OPINION | Building Momentum: Power sector priorities for Budget 2026

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India's power sector stands at an inflection point. The power sector underpins the economy as a whole, making budgetary allocations and their utilisation critical. Despite commitments to energy security, energy transition and decarbonisation, structural challenges persist, including financial unsustainability, regulatory misalignment, inadequate infrastructure timelines and under-utilisation of budgetary allocations.

India’s budgetary allocations over the past few years have, among other outcomes, contributed to growth in India’s non-fossil fuel-based energy capacity (250.64 GW as of December 2025).

Some areas of success

PM Surya Ghar Muft Bijli Yojana and PM-KUSUM have democratized solar access, extending benefits even to retail and agricultural consumers. Battery Energy Storage Systems (BESS) were supported with viability gap funding schemes totalling ₹9,100 crore supporting 43.2 GWh of storage capacity (to be scaled to 47 GW by 2032).

Budget 2025 announced the Revamped Distribution Sector Scheme (RDSS) and the conditional 0.5 percent GSDP borrowing allowance, but this has yielded limited traction.

Unresolved issue of discom distress

For the overall growth of the sector, it is important for the Government to address the unresolved financial distress of discoms. As of March 2024, accumulated losses reached Rs. 6.92 trillion, rising 5 percent from the previous year. Gross debt has surged to Rs. 7.4 trillion, with subsidy dependence projected to reach Rs. 2.2 trillion in FY26. ​

Discoms owe generators Rs. 5.81 trillion as of June 2025, creating severe liquidity crisis for IPPs. This has also nudged even the Supreme Court to observe importance of cost-reflective tariffs, directing regulatory assets to be capped at 3 percent of ARR (aggregate revenue requirement) and to liquidate existing assets in a time bound manner.

Budget 2026 should address refinancing for legacy discom debt, linked to verifiable progress on smart metering, reduction in losses and timely tariff revisions. Subsidies must be paid directly to consumers. Reform attempts such as Electricity Bill, 2025 must be pushed to avoid losing incremental progress to structural issues.

Transmission capacity addition is lagging

Capacity addition may soon outpace transmission capabilities. Despite over 191,000 circuit kms of transmission lines and 1,270 GVA of capacity planned between 2022-23 and 2031-32, execution remains subdued.

In the April-January period of FY25, substation capacity addition was 33 percent below planned targets. Transmission corridors face persistent delays due to right-of-way constraints, environmental approvals, coordination challenges among agencies and states, and prolonged litigation. Akin to PM Gati Shakti for infrastructure, there can be a dedicated platform for transmission project approvals addressing the aforesaid issues.

Storage market needs attention

BESS has received policy attention, though its deployment remains constrained. The CEA projects India will require 34.72 GWh of BESS capacity by 2026-27, scaling to 1,840 GWh by 2047. Current commitments of 43.2 GWh, while promising, fall short of this aggressive trajectory. There have been some concerns on insufficient cost reflectiveness of responses to tenders.

Budget 2026 should contain concrete promotional measures especially in developing storage as an ancillary services market. Equally, focus should continue on indigenous manufacturing of batteries.

Recent passing of SHANTI Act, 2025 for nuclear sector reform is encouraging. However, implementation of key frameworks such as tariff mechanisms, and capacity building remains to be seen. Budget 2026 should consider dedicated allocations for establishing nuclear energy zones near industrial clusters suitable for captive power applications. ​

Budget 2026 must deliver foundational reforms encompassing financial discipline, regulatory harmonisation, infrastructure acceleration and improved utilisation of budgetary allocations to ensure effective implementation.

(Abhishek Munot is Partner and Samikrith Rao Puskuri, Senior Associate, JSA Advocates & Solicitors.)

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