India's clean energy transition has reached a pivotal moment as the country prepares for Budget 2026. With non-fossil fuel capacity crossing 260 GW and growing at 22.6% year-on-year, renewables now account for over 50% of the installed power mix. However, achieving the ambitious targets of 500 GW renewable capacity by 2030 and net-zero emissions by 2070 requires sustained fiscal support, particularly for emerging sectors where economics remain challenging.

CBG Sector Requires Immediate Fiscal Intervention

The compressed bio-gas sector under the Sustainable Alternative Towards Affordable Transportation (SATAT) initiative faces significant implementation challenges. Despite targeting 5,000 CBG plants by 2023-24, progress has been uneven with concerning operational statistics:

Rising capital costs present a major hurdle, with plant capex increasing substantially over recent years:

Enhanced Financial Assistance Framework

The current Central Financial Assistance structure requires immediate revision to address cost inflation. The CFA should be enhanced from ₹4 crores per 4.8 TPD to at least ₹6 crores per 4.8 TPD, removing the upper cap that currently discourages larger projects above 12 TPD.

Budgetary allocation presents another critical challenge. The initial ₹800 crores earmarked for Phase I (FY 2021-26) has been exhausted, while the additional ₹180 crores announced in September 2025 supports barely 10 plants. With over 1,000 plants expected by 2030, a cumulative allocation of around ₹10,000 crores is essential.

Addressing Economic Viability Gaps

CBG faces significant pricing disadvantages compared to ethanol. While ethanol enjoys roughly 120% premium over fossil petrol, CBG trades at an 85% discount on energy-equivalent basis. Market development assistance for organic manure requires revision to ₹3-3.5 per kg for five years to stabilize unit economics during scale-up.

The inverted GST structure creates additional challenges, with CBG output taxed at 5% while plant machinery attracts 12%, leading to blocked input tax credits. Aligning GST rates with wind and solar at 5% would improve project viability significantly.

Green Hydrogen Manufacturing Capabilities

The National Green Hydrogen Mission targets 5 million tonnes annual production by 2030, requiring enhanced domestic electrolyser manufacturing capabilities. Targeted customs duty exemptions for patented components and materials not manufactured domestically can reduce capital costs and accelerate localisation.

Integrated renewable-hydrogen projects merit special incentives to improve economics through reduced transmission losses and clustered industrial ecosystems around hydrogen hubs.

Battery Storage Infrastructure Development

Battery Energy Storage Systems remain critical for managing renewable intermittency and ensuring grid stability. Current fragmented GST rates across BESS components inflate project costs, requiring uniform 5% GST alignment with other renewable infrastructure.

The viability gap funding introduced for 4 GWh storage capacity in Budget 2023 should extend to larger capacities, as scaling storage infrastructure is essential for reliably integrating 500 GW renewables into the grid.

Carbon Credit Market Integration

Emerging carbon and renewable gas markets present additional revenue opportunities. The proposed Renewable Gas Certificate framework and carbon credit trading system can provide supplementary income streams. Allowing CBG-linked certificates and carbon credits for domestic and international trading under Article 6.2 of the Paris Agreement would strengthen project economics further.

Budget 2026 represents a crucial opportunity to convert clean energy ambitions into executable frameworks. Addressing structural and fiscal gaps through enhanced financial assistance, rationalized taxation, and scaled allocations will strengthen India's clean energy value chains while attracting private investment for the energy transition.

As the Finance Minister prepares to present the Union Budget for FY2026-27, India finds itself at a crucial juncture amid global uncertainties and uneven domestic growth patterns. Markets are seeking clarity and continuity rather than headline-grabbing fiscal stimulus, with expectations centered on sustaining growth without compromising fiscal credibility.

Economic Backdrop and Growth Outlook

India's economic fundamentals remain relatively strong despite global headwinds. The country's real GDP growth is estimated at around 7-7.5% for FY26, supported by public capital expenditure, resilient services exports, and a gradually improving private investment cycle. Inflation has moderated meaningfully over the past year, providing policymakers with greater flexibility for budget planning.

Fiscal Strategy: Consolidation Pause

After several years of fiscal tightening, FY27 is likely to mark the end of fiscal drag. The government is expected to retain the fiscal deficit at around 4.4% of GDP, similar to FY26, rather than pursuing further consolidation. This pause would allow the economy to absorb benefits from past monetary easing and earlier tax rationalisation.

Gross tax revenues are projected to grow in the high single-digit range, aided by a low base and gradual recovery in nominal GDP growth. While FY26 revenues faced pressure from tax cuts and softer demand, FY27 should witness improved buoyancy, though upside may be limited by cess rationalisation and absence of new tax hikes.

Capital Expenditure and Credit Growth Focus

Public capital expenditure remains central to India's growth strategy. While headline capex growth may stay in the low-to-mid teens, significant opportunities exist through PSU balance sheets and extra-budgetary resources. The credit channel presents particular promise, with growth accelerating across corporate, retail, and infrastructure segments after a prolonged deleveraging period.

Key Credit Support Measures Expected:

• Targeted credit guarantees for specific sectors
• Interest subvention for export-facing industries
• Deeper support for private credit markets
• Measures to amplify monetary easing impact

Manufacturing and Strategic Priorities

The Budget is expected to reinforce India's structural priorities through extended Production Linked Incentive (PLI) framework support. Incentives may be refined or expanded for emerging sectors including AI hardware, electronics, data centres, robotics, defence manufacturing, and semiconductors.

External Balance and Currency Management

India's balance of payments has faced pressure from a wider trade deficit, volatile portfolio flows, and higher energy imports. The RBI has maintained a stabilising approach, using reserves judiciously to smooth volatility rather than defending specific currency levels. This strategy preserves external confidence while allowing the rupee to function as a shock absorber.

Tax Policy and Market Sensitivity

Following significant income-tax rationalisation in 2025, no major changes to personal income tax rates are anticipated. The focus remains on simplification and compliance efficiency. However, markets will closely monitor any potential changes to capital gains taxation, as even marginal adverse adjustments could impact investor sentiment during the current recovery phase.

Market Expectations and Earnings Outlook

From a market perspective, the Budget is likely to provide incremental support rather than transformative changes. Early cyclical recovery signs are visible, with earnings growth expectations remaining healthy at around 19-20% for mid- and small-cap companies, compared to 11-13% for large caps. These projections appear achievable provided top-line growth improves and credit flows remain supportive.

Ultimately, Budget 2026-27 represents a shift toward signalling consistency and stability rather than stimulus-driven growth. A steady fiscal stance, credible external management, and targeted investment support could collectively strengthen growth momentum in an increasingly volatile global environment.