India’s 2026 Budget: A Strategic Pivot from Green Energy to Industrial Decarbonization and Supply Chain Sovereignty 

India’s 2026 budget marks a strategic shift in its climate and energy policy, prioritizing industrial decarbonization and supply chain sovereignty over broad-based renewable expansion. The centerpiece is a $2.2 billion investment in carbon capture (CCUS) to shield key export industries like steel and cement from European carbon tariffs, while a push to create domestic rare-earth processing corridors aims to reduce dependence on imports, particularly from China. Support for renewables is uneven, heavily favoring rooftop solar but neglecting crucial grid storage and transmission infrastructure, and a customs duty exemption for nuclear equipment until 2035 supports a massive tenfold capacity expansion goal. Notably, the budget represents a stark retreat on climate adaptation, offering no specific measures to address escalating threats like extreme heat, thereby failing to match the scale of the climate impacts already eroding the economy and livelihoods.

India’s 2026 Budget: A Strategic Pivot from Green Energy to Industrial Decarbonization and Supply Chain Sovereignty 

India’s budget for the 2026-27 fiscal year marks a significant strategic evolution in the nation’s approach to climate and energy policy. Announced amid a volatile global landscape of disrupted supply chains and emerging carbon tariffs, the budget reveals a distinct pivot. The focus is moving beyond simply expanding renewable energy capacity to deploying advanced technologies for cleaning up core industries and securing the mineral foundations of the clean energy future. This strategic shift underscores India’s dual priorities: maintaining industrial competitiveness in a decarbonizing global economy while pursuing its long-term net-zero commitment by 2070. 

1. Carbon Capture: The $2.2 Billion Bet on Industrial Survival

The most prominent and financially significant climate announcement is the allocation of ₹20,000 crore (approximately $2.2 billion) over the next five years to support Carbon Capture, Utilisation, and Storage (CCUS) technologies. This funding is strategically targeted at five high-emitting, hard-to-abate sectors: power generation, steel, cement, refineries, and chemicals. 

The impetus is twofold. Domestically, these sectors are crucial for infrastructure development and economic growth, yet their process emissions are difficult to eliminate through electrification alone. Internationally, the driving force is the European Union’s Carbon Border Adjustment Mechanism (CBAM), which will impose costs on carbon-intensive imports. As Finance Minister Nirmala Sitharaman noted, these industries are “staring at the risk” of CBAM, making decarbonization a matter of export competitiveness and economic security. 

The funding is designed to bridge a critical gap. While India has significant theoretical storage potential—estimated to hold up to 150 billion tonnes of CO₂—and active pilot projects, it lacks large-scale, near-commercial demonstration plants. This allocation aims to move technologies from labs to field-scale testing, focusing on solutions capable of capturing 100–500 tonnes of CO₂ per day, with the goal of achieving commercial deployment within five years. Experts like Dr. Vikram Vishal of IIT Bombay call it a “welcome step” but note the funding is an initial push that must be followed by much larger investments for full-scale deployment. 

2. Rare Earth Corridors: Building Sovereign Supply Chains for the Energy Transition

In a direct move to reduce strategic dependence, particularly on China, the budget announces the creation of dedicated rare-earth corridors in four mineral-rich coastal states: Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. These corridors are intended to create integrated hubs for mining, processing, research, and manufacturing, moving India up the value chain from a raw material exporter to a producer of high-value finished goods like rare-earth permanent magnets (REPMs). 

This initiative complements a ₹7,280 crore ($815 million) REPM manufacturing scheme approved in November 2025. REPMs are critical components for electric vehicle motors, wind turbine generators, and defence electronics. Currently, India imports 60-80% of its REPM value and 85-90% by quantity from China. The new corridors, leveraging India’s substantial resource base of 482.6 million tonnes of rare-earth ore, aim to reverse this dynamic. 

The strategy also includes significant fiscal incentives: a customs duty exemption on capital goods for processing critical minerals and tax deductions for prospecting and exploration expenses. While experts acknowledge the necessity of building domestic capacity, some, like Rahul Basu of the Goa Foundation, urge caution. He suggests perfecting cleaner processing technology first, possibly with imported ores, rather than rushing to mine ecologically sensitive coastal areas already threatened by sea-level rise. 

3. Nuclear Energy: Extending Tax Breaks to Fuel a Tenfold Expansion

Supporting another pillar of non-fossil energy, the budget extends a full basic customs duty exemption on imports of all goods required for nuclear power projects until September 30, 2035. This policy, now applicable to plants of any capacity, is designed to reduce capital costs and is a key enabler for India’s extraordinarily ambitious nuclear goals. 

This fiscal support follows the landmark Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Act of December 2025, which opens the historically state-run nuclear sector to private and foreign participation. The combined legislative and fiscal push targets a tenfold increase in nuclear capacity, from the current 8,780 MW to about 100 GW by 2047—the year India aims to be a developed nation. The near-term roadmap includes 17 new reactors (13,100 MW) by 2031-32 and the development of indigenous Small Modular Reactor (SMR) designs for deployment by 2033. 

4. Renewable Energy: Selective Support Amidst a Shifting Focus

Allocations to the Ministry of New and Renewable Energy (MNRE) reached a record high, growing by 24%, with the bulk directed at the PM Surya Ghar rooftop solar scheme. The scheme’s allocation was increased to ₹22,000 crore for 2026-27, a significant boost to promote decentralized generation. The budget also cut import duties on lithium-ion cells for batteries and inputs for solar-panel glass. 

However, analysts describe the support as “uneven”. While manufacturing and specific generation schemes are favored, critical enabling infrastructure has been overlooked. Vibhuti Garg of IEEFA points out that spending on wind energy, transmission grids, and energy storage has stagnated or declined. This creates a paradox: funding is added for new solar capacity, but not for the grid modernization and storage essential to integrate that power reliably. The industry has called for clearer policies on Battery Energy Storage Systems (BESS), including production-linked incentives and quality standards, which were largely absent from the budget. 

5. The Glaring Omission: Climate Adaptation Takes a Backseat

In a notable departure from some previous years, the 2026 budget contains no specific, direct measures for climate change adaptation. The finance minister’s speech did not mention “climate change” at all, and experts call it a “missed opportunity”. While a plan to develop 500 water reservoirs and fisheries value chains in coastal areas has adaptation co-benefits, there were no targeted initiatives to address mounting crises such as extreme heat, urban flooding, or climate-resilient agriculture. 

Harjeet Singh of the Satat Sampada Climate Foundation criticizes this gap, stating the response is “not commensurate to the needs on [the] ground”. He emphasizes that failing to budget for adaptation means ignoring how climate impacts are already “eroding India’s development” and causing huge economic losses. Furthermore, the budget for air quality management was cut by nearly 10%, and allocations for the National Adaptation Fund are not separately visible, signaling a deprioritization of frontline climate resilience. 

Comparative Analysis of Sectoral Support 

The table below summarizes the strategic intent and key challenges across the major climate and energy focus areas of the 2026 budget: 

Conclusion: A Budget of Strategic Realism with Notable Blind Spots 

India‘s 2026 budget delivers a clear message: the nation’s energy and climate strategy is maturing from a focus on gigawatts of renewable capacity to the complex industrial and geopolitical engineering required for a full-system transition. The substantial bets on CCUS and rare earths reflect a pragmatic assessment of external pressures like CBAM and concentrated global supply chains. The extended support for nuclear and selected renewables aims to bolster energy security and domestic manufacturing. 

However, this industry-first, security-driven approach comes with trade-offs. The noticeable silence on climate adaptation leaves the country’s most vulnerable populations and economic sectors exposed to escalating climate risks. Furthermore, the inadequate focus on grid modernization and storage threatens to create bottlenecks for the very renewable energy expansion the government continues to promote. 

As The Hindu editorial notes, the pattern is one of being “big on intent, cautious on allocations”. The budget sets a strategic direction, but its ultimate success will depend on its ability to mobilize far greater private capital, ensure effective implementation, and eventually address the profound adaptation deficit that this year’s financial plan conspicuously overlooks.