Sustainability to Resilience and Energy Security: A Snapshot of Budget FY27

Budget 2026-27 arrives at a moment when the rules of global economic competition are being rewritten and the already blurry lines between protectionism, industrial policy and trade are all morphing into a new economic order, one where India's Budget choices today will determine whether we shape this transition or are shaped by it. As India has concluded a series of free trade agreements, the latest with the EU, if it is to maximise the opportunities these FTAs present, this Budget reflects this new reality. In comparison to the past two Budget speeches, the finance minister’s speech emphasised climate and sustainability to resilience and energy security.  

As India looks at the new reality of accelerated decarbonisation with limited fiscal space in comparison to other large economies, understanding the budgetary constraints becomes crucial. The FY26-27 Budget totals approximately ~15% of GDP, with approximately a third funded through debt and about two-thirds from revenue receipts. With the government targeting a fiscal deficit of 4.4% for FY27 (down from 4.8% in FY25), significant new expenditure outlays appear unlikely unless tax revenues jump substantially. The fiscal trajectory provides important context as what changes in 2026-27 in comparison to the previous two years is not the fiscal envelope but the strategic allocation within it: a deliberate shift toward mechanisms that can mobilise private capital rather than relying solely on direct public expenditure. 

The most significant development is in climate finance architecture. Previous Budgets announced schemes; this one builds on institutional plumbing. The proposed Infrastructure Risk Guarantee Fund will offer calibrated partial credit guarantees during development and construction phases. This addresses a real constraint: clean infrastructure projects often have attractive returns once operational but struggle to reach financial close because lenders price construction-phase uncertainty punitively. The cost of these partial guarantees will be vital. However, this is a good start to improve the ratings of debt products, which could enable Indian institutional investors to buy these assets, with potential overlap with energy transition-related infrastructure. The extension of IFSC tax exemptions from 10 to 20 years, with business income thereafter taxed at 15%, the proposed restructuring of Power Finance Corporation and Rural Electrification Corporation, and a boost to municipal bonds can all potentially enable clean energy finance.  

On industrial decarbonisation, the Budget addresses a gap that previous Budgets left conspicuously open. The 2024 and 2025 Budgets mentioned hard-to-abate sectors explicitly in the Finance Minister’s speeches yet allocated only ₹455 crore for hydrogen pilot projects in steel, useful for demonstration but structurally incapable of driving transformation. Budget 2026-27 commits ₹20,000 crore over five years for Carbon Capture, Utilisation and Storage across power, steel, cement, refineries and chemicals. This aligns with the national CCUS roadmap launched in December 2025 and complements the Carbon Credit Trading Scheme.  

On clean energy, the Budget maintains continuity with programmes that have anchored previous Budgets. PM Surya Ghar’s rooftop solar push saw consistent allocation increases through 2024 and 2025, while IREDA’s capitalisation grew by 30%. Budget 2026-27 extends customs exemptions for battery energy storage systems, provides duty-free sodium antimonate imports for solar glass manufacturing, and favours biogas-blended CNG through excise treatment. The Budget also addresses strategic mineral security by establishing rare-earth corridors in select states. Capital goods for critical minerals processing and nuclear power also got customs duty exemptions. These sustain value chains rather than transform them, which is not necessarily a criticism. Policy stability has value, particularly when the harder work of scaling established programmes remains incomplete. 

On adaptation and conservation, the pattern of underinvestment persists. The 2024 and 2025 Budgets provided no allocation to the climate change action plan and saw the National Cyclone Risk Mitigation Project cut by nearly 90% from 2022-23 levels. The National Adaptation Fund at NABARD has supported projects totalling approximately 850 crores cumulatively since 2015, modest given that India ranks among the most climate-vulnerable nations and houses 42 of the world’s 50 most polluted cities. Budget 2026-27 does not fundamentally alter this picture.  

Other gaps persist. The Budget does not clarify whether cleantech manufacturing qualifies as ‘infrastructure’ under DEA’s Harmonised Master List, a classification that would unlock material tax benefits. Tax treatment and exportability of carbon credits remain undefined, constraining market development under the CCTS framework that previous Budgets launched. Customs relief stays focused on lithium-ion rather than alternative battery chemistries. These reflect accumulated policy questions that no single Budget can resolve, but their continued deferral has costs. 

Budget 2026-27 represents genuine progress in India’s climate policy architecture. Where the 2024 and 2025 Budgets focused resources on established renewable energy programmes while mentioning industrial transition, this Budget directs substantial capital toward hard-to-abate sectors and builds finance mechanisms for private capital mobilisation. This is not a transformation; India’s emissions trajectory will not bend on the strength of one Budget, but it is a meaningful directional movement. The 2070 net-zero commitment will be judged by cumulative action over decades. This Budget strengthens the foundation. The Budget lays out where we see consistent fiscal allocations and points to new areas of sectoral interest for the government in driving their green growth agenda.  

(The author is a Policy Fellow at Grantham Research Institute, LSE. The views expressed are personal.)