The Union Budget as a turning point for climate action

The Union Budget for FY26 is crucial as it comes at a time when India is under pressure to meet its climate commitments. With the country facing extreme weather events and a target to reach net-zero emissions by 2030, this Budget must take decisive action in addressing both climate adaptation and mitigation.

Key Budget Priorities for Climate Action

• Accelerating Green Energy Transition: The Budget must address gaps in the implementation of the PM Surya Ghar Muft Bijli Yojana, particularly focusing on innovative financing models such as the Renewable Energy Service Company (RESCO) model. This would help in reducing upfront costs for lower-income households.
• Expansion of PLI for Solar Module Supply Chain: To meet the rising demand for solar energy, the Budget should expand the Production-Linked Incentive (PLI) scheme across the solar module supply chain, boosting domestic manufacturing and reducing the high costs of domestically produced panels.
• Harnessing Railway Infrastructure for Renewable Energy: The Indian Railways offers a unique opportunity to generate renewable energy through solar and wind installations on its vast land banks and track corridors. The Budget should incentivize public-private partnerships to unlock this potential for clean energy generation.

Addressing Global Climate Challenges and Economic Competitiveness

• Carbon Border Adjustment Mechanism (CBAM) and MSME Support: With the European Union’s CBAM taking effect in 2026, India’s exports face carbon levies. The Budget should establish a 'Climate Action Fund' to help MSMEs decarbonize and comply with the CBAM, ensuring that India’s export competitiveness is maintained.
• Transition to a Circular Economy: The Budget should incentivize investments in recycling and refurbishment technologies by providing tax benefits and accelerated depreciation. A dedicated sovereign green bond framework for circular economy infrastructure could significantly boost economic gains while reducing emissions.
• Strengthening Climate Resilience through Insurance: India’s low insurance penetration needs urgent attention. The Budget could offer tax deductions for insurers on income from climate-linked policies and advocate for lower GST on premiums for insurance products focused on climate resilience and disaster protection.

Strengthening Climate Finance and Institutional Infrastructure

• Building Green Finance Infrastructure: The Budget should allocate funds to establish the necessary institutional and technical infrastructure to implement a climate finance taxonomy. This would help align India’s financial market with global sustainability metrics and improve investor confidence.
• Differential Tax Treatment for Green Investments: The Budget should introduce differential tax treatments for investments that align with green finance criteria, incentivizing private sector investments in climate-friendly projects.
• Classifying Government Expenditure for Climate Commitments: The Budget should categorize government spending in alignment with green criteria, ensuring that fiscal allocations contribute towards achieving India’s net-zero targets and climate resilience goals.

Practice Question:

Q. Critically analyze the role of the Union Budget in promoting climate action and ensuring economic resilience in India. Discuss the key policy measures that should be prioritized to accelerate India’s transition to a green economy.