Introduction
As the Union Finance Minister, Nirmala Sitharaman, prepares to present the FY26 Union Budget on February 1, all eyes are on the steps India will take to address the pressing issue of climate change. With extreme weather events becoming increasingly frequent and the country’s commitments to climate goals under scrutiny, this Budget represents both a challenge and an opportunity. India’s interim Net-Zero target by 2030 demands accelerated investment and decisive policy measures to protect those most vulnerable to climate change. In this article we were know about The Union Budget: A Turning Point for Climate Action in India.
Progress So Far
India has made commendable strides in climate action through initiatives like the PM Surya Ghar Muft Bijlee Yojana, support for electric vehicle charging infrastructure, viability gap funding for offshore wind energy, and increased allocations for the National Green Hydrogen Mission. Despite these efforts, India’s renewable energy capacity stands at 203.18 GW, significantly short of the 2030 target of 500 GW. The upcoming Budget must address this gap with innovative strategies and robust financial support.
Key Priorities for the FY26 Budget
1. Accelerating the Green Energy Transition
a. Strengthening the PM Surya Ghar Muft Bijlee Yojana The program’s adoption rates highlight significant implementation gaps, with only 4.37% of installations completed. To bridge this gap, the Budget should:
- Prioritize fiscal allocations for the Renewable Energy Service Company (RESCO) model, enabling affordable operating expenses for lower-income households through credit guarantees and innovative financial instruments.
- Expand production-linked incentives (PLI) across the solar module supply chain to address supply-demand mismatches. This would help reduce the 65% cost disparity between domestically manufactured and imported solar panels.
- Leverage the Indian Railways’ extensive land banks and track corridors to host up to 5 GW of solar and wind installations through public-private partnerships.
2. Addressing the European Union’s Carbon Border Adjustment Mechanism (CBAM)
The EU’s CBAM, effective January 1, 2026, poses a significant threat to India’s export competitiveness, particularly for MSMEs. With $8.22 billion worth of CBAM-affected exports at risk, the Budget should:
- Establish a ‘Climate Action Fund’ to support industrial decarbonization, modeled after Japan’s Green Transformation Fund.
- Allocate resources for capacity-building initiatives, ensuring MSMEs comply with CBAM requirements.
3. Advancing the Circular Economy
A circular economy offers immense economic and environmental benefits, with the potential to yield annual profits of ₹40 lakh crore ($624 billion) by 2050 and reduce greenhouse gas emissions by 44%. To promote this transition, the Budget should:
- Introduce a weighted deduction of 150% on investments in recycling infrastructure and refurbishment technologies.
- Establish a sovereign green bond framework for financing circular economy infrastructure.
4. Strengthening Climate Resilience
India’s insurance penetration for climate-linked risks remains alarmingly low, declining from 4% in FY23 to 3.7% in FY24. To address this:
- The Budget should offer tax deductions to insurers on income from climate-linked policies.
- Advocate for lower GST rates on premiums for insurance products designed for climate resilience and disaster protection.
5. Standardizing Green Finance
With an estimated ₹162.5 trillion ($2.5 trillion) required to achieve India’s climate goals by 2030, the Budget should:
- Allocate funds to develop institutional and technical infrastructure for implementing a climate finance taxonomy.
- Introduce differential tax treatment for taxonomy-aligned investments.
- Commit to classifying government expenditure according to green criteria.
Why Climate Action Is Central to Economic Competitiveness
Climate-linked economic policies are no longer optional but essential for maintaining global trade and investment competitiveness. Rising demand for low-carbon goods and alignment of capital markets with sustainability metrics make climate-focused fiscal strategies indispensable.
Conclusion
The FY26 Union Budget (The Union Budget: A Turning Point for Climate Action in India) offers a pivotal opportunity to integrate climate competitiveness into India’s fiscal framework. By prioritizing renewable energy, industrial decarbonization, circular economy initiatives, and climate resilience, the government can demonstrate its seriousness in addressing climate challenges. This Budget has the potential to set India on a path toward sustainable growth, ensuring economic resilience and environmental protection for future generations.
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