India boosts clean energy spend, pivots to industry

India's FY2027 Union Budget increases clean energy spending and shifts policy emphasis from renewable deployment to domestic manufacturing and industrial decarbonisation, according to analysis from Wood Mackenzie.

Clean energy allocations rise 40% year-on-year to about USD $5 billion. The package includes funding for carbon capture, utilisation and storage (CCUS), incentives for local supply chains, and measures to support strategic manufacturing in energy-transition sectors.

Wood Mackenzie described the shift as a more industrial policy-led approach, while warning of execution risks. It pointed to historical underutilisation of allocated funds and delays in implementation.

"India is repositioning itself as an alternative clean energy manufacturing hub as global trade dynamics shift," said Rashika Gupta, Vice President, Power & Renewables, Wood Mackenzie.

Recent trade agreements with the European Union and the United States improve export competitiveness for solar modules produced in India, Wood Mackenzie said. Gupta added that spending commitments may not translate into near-term outcomes if delivery remains slow.

CCUS Funding

The budget allocates USD $2.2 billion over five years for CCUS, targeting emissions reductions across power generation, steel, cement, refining and chemicals.

Public sector firms have led early CCUS activity in India, with private investment limited so far. High project costs remain a barrier to deployment at scale.

Gupta said the policy direction suggests a move beyond pilots as regulatory and implementation frameworks develop.

"To date, CCUS investment in India has been largely driven by public sector companies such as NTPC and ONGC, with limited private-sector investment. High project costs remain the primary barrier to scale. As regulatory and implementation frameworks mature, we expect CCUS to move from pilot projects to early commercial deployment, catalysing broader private-sector participation and laying the foundation for a globally competitive carbon management ecosystem," Gupta said.

Tariff Changes

Several import duties fall to zero under the FY2027 budget. Duties have been removed on lithium-ion battery cells, solar glass, nuclear equipment and machinery used for critical mineral processing, cutting tariffs from 2.5%-7.5% to zero.

Separately, data centres have been designated as critical infrastructure. The budget extends foreign investor tax holidays to 2047 and sets a 15% safe-harbour regime for domestic operators.

Wood Mackenzie cautioned that manufacturing incentives face structural constraints. India has about 37 GW of photovoltaic cell manufacturing capacity, but utilisation is below 30%.

Local content requirements at the cell level take effect in June 2026. Wood Mackenzie expects supply constraints unless manufacturers accelerate ramp-up, warning that up to three-quarters of projected demand could face shortages without faster scaling.

"The market remains underprepared for implementation of the approved list of PV cell manufacturers," said Ankita Chauhan, Director, Supply Chain, Power & Renewables, Wood Mackenzie. "Similarly for batteries, while 40 GWh of the 50 GWh Advanced Chemistry Cell target has been awarded, upstream raw material volatility and execution challenges continue to slow manufacturing capacity buildout."

Minerals And Storage

The government has backed the National Critical Mineral Mission with about USD $4 billion. It has also moved to speed domestic exploration following amendments to the Mines and Minerals Act in September 2025, with more than 200 projects underway.

India is expanding external supply partnerships with Argentina, Australia and Chile. Wood Mackenzie said the moves reflect a broader push to reduce exposure to import risks across clean energy supply chains.

Battery cell manufacturing capacity in operation stands at 4.4 GWh, with a further 180 GWh in the pipeline. Import dependence remains high, with China a dominant source of supply. Wood Mackenzie noted a proposed 20% domestic content requirement for battery components as part of a localisation push.

Installed battery storage capacity was around 0.8 GWh at the end of 2025, with more than 59 GWh under development. Wood Mackenzie also flagged constraints in grid build-out after funding for the Green Energy Corridor programme fell 25% year-on-year. The programme focuses on transmission and grid strengthening.

Hydrogen And Nuclear

Funding for the National Green Hydrogen Mission remains unchanged at USD $68 million. Wood Mackenzie said about half of FY2026 allocations went unutilised due to execution delays.

About 3 GW of electrolyser manufacturing capacity has been awarded under production-linked incentive schemes, with production expected to begin in FY2027.

Nuclear policy support strengthened after passage of the SHANTI Act 2025 and the removal of customs duties on nuclear equipment through September 2035. The measures align with India's ambition to expand nuclear capacity to 100 GW by 2047, up from about 9 GW, including deployment of at least five indigenous small modular reactors by 2033.

"The FY2027 budget provides continuity and policy clarity, balancing energy transition objectives with energy security and industrial competitiveness. However, translating allocations into delivered capacity will require stronger coordination, faster approvals and improved utilisation rates. Execution remains the decisive factor in determining whether India can meet its 2070 net-zero ambition," Gupta said.