OPINION | Budget 2026 and India’s accelerated climate and sustainability agenda

Technology and innovation will remain the backbone of India’s climate transition

The Union Budget 2025 continued India’s focus on the climate and sustainability agenda, with measures to advance clean-tech manufacturing, renewable energy adoption, sustainable agriculture and urban development, nuclear power development, and electric mobility, among many others. These steps were aligned with India’s 2070 Net-Zero commitment, supporting tangible progress reflected in rapidly growing renewable capacity, improving rooftop solar uptake, strengthening R&D for climate-focused technologies, and signalling the decarbonisation roadmap for hard-to-abate sectors. The Budget also made space for circular economy initiatives and dedicated support for MSMEs, reflecting an integrated approach to green growth. Building on this momentum, the forthcoming Budget 2026 is expected to deepen these priorities so that India can scale from intent to deliver across the next leg of its transition.

Renewable Energy, Storage, and Grid Readiness

Energy transition remains central to India’s decarbonisation strategy. While renewable capacity additions have been encouraging, the next phase of India’s energy journey must address persistent challenges related to storage and transmission. Customs and tax support for battery manufacturing and the announcement of Viability Gap Funding have been positive, but Budget 2026 will need to deepen this support. Continued incentivisation for storage solutions and encouragement of scalability is a major area to watch. It remains to be seen which mechanisms will be used, given the aggressive pricing environment—whether through tax sops, inclusion under PLI schemes, mandated storage solutions, or financing support.

Another lever for strengthening energy security and sustainability has been the push for rooftop solar installations, which received an allocation of Rs 20,000 crore last year, up from Rs 13,500 crore. Ambitious targets and further allocations are expected to support the pace of adoption.

Beyond core mitigation efforts, India’s environmental agenda requires robust, scalable technologies for air emissions, water efficiency, waste management, and industrial decarbonisation. Early-stage pilots in carbon capture, utilisation and storage (CCUS), green hydrogen, and alternative fuels underscore the potential of emerging technologies. However, their viability in the Indian context demands targeted investment, demonstration support, and accelerated commercialisation pathways. Technology and innovation will remain the backbone of India’s climate transition, and a continued push for R&D—particularly in energy-efficient and low-carbon industrial processes, as witnessed last year—is widely expected in the upcoming Budget.

Scaling Climate Technologies and Industrial Decarbonisation

The development of climate and sustainable finance, along with related market mechanisms, demands heightened attention. Deepening financial markets and encouraging attractive funding options are critical not only for meeting net-zero ambitions but also for improving efficiency across the system. The announcement and operationalisation of a Climate Finance Taxonomy would enable credible green finance and reduce greenwashing risks, which is crucial for investor and stakeholder confidence. Moreover, a fast-paced transition journey calls for financial incentives for green, social, and sustainable instruments for issuers and lenders.

Such mechanisms could be varied—preferential capital treatment, priority tagging and targets for lenders, concessional interest rates, lower processing fees, innovative and longer-tenor financing structures to support project viability, and rewards linked to credible ESG performance and ratings, to name a few. To improve access to green credit facilities and strengthen market discipline, introducing basic ESG disclosure norms for MSMEs and private players would be a positive step.

Measures to support a viable carbon market through a clear pricing architecture and robust monitoring, reporting, and verification (MRV) norms would offer confidence to all stakeholders—carbon credit buyers and sellers alike—and strengthen India’s Carbon Credit Trading Scheme. This would also help industries better prepare for decarbonisation targets and global stakeholder expectations.

Resource Security, Urban Resilience, and Inclusive Growth

Resource security through critical minerals and circular economy measures is another emerging strategic priority. The upcoming Budget is expected to accelerate the National Critical Mineral Mission, which saw a doubling of its allocation to Rs 3,500 crore last year. Given the importance of critical minerals and rare earth metals to manufacturing value chains, further announcements related to resource security are anticipated. Promotion of circular economy and waste-to-wealth initiatives through strong frameworks for inter-industry collaboration, support for related technology platforms, and expanded Extended Producer Responsibility (EPR) initiatives would result in more productive and efficient value chains.

An update on the implementation and way forward for the Urban Challenge Fund of Rs 10,000 crore for the first year, out of a total planned allocation of Rs 1,00,000 crore, would also place climate adaptation in focus, alongside dispersed economic growth and water infrastructure development. Continued emphasis on irrigation and flood mitigation is anticipated, building on the existing Rs 95,000 crore allocation.

Social, Governance, and Sustainability for Inclusive Growth

Recent labour reform announcements and expanded CSR requirements place greater responsibility on companies, while the Government’s parallel focus on skills development, women’s workforce participation, and social protection will help build a more capable and diverse talent base. On the governance front, initiatives to strengthen frameworks and oversight would be a positive step towards enhancing India Inc.’s long-term resilience and its ability to attract growth capital.

Budget 2026 should deepen India’s climate and sustainability agenda by accelerating clean-tech manufacturing, renewables, storage, and scalable decarbonisation technologies. Strengthening the sustainable finance ecosystem through a Climate Finance Taxonomy and targeted incentives will be essential to unlocking capital for the transition. Progress on critical minerals and circular economy initiatives will be key enablers, alongside a continued focus on social and governance reforms that enhance India Inc.’s resilience and competitiveness.

(Sheetal Sharad, Chief Ratings Officer, ICRA ESG.)  

Views are personal, and do not represent the stand of this publication.