The Union Budget as a Turning Point for Climate Action
28-01-2025
07:44 AM

Context
- The Union Budget 2026 presents a critical juncture for India as it grapples with the dual challenge of climate change and economic resilience.
- With just five years remaining to achieve the first interim Net-Zero target, Finance Minister Nirmala Sitharaman must navigate an intricate balancing act—addressing the urgency of climate adaptation and mitigation while ensuring economic growth.
- The Budget can catalyse transformative policy measures that can safeguard vulnerable communities, boost India’s global competitiveness, and accelerate progress toward sustainable development.
India’s Progress in Climate Action
- PM Surya Ghar Muft Bijli Yojana
- This flagship initiative aims to promote solar energy adoption in residential households, enhancing energy access while reducing carbon footprints.
- Over 1.45 crore households have registered under this scheme, showcasing strong public interest.
- National Green Hydrogen Mission
- With an increased budgetary allocation, this initiative seeks to position India as a global hub for green hydrogen production.
- This is a critical step toward decarbonizing industries like steel, cement, and transportation.
- Viability Gap Funding for Offshore Wind Energy
- The government’s support for offshore wind energy projects reflects its ambition to diversify renewable energy sources.
- Offshore wind energy holds significant potential for reducing dependency on fossil fuels and achieving long-term energy security.
- Electric Vehicle (EV) Infrastructure Support
- By investing in EV charging infrastructure, India is addressing one of the key barriers to EV adoption, range anxiety.
- This initiative is pivotal to reducing emissions from the transport sector, which accounts for a significant portion of urban pollution.
Remaining Gaps in India’s Climate Action Plan
- Renewable Energy Capacity Gap
- India’s installed renewable energy capacity stands at 203.18 GW, significantly short of the 500 GW target set for 2030.
- Bridging this gap requires unprecedented levels of investment, improved policy frameworks, and streamlined execution.
- Implementation Challenges in Solar Energy
- The PM Surya Ghar Muft Bijli Yojana highlights the disparity between policy intent and execution.
- While registrations for the scheme have crossed 1.45 crore households, the actual completion rate remains dismal, with only 6.34 lakh installations (4.37%).
- This points to systemic issues such as bureaucratic inefficiencies, funding shortages, and a lack of robust monitoring mechanisms.
- Dependence on Imports for Solar Modules
- India’s solar manufacturing ecosystem remains underdeveloped, fulfilling only 40% of domestic demand.
- This reliance on imports makes renewable energy projects more expensive and vulnerable to global supply chain disruptions.
- Additionally, domestically manufactured solar panels cost 65% more than imported alternatives, discouraging their adoption.
- Underutilised Potential in Railways
- India’s vast railway network, which includes extensive land banks and track corridors, offers untapped opportunities for renewable energy generation.
- Estimates suggest the network could host up to 5 GW of solar and wind installations, yet this potential remains largely unexplored due to a lack of targeted public-private partnerships and investment incentives.
- Lack of Comprehensive Fiscal and Policy Measures
- Existing fiscal incentives and subsidies often fall short of addressing critical barriers to renewable energy adoption.
- For instance, the high upfront costs associated with solar installations deter low-income households, despite the availability of schemes like the Renewal Energy Service Company (RESCO) model.
- Comprehensive measures to reduce these costs and increase affordability are urgently needed.
Expectations from Union Budget 2026 Pertaining to Transformative Policy Measures
- Adapting to International Market Dynamics
- India’s export sector faces a looming challenge with the European Union’s Carbon Border Adjustment Mechanism (CBAM), set to take effect in 2026.
- This measure, imposing carbon levies on imports, could impact India’s exports to the EU, valued at $8.22 billion annually.
- The implications for Micro, Small, and Medium Enterprises (MSMEs), contributing 30% of GDP and 45% of exports, are profound.
- To mitigate this, the Budget should establish a dedicated ‘Climate Action Fund’ modelled on Japan’s Green Transformation Fund.
- This fund can support industrial decarbonisation in vulnerable sectors and build MSME capacity to comply with CBAM regulations, ensuring export competitiveness.
- Transitioning to a Circular Economy
- The adoption of a circular economy offers India significant economic and environmental benefits.
- A recent study estimates a potential profit of ₹40 lakh crore annually by 2050 and a 44% reduction in greenhouse gas emissions.
- The FY26 Budget should incentivize investments in recycling and refurbishment technologies by offering a weighted deduction of 150% and accelerated depreciation benefits.
- Strengthening Climate Resilience and Green Finance
- India’s vulnerability to climate change necessitates urgent measures to enhance resilience.
- Alarmingly, insurance penetration has declined to 3.7% in FY24, highlighting the need for innovative solutions.
- Tax deductions for climate-linked insurance policies and reduced GST rates on disaster protection premiums could encourage broader adoption.
- Simultaneously, the Budget should prioritize standardising green finance definitions, building investor confidence, and securing a share of the ₹162.5 trillion required to meet India’s climate goals by 2030.
- Enhancing RESCO Support and Expanding PLIs for Solar Manufacturing
- By transforming prohibitive upfront costs into manageable operating expenses through innovative financial instruments and credit guarantees, the government can make renewable energy more accessible to low-income households.
- Production-linked incentives across the entire solar module supply chain can reduce the cost of domestically produced panels and build economies of scale.
- This would not only boost India’s manufacturing capacity but also reduce its reliance on imports.
The Importance of Climate-Linked Policies
- Climate-linked economic policies are no longer peripheral concerns but central to maintaining India’s competitiveness in global trade and investment.
- The rising demand for low-carbon goods and the growing alignment of capital markets with sustainability metrics necessitate decisive action.
- Integrating climate competitiveness into India’s fiscal framework is imperative to secure its position in an evolving global economy.
Conclusion
- The Union Budget 2026 represents a pivotal opportunity for India to align its fiscal priorities with its climate commitments.
- By addressing implementation gaps in renewable energy, safeguarding export competitiveness, creating a circular economy, and strengthening climate resilience, the government can pave the way for a sustainable and prosperous future.
- This Budget will be a litmus test of India’s seriousness in integrating climate action into its economic strategy, reflecting the nation’s readiness to lead in a low-carbon global economy.
Q1. What are some of India’s key climate initiatives so far?
Ans. India has launched initiatives like the PM Surya Ghar Muft Bijli Yojana, National Green Hydrogen Mission, offshore wind energy support, and electric vehicle infrastructure to drive its climate action.
Q2. What is the current gap in India’s renewable energy capacity?
Ans. India’s current renewable energy capacity stands at 203.18 GW, significantly short of the 2030 target of 500 GW.
Q3. What challenges has the PM Surya Ghar Muft Bijli Yojana faced?
Ans. Despite 1.45 crore registrations, only 4.37% of installations have been completed, indicating significant implementation gaps.
Q4. Why is India still dependent on imported solar modules?
Ans. India’s solar manufacturing ecosystem fulfills only 40% of domestic demand, and domestically produced solar panels are 65% more expensive than imported ones.
Q5. How can India’s railway network contribute to renewable energy?
Ans. India’s vast railway network could generate up to 5 GW of renewable energy, especially through public-private partnerships targeting solar and wind installations.
Source:The Hindu