The Union Budget 2025-26 is a reaffirmation of India’s commitment to clean energy and environmental sustainability, with significant allocations for renewable energy, nuclear power, and domestic manufacturing of clean technologies. However, the budget falls short in addressing pressing environmental issues such as air and water pollution, waste management, and climate adaptation. Furthermore, its approach to decarbonisation remains fragmented, failing to integrate climate action into broader economic policies.
The budget allocated Rs 24,224 crore for solar energy, with a particular emphasis on rooftop solar through the PM Surya Ghar Yojana. Additionally, Rs 20,000 crore has been allocated for the Nuclear Energy Mission, aimed at deploying at least five indigenously developed small modular reactors (SMRs) by 2033. Amendments to the Atomic Energy Act and the Civil Liabilities for Nuclear Damages Act are planned to enable private sector participation in nuclear power.
READ I Trump’s tariffs could backfire on the US
Budget 2025-26 – A missed opportunity
The Budget 2025-26 primarily focuses on economic growth but lacks a cohesive decarbonisation strategy. While renewable energy investments seek to reduce dependence on fossil fuels, high-carbon industries such as steel, cement, and heavy manufacturing remain largely unaddressed. A holistic approach to decarbonisation—beyond electric vehicles and solar energy—is necessary. Unlike Europe, where green investments and transition finance are increasingly prioritised, India’s financial ecosystem does not incentivise large-scale decarbonisation efforts.
A significant facet of decarbonisation is the enhancement of carbon sinks and carbon sequestration initiatives, which require substantial funding. Globally, carbon markets play a critical role in mobilising climate finance and incentivising emissions reductions. India’s carbon market, however, remains underdeveloped, limiting its ability to leverage financial and environmental benefits. Establishing a well-regulated carbon trading system and linking it with international carbon markets would enhance efficiency and attract foreign investments in sustainability initiatives. Without structured policy interventions and financial backing, India’s carbon market remains an untapped opportunity instead of a key instrument in the country’s decarbonisation strategy.
Need a holistic climate policy
The Budget 2025-26 has a fragmented approach to climate action. Different ministries operate with independent sustainability goals, and state governments have their own climate missions tailored to regional conditions. However, there is no overarching national decarbonisation strategy. Climate action must extend beyond EVs and renewable energy to include lifecycle emissions of carbon-intensive industries and carbon-capture technologies. Without an integrated climate policy, India risks undermining its own net-zero commitments and missing critical opportunities for long-term sustainability.
The budget has increased the allocation to the Union environment ministry to Rs 3,412.82 crore, a 9% increase from the previous year, yet experts argue this is insufficient to address the scale of environmental challenges. The National Mission for a Green India received Rs 220 crore, an increase from Rs 160 crore last year. Funding for ecosystem conservation rose from Rs 30 crore to Rs 50 crore, while the budget for biodiversity conservation nearly tripled to Rs 10 crore. Project Tiger and Project Elephant allocations also increased from Rs 245 crore to Rs 290 crore.
Despite these increases, the budget missed an opportunity to address critical environmental concerns such as industrial waste management, air and water pollution, and adaptation measures. Jal Jeevan Mission, aiming for 100% rural tap water coverage by 2028, received continued funding but lacked additional provisions for strengthening water security initiatives beyond the current framework.
Sustainability disclosures
While corporate sustainability disclosures have been encouraged, they lack robust enforcement mechanisms and key performance indicators. ESG reporting in India remains largely qualitative, often reduced to a compliance exercise rather than a tool for meaningful accountability. Listed companies have little incentive to produce transparent climate disclosures, and assurance mechanisms remain weak.
Without regulatory scrutiny and enforcement, ESG disclosures mirror other compliance requirements such as CSR filings—superficial and largely ignored. In contrast, the European Union holds corporations legally accountable for greenwashing, creating tangible financial consequences for misleading sustainability claims. India’s ESG framework must evolve from mere disclosure requirements to active regulatory oversight, ensuring that corporate climate commitments translate into real action. Unless ESG reporting leads to investor confidence and regulatory accountability, it risks becoming a box-ticking exercise with no tangible impact.
Geopolitical factors and sustainability
Return of Donald Trump to the White House will have a significant impact on global trade and investment flows. His administration’s history of imposing tariffs on major trading partners could reduce foreign direct investment (FDI) from the US into India. Consequently, India must pivot towards strengthening trade and investment ties with the European Union (EU), which remains its largest trading partner and a leader in stringent climate and sustainability regulations.
The EU’s sustainability mandates—ranging from carbon taxation to environmental compliance requirements—necessitate that Indian businesses align with international standards. Companies operating within the global supply chain can no longer afford to overlook sustainability and ESG integration. Failure to comply with these evolving regulatory imperatives could lead to reduced market access and increased financial risks. Indian enterprises must proactively adopt sustainability measures to remain competitive in an increasingly climate-conscious global economy.
Investments in green growth and circular economy
The budget introduced initiatives to promote a circular economy by supporting shipbreaking and recycling industries. A credit note scheme for ship recycling offers incentives equivalent to 40% of a ship’s scrap value, encouraging investment in domestic shipbuilding. Additionally, the Maritime Development Fund, with a corpus of Rs 25,000 crore, aims to provide long-term financing for the sector. To promote clean energy production, duty exemptions on critical minerals such as cobalt, lithium-ion battery scrap, lead, and zinc will support domestic manufacturing of clean technologies.
Despite these initiatives, experts argue that the government’s emphasis on fossil fuel subsidies remains a roadblock to meaningful climate action. The budget continued its support for coal and petroleum subsidies, contradicting its commitments to clean energy expansion. This dual approach—promoting renewables while supporting fossil fuels—creates an inconsistent sustainability roadmap.
The Union Budget 2025-26 needed to take a decisive stance on sustainability and ESG accountability. Instead, it has reinforced existing gaps, allowing corporations to continue business-as-usual practices without meaningful consequences. India’s transition finance ecosystem remains weak, climate policies are not integrated into economic planning, and regulatory frameworks lack enforcement strength.
If India is to truly become a global leader in sustainability, it must implement stronger ESG enforcement mechanisms, develop robust carbon markets, and introduce effective financing models. Without decisive action, climate initiatives will remain fragmented and ineffective, leaving both investors and the environment vulnerable to long-term risks.