What Budget push means for sustainability, decarbonisation and net zero goals

The revamping of bilateral investment treaties to attract long-term foreign investment in clean technology, renewables, and carbon markets makes India’s investment framework more predictable and investor-friendly, reducing regulatory risks and ensuring a stable environment for green capital inflows. This move is expected to drive greater financing into climate infrastructure, industrial decarbonisation, and carbon credit mechanisms, reinforcing India’s position in global climate finance markets.

The Investment Friendliness Index for States will encourage competition among regional governments to enhance their regulatory and business environments. This will directly benefit sustainability-driven industries, offering greater clarity on where green projects can be established with the strongest policy backing. By improving ease of doing business in climate-related sectors, the budget aims to create a robust ecosystem for renewable energy expansion, carbon credit development, and sustainable manufacturing.

Scaling Clean Energy and Grid Modernisation

A major highlight of the budget is the ₹20,000 crore investment in Small Modular Reactors (SMRs) under the Nuclear Energy Mission, marking a critical step towards low-carbon baseload power generation. The proposed amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act will allow private sector participation in nuclear energy, addressing one of the biggest limitations in India’s clean power landscape. With at least five indigenous SMRs targeted for operationalisation by 2033, this initiative is expected to reduce India’s dependence on fossil fuels while ensuring energy security through a stable, carbon-free power source.

Accelerating the clean energy transition, the budget strengthens the Make in India National Manufacturing Mission, prioritising domestic production of solar PV cells, EV batteries, electrolysers, wind turbines, and grid-scale battery storage systems. This initiative will not only reduce import dependency but also position India as a global hub for sustainable manufacturing. By fostering low-carbon supply chains, these policies create significant opportunities for industries engaged in renewable energy deployment, carbon offset projects, and climate finance solutions.

Equally crucial is the focus on grid modernisation, a key enabler of large-scale renewable energy integration. Strengthening high-voltage transmission infrastructure and investing in smart grid systems will ensure greater efficiency in balancing renewable energy supply and demand. For businesses involved in grid technology, energy storage solutions, and smart transmission systems, these measures create new avenues for investment and innovation.

Carbon Markets and Industrial Decarbonisation: The Missing Link

Despite the budget’s strong emphasis on clean energy and industrial sustainability, it lacks direct financial support or policy incentives for carbon markets. As a carbon credit developer and sustainability service provider, we believe that a well-structured carbon trading system is essential for accelerating emission reductions across industries. While India has made strides in developing a regulated carbon credit market, a dedicated budget allocation could have provided greater financial support and regulatory clarity for businesses transitioning to low-carbon operations.

As industries face increasing pressure to decarbonise, the absence of direct carbon market incentives could slow down the scaling of emission reduction projects. A structured carbon pricing mechanism, backed by government support, would provide a clear economic signal for industries to invest in clean technologies and offset their emissions through verified carbon credits.

Moving forward, policy measures that integrate carbon markets into India’s overall climate finance strategy will be critical in ensuring a rapid, cost-effective transition to net-zero emissions.

Circular Economy and Low-Carbon Manufacturing

The government’s push for circular economy principles is evident in the revamped shipbuilding financial assistance policy, which now includes credit incentives for ship recycling in Indian yards. This move will enhance resource efficiency and promote sustainable practices in the maritime industry, reducing emissions associated with shipbreaking and raw material extraction.

In parallel, the budget encourages low-carbon industrial practices through incentives for clean tech production. By promoting sustainable supply chains in solar, wind, and battery storage technologies, the government aims to reduce the carbon footprint of India’s manufacturing sector. Businesses engaged in energy-efficient production, sustainable sourcing, and waste-to-energy projects can leverage these initiatives to align with global ESG standards and attract impact-driven investments.

Regulations and Policy for Green Growth

The focus on trust-based economic governance and ease of doing business is expected to benefit sustainability-focused industries, reducing regulatory barriers and compliance complexities. The introduction of investment-friendly policies, alongside incentives for clean energy and carbon markets, is likely to strengthen India’s climate finance ecosystem. However, without explicit budget allocations for carbon market expansion, businesses may face hurdles in scaling their carbon trading initiatives.

Going forward, the government will need to introduce targeted financial mechanisms, such as carbon pricing strategies, tax incentives for emission reductions, and direct subsidies for carbon market participation. Such measures would create a more robust financial infrastructure for decarbonisation, encouraging greater private sector engagement in climate-aligned investments.

Seizing the Green Growth Opportunity

India’s FY 2025-26 budget lays a strong foundation for renewable energy expansion, clean technology adoption, and industrial decarbonisation, aligning with global climate goals under the Paris Agreement. However, the absence of dedicated budget support for carbon markets represents a missed opportunity in accelerating the transition to a low-carbon economy.

As a leading carbon credit developer and sustainability service provider, we believe that strengthening carbon markets through financial and regulatory incentives will be essential in meeting India’s net-zero targets. With a structured carbon pricing mechanism and greater policy support, businesses can leverage emission reductions as a financial asset, driving both economic growth and climate action.

The coming years will be crucial in shaping India’s carbon market evolution, and businesses must be proactive in aligning their strategies with emerging policy frameworks. As India moves towards a cleaner, more sustainable future, early investment in carbon markets, renewable energy, and low-carbon supply chains will define the next phase of green economic growth.

(Manish Dabkara, Chairman and Managing Director, EKI Energy Services and President Carbon Markets Association of India.)

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