India’s Union Budget for fiscal year 2027 marks a strategic shift in the country’s energy transition, prioritising domestic production and industrial decarbonisation over new renewable capacity additions.
India’s Union Budget for fiscal year 2027 signals an industrial policy turn
India’s Union Budget for fiscal year 2027 marks a strategic shift in the country’s energy transition, moving the focus from renewable capacity installation towards domestic manufacturing and industrial decarbonisation. This assessment comes from a new analysis by Wood Mackenzie.
For fiscal year 2027, the Indian Union’s clean energy spending will increase by 40% compared to the previous year, reaching nearly 5 billion dollars. The budget prioritises carbon capture, battery-based energy storage, expansion of domestic manufacturing and the strengthening of critical mineral supply chains. These spending updates signal a more industrial policy-driven approach to the energy transition. From an energy policy perspective, India is relying on renewables, electrification and bioenergy to support its industrialisation.
India repositioning as an alternative clean energy manufacturing hub
“India is repositioning itself as an alternative clean energy manufacturing hub as global trade dynamics shift,” said Rashika Gupta, Vice President Power & Renewables at Wood Mackenzie. “Recent trade agreements with the European Union and the United States materially improve export competitiveness for Indian-origin solar modules. However, persistent underutilisation of allocated funds and execution delays could still constrain the short-term impact of these commitments.”
CCUS and industrial decarbonisation move to the forefront
The Indian government has allocated 2.2 billion dollars over five years for carbon capture, utilisation and storage, with the objective of reducing emissions in the power, steel, cement, refining and chemical sectors. The allocation reflects growing attention to hard-to-abate industries.
“To date, CCUS investment in India has largely been driven by public sector companies such as NTPC and ONGC, while private sector participation remains limited,” Gupta stated. “High project costs remain the primary barrier to scalability. 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 foundations for a globally competitive carbon management ecosystem.”
Manufacturing ambitions face structural constraints
The federal budget has removed import duties on lithium-ion battery cells, solar glass, nuclear equipment and machinery used in the processing of critical minerals, reducing tariffs from 2.5–7.5% to zero. The government’s objective is to lower costs for domestic companies. Although India already operates production-linked incentive schemes for advanced chemistry batteries, domestic manufacturers face high costs for specialised equipment, much of which is imported. By reducing these duties, the government aims to strengthen local competitiveness, particularly relative to China. For example, the basic customs duty on sodium antimonate, a key raw material for solar glass production, has been cut from 7.5% to zero.
Data centres designated as critical infrastructure
Under India’s Union Budget for fiscal year 2027, data centres are designated as critical infrastructure. Tax incentives for foreign investors will remain in place until 2047, and a 15% safe-harbour regime has been introduced for domestic operators. Under this provision, if a company applies a 15% markup on costs in transactions between its Indian subsidiary and its foreign parent, tax authorities will not conduct transfer pricing audits. According to Bloomberg, this measure could strengthen India’s competitive position relative to the United States.
Despite these incentives, Wood Mackenzie’s analysis highlights persistent implementation gaps. India currently has nearly 37 GW of photovoltaic cell manufacturing capacity, but utilisation remains below 30%. “The market remains unprepared for the implementation of the approved list of photovoltaic cell manufacturers,” said Ankita Chauhan, Director Supply Chain, Power & Renewables at Wood Mackenzie. “Similarly, for batteries, although 40 GWh out of the planned 50 GWh under the Advanced Chemistry Cell scheme have been allocated, upstream raw material volatility and execution challenges continue to slow capacity expansion.”
Supply security and storage capacity expansion
To strengthen supply chain resilience, the government is supporting the National Critical Mineral Mission with nearly 4 billion dollars in funding. Amendments to the Mines and Minerals Act adopted in September 2025 aim to accelerate domestic exploration, with more than 200 projects currently underway. India is also diversifying supply partnerships with countries such as Argentina, Australia and Chile.
India operates 4.4 GWh of battery cell manufacturing capacity, with a further 180 GWh under development. However, the country remains heavily dependent on imports, mainly from China. The government has proposed a 20% domestic content requirement for battery components to support localisation, according to Wood Mackenzie.
Installed battery storage capacity stood at approximately 0.8 GWh at the end of 2025, with more than 59 GWh under development. For the first time, the budget explicitly recognises utility-scale Battery Energy Storage Systems. Including these systems in tax incentive schemes is expected to support grid balancing during evening demand peaks when solar generation is unavailable. However, funding for the Green Energy Corridor programme, focused on strengthening the grid, has been reduced by 25% year-on-year, potentially limiting transmission readiness amid rising renewable penetration.
Green hydrogen funding remains underutilised
In India’s Union Budget for fiscal year 2027, funding for the National Green Hydrogen Mission remains at 68 million dollars, as nearly 50% of fiscal year 2026 allocations went unused due to execution delays. Around 3 GW of electrolyser manufacturing capacity has been awarded under production-linked incentive schemes, with operations expected to begin in fiscal year 2027.
