By: Piyush Verma
India’s Union Budget 2026–27 marks a subtle but important shift in how the country is framing its energy priorities. Rather than centering the narrative solely on clean energy targets or renewable capacity additions and relevant policy support, the Budget signals a broader and more mature emphasis on energy security. In a world characterized by geopolitical volatility, supply-chain fragmentation, and rapidly evolving technologies, this reframing is both very timely and highly strategic.
The energy transition is no longer a simple story of substitution — replacing fossil fuels with renewables. It has become a complex systems challenge involving manufacturing depth, grid stability, industrial decarbonization, and the rising energy demands of an AI-driven economy. Several provisions in the Budget reflect an understanding of this complexity and suggest that India is beginning to design its energy strategy accordingly. One of the most notable signals is the increased support for carbon capture, utilization, and storage (CCUS). The Union Budget 2026–27 is the first time India has announced a large, clearly ring‑fenced budgetary scheme specifically for CCUS, with an outlay of about ₹20,000 crore (approx. U.S. $2.2 billion) over five years. This marks an important departure from the tendency to view decarbonization primarily through the lens of renewable deployment. India’s industrial base, particularly in sectors such as steel, cement, refining, and chemicals, faces structural emissions that cannot be eliminated through electrification alone. By acknowledging the role of abatement technologies, the Budget reflects a pragmatic recognition that industrial competitiveness and climate ambition must advance together.
The Budget also addresses quieter vulnerabilities in clean energy supply chains, particularly in solar manufacturing. India has made rapid progress in solar deployment, yet upstream dependencies remain concentrated and underappreciated. Customs duty exemptions on key inputs such as sodium antimonate, used in solar glass manufacturing and currently subject to a 7.5% duty, with supplies largely sourced from Belgium and Italy and limited volumes from China, directly target these bottlenecks. Solar glass rarely features in solar energy debate, but it represents a critical chokepoint in the photovoltaic value chain. By easing constraints at this level, the Budget strengthens the resilience of domestic manufacturing and reduces exposure to external shocks. Energy security, in this framing, is pursued not only through solar capacity targets but through its supply-chain depth.
Grid stability emerges as another critical priority. As renewable penetration increases, the challenge of balancing variability becomes central to system reliability, making flexible resources such as storage more valuable. The extension of basic customs duty exemptions for capital goods used in lithium‑ion cell manufacturing, now continued at a nil rate until March 2028 and expanded to cover cells destined for battery energy storage systems, supports domestic battery energy storage at scale by lowering upfront capital costs. Storage is increasingly indispensable not just for electric mobility, but also for frequency regulation, peak management, and resilience against intermittency in a renewables‑heavy grid. By improving the economics of battery manufacturing through sustained duty exemptions and related incentives, the Budget reinforces the physical backbone required for a renewables‑heavy power system.
Perhaps the most strategically significant signal lies in the treatment of critical minerals. Duty exemptions on capital goods for mineral processing indicate a deliberate effort to move beyond extraction and into refining and processing. This distinction is crucial. While access to mineral reserves matters, the real leverage in global energy supply chains lies in midstream processing, which remains highly concentrated. The Budget reflects an understanding that energy security in the coming decades will be shaped less by ownership of resources and more by control over processing capacity and industrial ecosystems. Moving up the value chain is not simply an industrial ambition; it is a geopolitical necessity. In this context, the proposal to develop dedicated rare earth corridors in mineral rich states such as Odisha, Kerala, Andhra Pradesh, and Tamil Nadu aims to integrate mining, processing, research, and manufacturing within a coordinated domestic ecosystem.
The continued support for nuclear energy, following the recent introduction of the SHANTI Bill, further reinforces this systems-oriented approach. By extending customs duty exemptions for nuclear power projects until 2035 across capacities, the Budget reaffirms nuclear’s role as a long-term anchor of clean baseload power. In a grid increasingly dominated by variable renewables, the value of dispatchable, low-carbon electricity is rising. Nuclear energy also contributes to fuel diversification and technological sovereignty, both of which are integral to long-term energy security. The measure signals continuity and confidence rather than experimentation.
Decentralized energy solutions also receive targeted support. Excluding the value of biogas from central excise duty on blended CNG improves project economics for biogas initiatives, which often operate at the intersection of waste management, rural livelihoods, and clean transport. While fiscally modest, such measures contribute to resilience by diversifying energy sources and embedding circularity into local energy systems.
Beyond conventional energy domains, the Budget makes a striking intervention at the intersection of energy and the digital economy. The provision of tax holidays until 2047 for foreign companies providing global cloud services through India-based data centers, along with a 15% safe-harbor margin for data center service providers, signals a long-term bet on India as a global digital infrastructure hub. This has profound energy implications. Data centers are among the fastest-growing sources of electricity demand, with significant implications for grid planning, clean power procurement, cooling technologies, and storage deployment. Several of the Budget’s measures, including support for battery energy storage, domestic clean power manufacturing, and nuclear baseload capacity, directly strengthen the system needed to reliably meet this rising demand. By anchoring cloud infrastructure domestically, India aligns digital sovereignty with predictable energy demand, investment certainty, and long-term competitiveness.
In conclusion, the energy provisions in India’s Budget 2026–27 reflect a maturing strategy. The emphasis is less on signaling ambition and more on building the institutional, industrial, and infrastructural foundations that make ambition durable. Energy security today extends beyond fuels and generation capacity. It encompasses supply chains, processing ecosystems, grid stability, industrial decarbonization, and the infrastructure that underpins the modern AI-driven economy. In a fragmented and uncertain global landscape, this shift toward resilience and competitiveness may prove as consequential as any headline renewable target.
Piyush Verma is Senior Fellow for the Energy & Climate Program at ORF America.