India’s Budget 2025: Clean Energy Push, Fossil Fuel Reliance, and Climate Adaptation Gaps
India continues to perform a balancing act—between economic growth and sustainability, between clean energy and fossil fuel reliance, and between climate adaptation and financial pragmatism. This came through in the budget announcements made last month.
Despite stated ambition, policy gaps persist in climate resilience, water security, and long-term green finance. So, where does India fall short?
While India is making strides in clean energy, the continuing reliance on fossil fuels presents a stark contradiction. The Nuclear Energy Mission, with its ₹20,000 crore allocation, aims to develop 100 GW of nuclear power by 2047—a significant step toward decarbonisation. The inclusion of Small Modular Reactors (SMRs) signals a shift to safer, scalable nuclear energy, with five indigenous SMRs planned by 2033.
Also Read | India needs climate justice, not just targets
Yet, concerns remain. Experts question the feasibility of this expansion, considering that nuclear projects announced in 2017 remain stalled. Safety, waste management, and funding uncertainties pose challenges. Critics argue that solar and wind energy investments would be a safer bet with fewer risks and faster returns.
In the renewable sector, solar energy secured ₹24,224 crore, with ₹200 billion directed toward the PM Surya Ghar Muft Bijli Yojana, which aims to provide 300 units of free electricity a month through rooftop solar. While a promising step, the impact is uneven across States. Gujarat leads in rooftop solar installations, while other States struggle with subsidy uptake due to administrative and technical hurdles.
The allocation for the National Green Hydrogen Mission was doubled to ₹6 billion, underscoring India’s bet on green hydrogen. However, India’s reliance on China for critical minerals and electrolyser technology raises concerns about supply chain vulnerabilities. Strengthening domestic manufacturing and resource extraction—beyond tax exemptions on lithium, cobalt, and other minerals—is crucial for this to take off.
Climate adaptation blind spot
While investing in renewable energy, climate adaptation was neglected. The Economic Survey 2025 warned of escalating climate risks, but the National Adaptation Fund received no allocation in the budget, leaving vulnerable communities without adequate support.
Particularly at risk, for instance, is agriculture, the backbone of the economy. While the National Mission on High Yielding Seeds aims to develop climate-resilient crop varieties, the budget made no attempt to address farmers’ adaptation needs, such as improved irrigation infrastructure and financial safety nets against climate-induced crop failures.
Moreover, the ₹3,412 crore allocation for the Environment Ministry represents a modest 9 per cent increase given the worsening environmental degradation. Air and water pollution remain major concerns, yet allocations for waste management, ecosystem restoration, and pollution control are hardly adequate.
The water crisis waiting to happen
Water security is one of the country’s most pressing challenges, yet the budget largely overlooked comprehensive reforms. India ranks 133rd in per capita water availability and groundwater depletion is accelerating. Almost 70 per cent of the surface water is contaminated, and cities like Chennai and Bengaluru already face chronic water shortages.
The worsening water crisis includes groundwater depletion, urban shortages, and weak investment in sustainable water management, risking future security. (Representational Image)
| Photo Credit:
Biswaranjan Rout/The Hindu
While the Jal Jeevan Mission continues to expand rural water access, the approach remains supply-driven rather than sustainability-focused. Urban water crises necessitate smart water grids, wastewater treatment plants, and large-scale rainwater harvesting initiatives, but these were missing from the budget.
The National River Linking Project, an ambitious initiative to transfer water from surplus to deficit regions, could help address seasonal imbalances. However, concerns about ecological disruptions, displacement, and high costs persist. A decentralised approach to water conservation—drip irrigation, aquifer recharge, and greywater reuse—needs stronger policy backing.
The fossil fuel dilemma
India’s energy transition remains incomplete without addressing fossil fuel dependence. While solar and nuclear energy investments are rising, coal and petroleum subsidies remain high. The Coal Ministry budget saw a 160 per cent increase, contradicting India’s net-zero ambitions.
The push for coal gasification and liquefaction as an alternative fuel source raises concerns about lock-in effects—where investments in transitional technologies delay full decarbonisation. While compressed biogas blending mandates for transport and domestic use are positive, they remain marginal compared to fossil fuel consumption.
The steel and cement industries—major carbon emitters—are largely left out of the budget’s decarbonisation agenda. Unlike Europe, where industrial decarbonisation is a priority, India’s financial ecosystem lacks incentives for high-carbon industries to transition.
Missing: carbon market and green finance
A major gap in India’s climate strategy is the absence of a robust carbon market. Over 50 countries, including China and the EU, have functional carbon pricing mechanisms, yet India remains underdeveloped. Without a structured carbon trading system, industries lack clear incentives to cut emissions.
Green finance remains another weak link. While sovereign green bonds worth ₹20,000 crore were issued last year, broader green investment strategies are missing. The RBI’s green deposit framework is a step forward, but India needs blended finance instruments that attract private capital into sustainability projects.
Also Read | Nuclear energy, no magic bullet for climate change
Moreover, ESG (Environmental, Social, and Governance) reporting is not enforced adequately. Many companies treat it as a compliance exercise rather than a commitment to sustainable transformation. Unlike the EU, where greenwashing is penalised, India’s regulatory framework is weak and uncommitted.
What can be done better
The budget made progress in clean energy and green infrastructure but what India lacks is an integrated climate strategy, which remains sectoral and fragmented. Different ministries pursue different sustainability goals and there is no clear, single vision.
To truly accelerate the green transition: (1) Adaptation financing must be prioritised, with earmarked funds for climate-vulnerable communities. (2) Water management should shift from supply-side expansion to conservation and smart distribution. (3) A robust carbon pricing system must be developed, linking India’s markets with global carbon trading systems. (4) Green finance should be deepened, with stronger private sector incentives and regulatory oversight. (5) Fossil fuel subsidies need to be phased out, with a clear roadmap for industrial decarbonisation.
As India races towards its net-zero target by 2070, the challenge is not just energy transition but a holistic, climate-resilient growth model. Without bolder reforms, India risks falling short of its sustainability ambitions.
Mohapatra and Mitra are with IIT Jodhpur and NCAER New Delhi, respectively. The views are personal.
India continues to perform a balancing act—between economic growth and sustainability, between clean energy and fossil fuel reliance, and between climate adaptation and financial pragmatism. This came through in the budget announcements made last month.
Despite stated ambition, policy gaps persist in climate resilience, water security, and long-term green finance. So, where does India fall short?
While India is making strides in clean energy, the continuing reliance on fossil fuels presents a stark contradiction. The Nuclear Energy Mission, with its ₹20,000 crore allocation, aims to develop 100 GW of nuclear power by 2047—a significant step toward decarbonisation. The inclusion of Small Modular Reactors (SMRs) signals a shift to safer, scalable nuclear energy, with five indigenous SMRs planned by 2033.
Also Read | India needs climate justice, not just targets
Yet, concerns remain. Experts question the feasibility of this expansion, considering that nuclear projects announced in 2017 remain stalled. Safety, waste management, and funding uncertainties pose challenges. Critics argue that solar and wind energy investments would be a safer bet with fewer risks and faster returns.
In the renewable sector, solar energy secured ₹24,224 crore, with ₹200 billion directed toward the PM Surya Ghar Muft Bijli Yojana, which aims to provide 300 units of free electricity a month through rooftop solar. While a promising step, the impact is uneven across States. Gujarat leads in rooftop solar installations, while other States struggle with subsidy uptake due to administrative and technical hurdles.
The allocation for the National Green Hydrogen Mission was doubled to ₹6 billion, underscoring India’s bet on green hydrogen. However, India’s reliance on China for critical minerals and electrolyser technology raises concerns about supply chain vulnerabilities. Strengthening domestic manufacturing and resource extraction—beyond tax exemptions on lithium, cobalt, and other minerals—is crucial for this to take off.
Climate adaptation blind spot
While investing in renewable energy, climate adaptation was neglected. The Economic Survey 2025 warned of escalating climate risks, but the National Adaptation Fund received no allocation in the budget, leaving vulnerable communities without adequate support.
Particularly at risk, for instance, is agriculture, the backbone of the economy. While the National Mission on High Yielding Seeds aims to develop climate-resilient crop varieties, the budget made no attempt to address farmers’ adaptation needs, such as improved irrigation infrastructure and financial safety nets against climate-induced crop failures.
Moreover, the ₹3,412 crore allocation for the Environment Ministry represents a modest 9 per cent increase given the worsening environmental degradation. Air and water pollution remain major concerns, yet allocations for waste management, ecosystem restoration, and pollution control are hardly adequate.
The water crisis waiting to happen
Water security is one of the country’s most pressing challenges, yet the budget largely overlooked comprehensive reforms. India ranks 133rd in per capita water availability and groundwater depletion is accelerating. Almost 70 per cent of the surface water is contaminated, and cities like Chennai and Bengaluru already face chronic water shortages.
The worsening water crisis includes groundwater depletion, urban shortages, and weak investment in sustainable water management, risking future security. (Representational Image)
| Photo Credit:
Biswaranjan Rout/The Hindu
While the Jal Jeevan Mission continues to expand rural water access, the approach remains supply-driven rather than sustainability-focused. Urban water crises necessitate smart water grids, wastewater treatment plants, and large-scale rainwater harvesting initiatives, but these were missing from the budget.
The National River Linking Project, an ambitious initiative to transfer water from surplus to deficit regions, could help address seasonal imbalances. However, concerns about ecological disruptions, displacement, and high costs persist. A decentralised approach to water conservation—drip irrigation, aquifer recharge, and greywater reuse—needs stronger policy backing.
The fossil fuel dilemma
India’s energy transition remains incomplete without addressing fossil fuel dependence. While solar and nuclear energy investments are rising, coal and petroleum subsidies remain high. The Coal Ministry budget saw a 160 per cent increase, contradicting India’s net-zero ambitions.
The push for coal gasification and liquefaction as an alternative fuel source raises concerns about lock-in effects—where investments in transitional technologies delay full decarbonisation. While compressed biogas blending mandates for transport and domestic use are positive, they remain marginal compared to fossil fuel consumption.
The steel and cement industries—major carbon emitters—are largely left out of the budget’s decarbonisation agenda. Unlike Europe, where industrial decarbonisation is a priority, India’s financial ecosystem lacks incentives for high-carbon industries to transition.
Missing: carbon market and green finance
A major gap in India’s climate strategy is the absence of a robust carbon market. Over 50 countries, including China and the EU, have functional carbon pricing mechanisms, yet India remains underdeveloped. Without a structured carbon trading system, industries lack clear incentives to cut emissions.
Green finance remains another weak link. While sovereign green bonds worth ₹20,000 crore were issued last year, broader green investment strategies are missing. The RBI’s green deposit framework is a step forward, but India needs blended finance instruments that attract private capital into sustainability projects.
Also Read | Nuclear energy, no magic bullet for climate change
Moreover, ESG (Environmental, Social, and Governance) reporting is not enforced adequately. Many companies treat it as a compliance exercise rather than a commitment to sustainable transformation. Unlike the EU, where greenwashing is penalised, India’s regulatory framework is weak and uncommitted.
What can be done better
The budget made progress in clean energy and green infrastructure but what India lacks is an integrated climate strategy, which remains sectoral and fragmented. Different ministries pursue different sustainability goals and there is no clear, single vision.
To truly accelerate the green transition: (1) Adaptation financing must be prioritised, with earmarked funds for climate-vulnerable communities. (2) Water management should shift from supply-side expansion to conservation and smart distribution. (3) A robust carbon pricing system must be developed, linking India’s markets with global carbon trading systems. (4) Green finance should be deepened, with stronger private sector incentives and regulatory oversight. (5) Fossil fuel subsidies need to be phased out, with a clear roadmap for industrial decarbonisation.
As India races towards its net-zero target by 2070, the challenge is not just energy transition but a holistic, climate-resilient growth model. Without bolder reforms, India risks falling short of its sustainability ambitions.
Mohapatra and Mitra are with IIT Jodhpur and NCAER New Delhi, respectively. The views are personal.
