10 Feb 2025
Partner: Neeraj Menon, Associates: Arsh Jha and Yashaswi Belani
The Indian Finance Minister presented the budget for 2025-26 (Budget) before the Parliament on 1 February 2025 underscoring the government’s continued commitment to sustainable development, infrastructure expansion, and energy security. With a focus on clean technology, renewable energy, and public-private partnerships (PPP), the Budget introduced key measures to accelerate economic growth while promoting environmental responsibility.
Significant allocations have been made to strengthen domestic manufacturing, enhance state-level infrastructure, and encourage private sector participation in critical sectors like nuclear energy and mining. The key highlights of the Budget impacting energy and infrastructure sectors are discussed below.
a. The Basic Customs Duty (BCD) on solar cells has been revised from 25% to 20%, and on solar modules from 40% to 20%, effective from 2 February 2025. While this lowers the BCD payable on imports of solar cells and modules, the government has simultaneously imposed an Agricultural and Infrastructure Development Cess on solar cells and solar modules at 7.5% and 20%, respectively. As a result, the total duty burden on import of such goods appears to remain largely unchanged to the effect that solar cells will continue to attract a 27.5% effective duty and solar modules will attract an effective duty of 40% (a slight reduction from earlier effective rate of 44%).
b. The Pradhan Mantri Surya Ghar Muft Bijli Yojana, launched in February 2024 to boost India’s solar rooftop sector, aims to solarise ten million households by providing free electricity up to 300 units per month. The scheme has been allocated INR 20,000 crore in the Budget, marking an 80% increase from the last budget allocation. This enhanced fiscal allocation is a positive development for the sector and will contribute to a larger capacity installation for solar rooftop projects.
c. The Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan Scheme, launched in 2019 to ensure energy security for farmers in India, has been allocated INR 2,600 crore in the Budget, marking a 3% increase from the last budget allocation. This is projected to result in higher demand for solar components and solarised pumps, and an increase in the outlay for feeder solarisation projects.
The government, while recognising the critical role of nuclear energy in its commitment to a sustainable energy transition, has set a target of developing at least 100 GW of nuclear energy capacity by 2047. A ‘Nuclear Energy Mission‘ will be launched with an outlay of INR 20,000 crore, focusing on the development of small modular reactors. The mission aims to operationalise at least five indigenously developed small modular reactors by 2033. To facilitate participation from the private sector, the government will propose amendments to the Atomic Energy Act, 1962 and the Civil Liability for Nuclear Damage Act, 2010.
In alignment with climate-friendly development goals, the government has announced support for clean technology manufacturing. This initiative aims to enhance domestic value addition and strengthen the ecosystem for producing solar photovoltaic cells, electric vehicle (EV) batteries, motors and controllers, electrolysers, wind turbines, high-voltage transmission equipment, and grid-scale batteries. By bolstering these sectors, India seeks to reduce its carbon footprint and promote sustainable industrial growth.
a. The Green Energy Corridor, aimed at enhancing renewable energy generation and facilitating its seamless integration into the national grid, has been allocated INR 600 crore. These funds will be utilised for the expansion of intra-state transmission infrastructure, with a cumulative capacity addition of 6,000 circuit kilometres under the Green Energy Corridor project.
b. The National Green Hydrogen Mission has been allocated INR 600 crore in the Budget to position India as a global leader in the production, utilisation, and export of green hydrogen and its derivatives. This initiative aims to drive self-sufficiency through clean energy while serving as a model for the global transition towards sustainable energy solutions.
The Revamped Distribution Sector Scheme, launched in July 2021, aims to improve the quality of power supply by reducing aggregate technical and commercial losses and eliminating the gap between the average cost of supply and average revenue realised. An outlay of INR 16,021 crore from the funds of the Ministry of Power has now been allocated to this scheme, a key component of which is prepaid smart metering, system metering, and distribution infrastructure upgrades.
To accelerate infrastructure development, each infrastructure-related ministry will develop a three-year pipeline of projects suitable for implementation under the PPP model. States are also encouraged to participate and can seek support from the India Infrastructure Project Development Fund scheme to prepare PPP proposals. This collaborative approach aims to leverage private sector efficiency and investment to enhance public infrastructure.
An outlay of INR 1.5 lakh crore has been proposed for 50-year interest-free loans to states, designated for capital expenditure and incentives for reforms. Key emphasis will be on incentivising electricity distribution reforms and augmenting intra-state transmission capacity.
States undertaking these reforms will be permitted additional borrowing of 0.5% of their Gross State Domestic Product, subject to the successful implementation of these initiatives.
To meet the future transportation needs of Bihar, the government will facilitate the development of greenfield airports in the state. These projects are in addition to the planned expansion of Patna airport and the development of a brownfield airport at Bihta, aiming to improve regional connectivity and support economic growth.
The government has fully exempted BCD on cobalt powder, waste and scrap of lithium-ion batteries, lead, zinc, and 12 other critical minerals. Previously subject to varying duty rates ranging from 2.5% to 10%, these minerals will be exempted from import duties.
Further, 35 additional capital goods for EV battery manufacturing have been added to the list of exempted items. These measures are expected to boost domestic production of lithium-ion batteries for EVs. These initiatives reflect the government’s strategic focus on sustainable development, infrastructure enhancement, and energy transition, positioning India for robust economic growth in the coming years.
The Budget sets the stage for a transformative future, signalling India’s emergence as a global leader in sustainable energy and infrastructure. A conducive policy environment to accelerating renewable energy adoption, advancing clean technology manufacturing, and fostering PPPs will continue helping India’s long-term vision of integrating large-scale renewable energy into the national grid and securing India’s overall energy mix. The enhanced allocations for solar energy, nuclear capacity expansion, and infrastructure development, along with pivotal reforms like prepaid smart metering, will strengthen India’s energy security and bolster its economic competitiveness. However, spurring private sector investment for capital expenditure in infrastructure and continuing to remove policy and regulatory bottlenecks in the energy sector will remain key focus areas for the upcoming year.
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