The first full Union Budget after India’s Parliamentary elections was announced in July. Climate focussed interventions featured prominently in six priority areas as per our reading of the Budget document. Below is an overview of budgetary support to climate action, and the areas this Budget has overlooked.
“There certainly are some encouraging announcements in the Budget and among them are the energy transition for the country’s energy security, as well as a push to decarbonise hard-to-abate sectors. But climate change will need a more concerted push, fast. Climate plans must be embedded across sectors now which does not appear to be the case,” Dr. Divya Sharma, India Executive Director, Climate Group said.
Focus area 1: Energy transition
Critical Minerals Mission: Minerals such as lithium, copper, cobalt and rare earth elements are essential for sectors like renewable energy, nuclear energy, space, telecommunications, and high-tech electronics. The Budget has proposed the setting up of a Critical Minerals Mission which will focus on domestic production, recycling, and overseas acquisition of critical mineral assets. Customs duties on 25 critical minerals have been exempted and Basic Customs Duty (BCD) i.e. primary tax on imported goods entering India reduced on two of them. This will make the availability of these resources easier for sectors essential for the transition to a green economy.
Solar energy: Solar energy has received a strong push in this Budget. There has been an expansion in the list of exempted capital goods for manufacturing of solar cells and panels in the country. This is expected to catalyse the setting up of 48 GW of solar cells and modules capacity domestically, reducing the import of solar modules from 50% in fiscal 2024 to 7-10% by fiscal 2027.
Budgetary allocations of Rs 10,000 crore were made for the Solar Power Grid, which is a 110% increase from Rs 4,757 crore allocated in 2023-24.
The PM Surya Ghar Muft Bijli Yojana, announced in the Interim Budget earlier this year, aims to install rooftop solar plants in 1 crore households generating up to 300 units of electricity every month per household, offering subsidies ranging from Rs 9,000 to Rs 18,000 per kW solar capacity installed under the Rooftop Solar Program Phase-II.
Pumped Storage Policy: Given the variable and intermittent nature of renewable energy generated from solar and wind, pumped storage projects will be developed for electricity storage and facilitating smooth integration in the overall energy mix.
Focus area 2: Energy security
On the road towards Viksit Bharat - India’s aspiration to be fully developed by 2047 - ensuring energy security remains crucial. The budget embraced nuclear energy as a means towards that objective with an allocation of INR 2,228 crore; an increase from the Budget Estimates of INR 442 crore in 2023-24 (further revised to INR 1,791 crore the same year).
Instead of conventional large nuclear plants which take decades to build and commission, public-private partnership has been sought for setting up Bharat Small Reactors based on India's existing pressurised heavy-water reactor (PHWR ) technology. Bharat Small Modular Reactors (SMR) are relatively agile to deploy and function than large reactors. This marks a historic shift in India's nuclear policy, as the Atomic Energy Act of 1962 previously excluded any private participation in nuclear energy generation. It is expected to open new avenues of finance and accelerate the growth of nuclear power in India.
“The Budget has underscored the need for an energy transition that ensures affordability, accessibility and availability, and at the same time helps in meeting growth, jobs and environmental sustainability. To aid this, there is a push for renewable energy but also for pumped storage so that there is seamless integration of higher shares of renewable energy in the future.
"With an outlook to address climate, it demonstrates seriousness to tackle emissions head on. The Budget announced work on hard-to-abate sectors (like steel, cement etc.) where emission reduction has become even more central. With an emissions first approach, Indian industries and corporates would intrinsically be prepared for a carbon market in India, and other global markets in the future,” Atul Mudaliar, Director of Systems Change, India at Climate Group, said.
Focus area 3: Industry
Coal production: India is heavily reliant on coal for power generation and coal production is projected to rise in the country before reaching its peak around 2030-35. This indicates that heavily polluting thermal power plants are going to remain the mainstay of India’s electricity needs.
To combat emissions from thermal power plants, the budget proposes utilising indigenous technology for Advanced Ultra Super Critical (AUSC) thermal power plants with much higher efficiency. Fiscal support will be extended for establishing a full scale 800 MW commercial plant using AUSC technology in a joint venture between Public Sector Undertaking conglomerates NTPC and BHEL.
Decarbonising heavy industries: The Budget also proposes formulating a roadmap for moving the hard-to-abate industries from ‘energy efficiency’ targets to ‘emission targets.’ Appropriate regulations for transition of these industries from the current ‘Perform, Achieve and Trade’ (PAT) mode to ‘Indian Carbon Market’ mode will be put in place in line with the implementation of a National Carbon Market framework slated to be rolled out by 2026.
Support to traditional micro and small industries (MSMEs): MSME’s constitute majority of the manufacturing sector in India and contribute around 70% of the total industrial pollution. The Budget seeks to facilitate investment-grade energy audit of traditional micro and small industries in 60 clusters. Financial support will be provided for shifting them to cleaner forms of energy and implementation of energy efficiency measures. The scheme will be replicated in another 100 clusters in the next phase.
Focus area 4: Transport
Public road transport: In a huge boost for public e-buses, the PM-eBus Sewa Scheme’s budget allocations rose significantly from INR 20 crore in 2023-24 to Rs 1,300 crore in 2024-25. The scheme was launched in August 2023 to bolster electric bus infrastructure nationwide. In contrast, funding for Metropolitan Transportation Projects, essential for developing urban transit systems, has been reduced by half to Rs 1,090 crore, thus placing further strain on states to fund urban transit systems.
FAME: The Faster Adoption and Manufacturing of Electric Vehicles in India (FAME - India) scheme has been critical for accelerating EV adoption in India. The EV industry is highly anticipating the roll out of the FAME 3 scheme given FAME 2 expires in July this year. Although there was no announcement of the FAME 3 scheme in the Budget, Minister of Heavy Industries HD Kumaraswamy said all ministries have provided recommendations and discussions are ongoing with the Finance Ministry.
“This Budget unfortunately overlooks the much-anticipated FAME III scheme and especially provisions for electric trucks. There is a strong need for direct budgetary benefits to boost electric truck adoption in India. But it is also important to acknowledge the budgetary announcements of customs duty exemptions on critical minerals. This announcement is a crucial step to unlock the local market potential for batteries and preserving the positive momentum around electric trucks in India,” Ashish Saraswat, Program Manager, Transport, India said.
Funds allocated for the Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell Battery Storage are to the tune of INR 250 crore. Along with custom duty exemptions on critical minerals, the PLI scheme for advanced battery storage technologies may offer the right incentives to spur domestic supply chains for battery components which constitute almost 40% cost of an EV.
Focus area 5: Adaptation and resilience in agriculture
Close to 50% of India's population depends on agriculture as an important or only source of livelihood. Climate change impacts are increasingly affecting crop yields and challenging conventional methods of farming. Taking cognisance, the Indian government has announced a slew of provisions with an emphasis on effective, efficient, and climate-resilient means of agricultural production.
These announcements include comprehensive review of the agriculture research setup, accelerating R&D efforts in developing new climate-resilient crop varieties with involvement of the private sector, enhancing oilseed production and developing Digital Public Infrastructure (DPI) for agriculture. Additionally, the Budget proposed initiating 1 crore farmers into natural farming supported by certification, branding, and establishment of 10,000 bio-input resource centres to prepare and supply bio-inputs to facilitate the adoption of natural farming without individual farmers having to prepare them on their own.
Focus area 6: Climate Finance Taxonomy
In an unprecedented policy move, the Finance Minister announced a taxonomy for climate finance. By classifying climate relevant activities for investment, this is expected to enhance the availability of capital for climate adaptation and mitigation.
"The recent budget's push to develop a taxonomy for climate finance is a big win for India's net-zero goals. By integrating climate finance into our broader economic planning with clear guidelines and definitions, we can attract international climate funds and boost green finance in India's FDI inflows - a critical need right now," Shikha Dhawan, Senior Project Officer, Government Relations, India said.
