India’s FY2027 Budget Shifts Focus To Industrial Decarbonisation, Domestic Manufacturing, & Clean Energy, Allocating $5B For Carbon Capture, Batteries, & Critical Minerals

India’s FY2027 Union Budget signals a strategic shift in the country’s energy transition, moving from a primary focus on renewable energy deployment toward supporting domestic manufacturing, industrial decarbonisation, and energy security. According to analysis from Wood Mackenzie, the budget reflects a more industrial policy-led approach, emphasizing technology development, supply chain resilience, and decarbonisation in hard-to-abate sectors. Clean energy spending for FY2027 is projected to increase by 40 percent compared with the previous year, reaching around US$5 billion. Priority areas include carbon capture, battery storage, domestic manufacturing, and critical mineral supply chains.

Rashika Gupta, Vice President for Power and Renewables at Wood Mackenzie, explained that India is positioning itself as an alternative hub for clean energy manufacturing as global trade dynamics shift. Recent trade agreements with the European Union and the United States are expected to enhance the export competitiveness of India-origin solar modules. However, Gupta noted that underutilisation of allocated funds and delays in project execution could limit the near-term impact of these measures.

The budget places significant emphasis on carbon capture, utilisation, and storage, allocating US$2.2 billion over five years for projects targeting emissions reductions in power generation, steel, cement, refining, and chemicals. This reflects a growing policy focus on sectors that are traditionally difficult to decarbonise. To date, investment in carbon capture in India has been largely led by public sector companies such as NTPC and ONGC, with private sector participation remaining limited due to high project costs. As regulatory and implementation frameworks mature, CCUS projects are expected to transition from pilot stages to early commercial deployment, catalysing broader private sector involvement and laying the foundation for a globally competitive carbon management ecosystem.

The FY2027 budget also advances India’s domestic manufacturing ambitions. Import duties on lithium-ion battery cells, solar glass, nuclear equipment, and machinery for critical mineral processing have been removed, reducing tariffs from 2.5–7.5 percent to zero. Data centers have been designated as critical infrastructure, foreign investors can benefit from extended tax holidays until 2047, and domestic operators will enjoy a 15 percent safe-harbour tax regime. Despite these incentives, challenges remain. India currently has around 37 gigawatts of PV cell manufacturing capacity, but utilisation remains below 30 percent. With local content requirements at the cell level set to take effect in June 2026, up to three-quarters of projected demand could face supply constraints without an accelerated ramp-up of production.

Ankita Chauhan, Director of Supply Chain for Power and Renewables at Wood Mackenzie, noted that the market is not yet fully prepared for implementation of the approved list of PV cell manufacturers. Similarly, in the battery sector, while 40 GWh of the 50 GWh Advanced Chemistry Cell target has been awarded, volatility in upstream raw materials and execution challenges continue to slow the build-out of manufacturing capacity.

The budget also addresses supply chain security and battery storage acceleration. Approximately US$4 billion has been allocated to the National Critical Mineral Mission to support domestic exploration and strengthen supply chains. Amendments to the Mines and Minerals Act in September 2025 are expected to accelerate domestic exploration, with over 200 projects currently underway. India is also diversifying its supply partnerships with countries such as Argentina, Australia, and Chile. Battery manufacturing capacity in India stands at 4.4 GWh, with an additional 180 GWh planned.

However, import dependence, primarily on China, remains high. A proposed 20 percent domestic content requirement for battery components aims to support localisation. Installed battery storage capacity reached approximately 0.8 GWh by the end of 2025, with more than 59 GWh under development. Funding for the Green Energy Corridor programme, which is focused on grid strengthening to accommodate renewable energy, was reduced by 25 percent year-on-year, potentially constraining transmission readiness.

Funding for hydrogen development under the National Green Hydrogen Mission remains unchanged at US$68 million, following underutilisation of approximately 50 percent of FY2026 allocations due to execution delays. Around 3 GW of electrolyser manufacturing capacity has been awarded under production-linked incentive schemes, with production expected to commence in FY2027. In contrast, nuclear policy support was strengthened through the passage of the SHANTI Act in 2025 and removal of customs duties on nuclear equipment through September 2035. These measures aim to expand nuclear capacity to 100 GW by 2047, up from roughly 9 GW today, including the deployment of at least five indigenous small modular reactors by 2033.

Rashika Gupta emphasized that the FY2027 budget provides policy continuity and clarity, balancing energy transition objectives with energy security and industrial competitiveness. However, she noted that successful implementation will depend on faster approvals, stronger coordination, and improved utilisation of allocated funds. Execution remains the decisive factor in determining whether India can meet its 2070 net-zero target and achieve its broader energy transition goals.