India Union budget 2025-26: what's in it for the energy sector?

The Indian economy is the fastest-growing among all major global economies. The Union budget 2025-26 aims to accelerate growth, secure inclusive development, stimulate private sector investments, uplift household sentiments, and enhance the spending power of India's rising middle class. The next five years are seen as a unique opportunity to realise 'Sabka Vikas', stimulating balanced growth of all regions. This newsletter summarises key highlights from the Union Budget announcements, particularly relevant to the energy sector. 

Figure: Composition of Budget Expenditure in each fiscal year (in INR lakh crore)

Nuclear energy mission

The government has set an ambitious target of developing at least 100 GW of nuclear energy by 2047 to drive India's energy transition. To facilitate private sector participation, amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act will be introduced.

Additionally, a Nuclear Energy Mission will be launched with an INR 200 billion (USD 2.4 billion) investment to advance research and development in Small Modular Reactors (SMRs). The initiative aims to operationalise at least five indigenously developed SMRs by 2033.

Critical minerals and mining sector reforms

Critical minerals recovery: Mining sector reforms, including those for minor minerals, will be encouraged by sharing best practices and the institution of a State Mining Index. A policy to recover critical minerals from tailings will be introduced.

Indirect tax exemption: In the July 2024 Budget, the government fully exempted Basic Customs Duty (BCD) on 25 critical minerals that are not available domestically and reduced BCD on two others to boost processing, particularly for MSMEs. The exemption extends to cobalt powder, lithium-ion battery scrap, lead, zinc, and 12 more critical minerals. This move aims to ensure a stable supply for manufacturing and create more job opportunities for India’s youth.

Source: India Budget

Lithium ion battery

The list of exempted capital goods will now include 35 additional items for EV battery manufacturing. This expansion aims to strengthen domestic production of lithium-ion batteries for electric vehicles, supporting India's push for self-reliance in clean energy and technology.

Solar cells and modules 

The tariff rates on solar cells will be reduced from 25% to 20% and on solar modules from 40% to 20%. This reduction will lower the capital expenditure (CAPEX) for setting up solar power plants in India.

Manufacturing and services

Over one crore registered MSMEs, employing 7.5 crore people and contributing 36% to manufacturing, are driving India’s emergence as a global manufacturing hub. These enterprises account for 45% of exports with their high-quality products. To enhance efficiency, technological capabilities, and access to capital, the investment and turnover limits for MSME classification will be increased by 2.5 and 2 times, respectively.

Further support includes a significant expansion of credit availability with guarantee cover, credit cards for micro-enterprises, and an additional INR 100 billion (USD 1.2 billion) for the Fund of Funds for startups. Sector-specific initiatives, such as Focus Product Schemes for footwear and leather, targeted measures for the toy industry, and enhanced support for food processing, will drive sustained growth and competitiveness.

National manufacturing mission: The government will launch a national manufacturing mission to support small, medium, and large industries, furthering the 'Make in India' initiative. This mission will provide policy support, execution roadmaps, and a governance framework for central ministries and states.

Clean tech manufacturing: Aligned with India’s commitment to climate-friendly development, the mission will enhance domestic value addition. Key focus areas include solar PV cells, EV batteries, motors and controllers, electrolysers, wind turbines, high-voltage transmission equipment, and grid-scale batteries.

Support for state infrastructure 

The government has proposed INR 1500 billion (USD 17.9 billion) in 50-year interest-free loans to states for capital expenditure and reform incentives. This will drive public-private partnerships (PPPs) in developing roads, highways, and metro projects, boosting demand for cement, steel, paints, chemicals, and petrochemicals.

Power sector reforms 

States implementing electricity distribution reforms will be allowed additional borrowing of 0.5% of GSDP to enhance intra-state transmission capacity.

The government’s dedication to improving the financial and operational stability of electricity distribution companies, coupled with incentives for enhancing intra-state transmission capacity, will greatly boost the efficiency of the power sector.

Agriculture

The government had reopened three dormant urea plants in the Eastern region to strengthen self-reliance in urea production. To further boost supply, a new plant with an annual capacity of 1.3 million metric tons will be established in Namrup, Assam. The proposed gas-based urea plant will be set up by a JV of the central PSUs and the Assam government.

Additionally, funding for promoting organic fertilisers, largely derived from CBG production, increased from INR 450 million (USD 5.4 million) last year to INR 1500 million (USD 18 million) in FY 2025-26, promoting sustainable farming practices.

National centres of excellence for skilling

Five centres will be established through global partnerships to equip youth with manufacturing skills for ‘Make for India, Make for the World’. These partnerships will focus on curriculum design, trainer development, skills certification, and periodic reviews. The budget allocation for skill development is detailed in the key ministries' section below.

➟ Ministry of coal: INR 100 million (USD 1.2 million)

➟ Ministry of environment, forests, and climate change: INR 2 billion (USD 24 million) - It covers two sub-schemes: a. forestry training and capacity building and b. eco task force. It also covers awareness and imparts environmental education programmes through exhibitions and training programmes

➟ Ministry of new and renewable energy: INR 400 million (USD 5 million)

➟ Ministry of power: INR 500 million (USD 6 million)

Research, development, and innovation

A private sector-driven initiative will be implemented with an allocation of INR 200 billion (USD 2.4 billion). A Deep Tech Fund of Funds will be explored to catalyse next-generation startups.

➟ Department of atomic energy: INR 31 billion (USD 0.4 billion) - Includes projects like installation of medical cyclotron, advance computing, mega science, assessment, analysis and categorisation of atomic minerals, design and installation of electron ten MeV Linac system, etc.

➟ Ministry of coal: INR 300 million (USD 3.6 million) - Includes promotion of clean coal technology and technology for safety in coal mines

➟ Ministry of new and renewable energy: INR 460 million (USD 5.5 million)

➟ Ministry of power: INR 800 million (USD 9.6 million)

Export promotion mission

An export promotion mission will be established with sectoral and ministerial targets, driven jointly by the ministries of commerce, MSME, and finance.

Budget allocation for key ministries

1. Department of atomic energy

A net budget of INR 240 billion (USD 2.9 billion) in FY 2025-26, nearly the same as the previous fiscal year.

➟ Nuclear power projects: INR 21 billion (USD 0.25 billion)

➟ Fuel recycle projects: INR 5 billion (USD 59.8 million)

➟ Fast reactor fuel cycle project (FRFCF): INR 6 billion (USD 72 million)

2. Ministry of coal

A net budget of INR 5 billion (USD 60 million) in FY 2025-26, an increase of 255% from the previous budget. 

➟ Exploration of coal and lignite: INR 7.5 billion (USD 90 million) - It will be met by the national mineral exploration trust fund)

3. Ministry of environment, forests, and climate change

A net expenditure budget of INR 34 billion (USD 0.4 billion) in FY 2025-26, a 9% increase from the previous budget.

➟ National mission for a green India: INR 2.2 billion (USD 26.3 million)

➟ Statutory and regulatory bodies (central pollution control board, central zoo authority, commission of air quality management, etc.): INR 2.3 billion (USD 28 million)

➟ Conservation of natural resources & ecosystems: INR 500 million (USD 6 million)

4. Ministry of heavy industries

A total budget of INR 77 billion (USD 0.9 billion) in FY 2025-26, up from INR 46 billion from the previous revised budget.

➟ PM electric drive revolution in innovation vehicle enhancement (PM E-DRIVE) scheme: INR 40 billion (USD 0.5 billion)

➟ Production linked incentive (PLI) scheme for automobiles and auto components: INR 28 billion (USD 0.3 billion)

➟ PM-eBus sewa-payment security mechanism (PSM) for procurement and operation of e-buses by public transport authorities (PTAs): INR 5.1 billion (USD 61 million)

➟ Production linked incentive (PLI) scheme for national programme on advanced chemistry cell (ACC) battery storage: INR 1.5 billion (USD 18 million)

➟ Scheme to promote manufacturing of electric passenger cars in India (SMEC): INR 120 million (USD 1.4 million)

5. Ministry of mines

Net budget: INR 30 billion (USD 0.35 billion)

➟ Exploration activities under national mineral exploration trust: INR 9.2 billion (USD 110 million)

➟ National critical mineral mission: INR 4.1 billion (USD 49 million)

6. Ministry of new & renewable energy 

Net budget: INR 255 billion (USD 3.2 billion)

➟ Solar energy: INR 242 billion (USD 2.9 billion) - This includes an allocation for several central schemes/projects such as solar power (off-grid and grid), KUSUM scheme, PM Surya Ghar Muft Bijli Yojna

➟ Wind & hydro power: INR 5 billion (USD 60 million)

➟ Green energy corridor: INR 6 billion (USD 72 million)

➟ National hydrogen mission: INR 6 billion (USD 72 million) - The budget allocation for the national green hydrogen mission has been doubled to INR 6 billion from the current fiscal year. It is expected to attract investment and help India achieve its goal of producing 5 million tonnes/year of green hydrogen by 2030

➟ Bioenergy programme: INR 3.2 billion (USD 38.3 million) - It includes biopower (grid and off-grid and biogas programme)

7. Ministry of petroleum & natural gas

Net budget: INR 193 billion (USD 2.3 billion)

➟ LPG subsidy: INR 121 billion (USD 1.45 billion)

➟ NG pipelines, refinery projects, CBG pipeline infrastructure: INR 13 billion (USD 155.4 million)

8. Ministry of power

Net budget: INR 218 billion (USD 2.6 billion)

➟ Energy conservation: INR 440 million (USD 5.3 million)

➟ Strengthening of power systems (smart grids, green energy corridors, transmission upgrades): INR 8.5 billion (USD 101.6 million)

➟ Reform-linked distribution scheme (improving DISCOM efficiency): INR 160 billion (USD 1.91 billion)

➟ Viability gap funding for BESS (battery energy storage systems): INR 2 billion (USD 24.3 million)

9. Ministry of steel

➟ PLI Scheme for specialty steel: INR 3 billion (USD 36 million)

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