100 GW at present. This includes massive advances across both utility and decentralised solar – solar parks, rooftop solar, solar for irrigation and hybrid projects – with rooftop solar capacity growing by almost 53 per cent during the past year alone.
The allocation for the Ministry of New and Renewable Energy (MNRE) has been significantly increased with a total outlay of Rs 265.49 billion, representing almost one-third of the total energy sector outlay.
On a dynamic solar path
To sustain the growth momentum, Union Budget 2025-26 places significant emphasis on expanding solar capacity, with an allocation of Rs 241 billion for solar energy deployment. Flagship initiatives such as the PM Surya Ghar: Muft Bijli Yojana and the Pradhan Mantri Kisan Urja Suraksha evam Utthan Mahabhiyan (PM KUSUM) are taking centre stage in this effort. The total allocation for the solar segment represents an increase of over 60 per cent compared to the funding amount in FY2024-25. The PM Surya Ghar scheme has been allocated Rs 200 billion, an increase of over 80 per cent as compared to last year’s allocation. Meanwhile, the allocation for solar power (grid) has been increased by 15 per cent compared to the 2024-25 revised estimate, rising from Rs 13 billion to Rs 15 billion. Notably, the grid solar programme had received an allocation of Rs 100 billion in the budget 2024-25. The increased allocation towards the PM Surya Ghar scheme underscores the government’s emphasis on promoting distributed solar energy through the installation of 5 million rooftop solar (RTS) systems by March 2026. The initial plan had envisaged installing 4 million RTS systems by March 2026 and 10 million by March 2027. The RTS scheme targets lower- to middle-income families to install RTS systems and offers financial assistance, covering 60 per cent of the cost for 2 kWp systems and 40 per cent for those with capacities ranging from 2 to 3 kWp. The PM Surya Ghar scheme has been instrumental in advancing the uptake of RTS in the residential sector, with the installation of 850,000 solar rooftops generating roughly 2.5 GWp of clean power. However, this achievement has been primarily concentrated in a few states, with Gujarat taking the lead with almost 50 per cent of the installation. As state agencies are responsible for actual deployment, states lagging behind should take lessons from the leading states to take full advantage of the increased allocation for a more equitable and balanced RTS deployment. Though grid-connected distributed solar has been emphasised in this year’s budget, the allocation towards off-grid solar photovoltaic systems has been substantially reduced.
The PM KUSUM scheme, which comprises three components – solar plants, off-grid solar-based irrigation pumps and grid-connected irrigation pumps – aims to increase the use of solar energy for irrigation. This scheme received a significant allocation of Rs 26 billion for FY2025-26, aligning with the government’s aim to strengthen agriculture as the first engine of the economy for ensuring rural economic growth. With a strong focus on augmenting irrigation facilities, the Dhan Dhanya Krishi Yojana aims to enhance agricultural productivity in 100 low-productivity districts. The scheme will focus on creating a convergence between boosting clean energy production and agricultural production. While such convergence can fall under the broader umbrella of “agrivoltaics”, it would be prudent for the MNRE to formulate a definition for agrivoltaics to maximise the benefits of simultaneous clean energy generation and agricultural production on the same land. Additionally, the reduction in basic customs duty on solar cells to 20 per cent (earlier 25 per cent) and on solar modules to 20 per cent (earlier 40 per cent) will improve affordability and market competitiveness, fostering a more robust clean energy market.
Apart from solar, Union Budget 2025-26 also emphasises wind and other renewable technologies, although there has been a decrease in allocation compared to the revised estimate for FY2024-25. The budget has allocated Rs 5 billion for wind power (grid) projects as compared to Rs 8 billion in FY2024-25. The wind sector in India received its initial push from successive governments over the past three decades, with substantial growth in terms of capacity addition (onshore wind capacity is currently at 48 GW) as well as the development of the ecosystem. Over the past decade, solar has overtaken the wind sector driven by a slew of incentives. While the wind sector may not need direct subsidy, it still requires an enabling environment for both onshore and offshore power as well as small-wind to achieve its full potential. In line with the announcement made earlier in the interim budget for FY2024-25 to support viability gap funding, the Solar Energy Corporation of India has issued the first tender for a 500 MW offshore wind energy project off the Gujarat coast, and the project is expected to be awarded in FY2025-26. In the case of small-hydro power, the MNRE’s allocation remains unchanged at Rs 510 million, the same as last year. To support the seamless integration of increased renewable energy into the national grid, the budget has made substantial provisions for boosting both intra-state as well as interstate transmission capacity. The green energy corridor, a critical initiative designed to enhance India’s renewable infrastructure and accelerate the transition to a sustainable energy future, has received funding of Rs 6 billion, the same as last year’s allocation.
Over the past decade, solar has overtaken the wind sector driven by a slew of incentives. While the wind sector may not need direct subsidy, it still requires an enabling environment for both onshore and offshore power as well as small-wind to achieve its full potential.
Boosting cleantech manufacturing towards Aatmanirbhar Bharat
This year’s budget has also given importance to the manufacturing sector, including cleantech manufacturing, reinforcing India’s commitment to climate-friendly industrial growth. The Clean Tech Manufacturing initiative, under the National Manufacturing Mission (NMM), will support technologies such as solar PV, electric vehicle (EV) batteries, motors and controllers, electrolysers, wind turbines, very high voltage transmission equipment and grid-scale batteries, all of which are necessary components to drive the green energy sector towards Atmanirbhar Bharat. Over the past two decades, many small and large industries have supported the renewable sector, achieving more than 20 per cent localisation in solar energy and over 70 per cent in the wind sector. As of December 2024, India has reached an installed solar module manufacturing capacity of approximately 63 GW and a solar cell manufacturing capacity of approximately 5.8 GW, up from just 2 GW in 2014. The solar cell manufacturing capacity is set to touch 50-55 GW by FY2027. The NMM is expected to provide the required boost, along with the existing production-linked incentive (PLI) scheme, to further increase the local content not only in wind and solar but also in the other renewable energy sectors. The allocation for the PLI scheme under the National Programme on Advanced Chemistry Cell Battery Storage also received a significant boost, increasing from Rs 154.2 million in FY2024-25 to Rs 1,557.6 million in FY2025-26. This is poised to drive a transformational change in battery storage manufacturing, vital to support the variable renewable energy. Additionally, the establishment of centres of excellence (CoEs) in artificial intelligence (AI) to spearhead research and innovation is expected to boost the variable renewable energy sector
through the development of AI tools for resource forecasting.
The setting up of local production capabilities will enhance energy security and reduce reliance on imports, positioning India as a global leader in the cleantech value chain and creating green jobs. The NMM thus emphasises preparing a “future-ready workforce for in-demand jobs”. To support this objective, the establishment of five national CoEs for skilling has been proposed. While there have been concerns that skilling initiatives have not fully met the industry’s needs, it is expected that the CoEs are expected to develop their curriculum and pedagogy in consultation with the industry.
In the research and development (R&D) sector, Union Budget 2025-26 allocates Rs 200 billion to drive private sector-led research, focusing on clean energy, semiconductors and energy storage, thereby ensuring that India remains at the forefront of technological advancements. With coal expected to play a role in the short to medium term to provide grid stability, moving forward, prioritising R&D investments for the development of carbon dioxide removal technologies will be essential.
With coal expected to play a role in the short to medium term to provide grid stability, moving forward, prioritising R&D investments for the development of carbon dioxide removal technologies will be essential.
India’s clean energy transition hinges on access to critical minerals essential for manufacturing lithium-ion (Li-ion) batteries, solar panels and wind turbines. The budget has introduced 100 per cent exemptions on basic customs duty for critical minerals such as cobalt powder and waste, the scrap of Li-ion battery, lead, zinc and 12 more critical minerals that are not available domestically. In last year’s budget, 25 critical minerals were provided exemptions from basic customs duty. Further, 35 additional goods for EV battery manufacturing and 28 additional goods for mobile phone battery manufacturing have been proposed to be added to the list of exempted capital goods. These exemptions are expected to lower the costs for EVs, clean energy and electronics manufacturing, thus benefiting both manufacturers and consumers. The policy for recovering critical minerals from mining tailings will promote sustainability by reducing waste and improving resource efficiency, as well as creating jobs. Complementing this, the National Critical Mineral Mission, led by the Ministry of Mines, has been provided a budgetary allocation of Rs 4.1 billion. In January 2025, the Indian government had approved the National Critical Mineral Mission, with an outlay of Rs 343 billion over seven years, to build a resilient value chain for critical mineral resources that are important to promote clean technologies and strengthen India’s domestic supply chains.
The budget has introduced 100 per cent exemptions on basic customs duty for critical minerals such as cobalt powder and waste, the scrap of Li-ion battery, lead, zinc and 12 more critical minerals that are not available domestically.
Green hydrogen to fuel India’s clean energy transition
With the aim of developing a robust hydrogen-based clean economy, the National Green Hydrogen Mission was approved on January 4, 2023. It seeks to position India as a leading producer and exporter of green hydrogen, with an annual production of 5 million metric tonnes by 2030. In line with the objectives, the mission has received a significant boost in this year’s budget, with its allocation doubling to Rs 6 billion over last year’s revised estimate. With a significant focus on nuclear energy, especially on the R&D and targeted deployment of small modular reactors (recognised as essential for India’s clean energy transition), the sector must support the increased production of hydrogen as a non-fossil-fuel source, thereby complementing the green hydrogen sector. Such convergence can also be achieved through collaboration between the MNRE and the Ministry of Housing and Urban Affairs, following the announcement of the Rs 1 trillion Urban Challenge Fund. Cities now have the opportunity to modernise infrastructure with climate-friendly and smart energy solutions, green buildings and low-carbon transport, among others, to cut carbon emissions and enhance resilience.
To conclude, with renewable energy at the heart of India’s growth, increased allocations for solar, cleantech manufacturing and hydrogen, along with collaborations with other ministries, is expected to further drive the growth of renewable and clean energy towards a low-carbon economy. While the overall growth in the renewable energy sector in recent years has been impressive, there is a need for balanced development across states. Efficient project implementation at the state level is essential to ensure equitable distribution of resources and benefits, contributing to India’s goal of achieving net zero by 2070.
(Views are personal)
