Entrepreneurship and innovation were key focus areas in the Union Budget 2025-26. From a new ‘Fund of Funds’ with expanded scope and a fresh contribution of another INR 10,000 crore to a credit scheme for up to INR 5 lakh first time entrepreneurs and enhancement of credit availability with a guarantee cover from INR 10 crore to INR 20 crore, the budget proposed to take multiple initiatives to boost entrepreneurship in the country.

Research and innovation also stood out as focus areas with the announcements such as the PM Research Fellowship aimed at providing ten thousand fellowships for technological research in IITs and IISc in the next five years, and allocation of INR 20,000 crore to implement private sector driven research, development and innovation initiatives. The Finance Minister also emphasized private sector participation in research when announcing the operationalization of the Anusandhan National Research Foundation in July 2024.

In August 2024, we took a closer look at the climate action provisions in the 2024-25 budget. The Union Budget 2025-26 presents a mixed bag for climate action—introducing new opportunities, notable implementations, unfulfilled commitments, and critical omissions.

New Opportunities

Agriculture continues to be one of the most vulnerable sectors of the economy to be affected by climate change. Recognising the growing domestic and global needs to fight the threat of food security, the Prime Minister Dhan-Dhaanya Krishi Yojana, in partnership with states, aims to enhance agricultural productivity and adopt crop diversification and sustainable agriculture practices among its other goals.

While initiatives like the FAME scheme (Phases I and II) have significantly boosted domestic EV manufacturing, India remains heavily reliant on imports for raw materials. To address this, the budget introduces key measures to strengthen domestic lithium-ion battery production. It expands the list of indirect tax-exempt capital goods to include 35 additional items for EV battery manufacturing and integrates the production of EV batteries, motors, and controllers into the Clean Tech focus of the upcoming National Manufacturing Mission.

The energy sector received a major push in this budget, with a focus on expanding renewables, strengthening infrastructure, and boosting private sector participation. As part of the upcoming National Manufacturing Mission, the budget prioritizes solar and wind energy alongside high-voltage transmission equipment under its Clean Tech focus. To encourage private sector participation in nuclear energy, the government plans to introduce amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act under the Nuclear Energy Mission for Viksit Bharat. Additionally, states will receive incentives for electricity distribution reforms and the expansion of intra-state transmission capacity, ensuring a more reliable and efficient power grid.

To promote circularity in the shipbuilding industry, the revamped Shipbuilding Financial Assistance Policy will provide incentives in the form of credit notes for shipbreaking in Indian yards.

Notable Implementations

The July 2024 speech by the Finance Minister announced some exciting initiatives to be implemented, a few of these were implemented and/or expanded upon in this budget.

To strengthen climate resilience in agriculture, the government has announced two new missions focused on seed varieties and crop diversification. The National Mission on High Yielding Seeds will drive the development and propagation of high-yield, pest-resistant, and climate-resilient seeds. Meanwhile, the Mission for Aatmanirbharta in Pulses, a six-year initiative, will focus on scaling up the development and commercial availability of climate-resilient seeds, with a targeted focus on Tur, Urad, and Masoor.

To reduce reliance on fossil fuels, the budget prioritizes diversifying the energy mix and scaling up large-scale energy storage solutions. The newly announced Nuclear Energy Mission, with an outlay of INR 20,000 crore, will drive research and development of Small Modular Reactors (SMRs), aiming to operationalize at least five indigenously developed SMRs by 2033. Additionally, the budget includes a push for grid-scale battery manufacturing under the Clean Tech focus of the upcoming National Manufacturing Mission.

Over and above the 25 critical minerals exempted from basic custom duty as part of the July 2024 budget, additional materials such as cobalt powder and waste, the scrap of lithium-ion battery, lead, zinc and 12 more critical minerals have been proposed to be made fully exempt from custom duty. This step will ease domestic access and boost manufacturing.

Another sector that got attention in the July 2024 Budget was urban development under ‘Cities as Growth Hubs’, and also focused on solid waste management and sewage treatment. The budget announced plans to set up a INR 1 lakh crore Urban Challenge Fund, with an allocation of INR 10000 crore proposed for 2025-26. This fund will be used to implement projects in three thematic areas ‘Cities as Growth Hubs’, ‘Creative Redevelopment of Cities’ and ‘Water and Sanitation’.

Unfulfilled Commitments

One of the most significant changes for climate action that was announced in the July 2024 budget was the development of a taxonomy for climate finance. However, the 2025-26 budget fails to mention climate finance – let alone a taxonomy. This initiative stood to make a notable impact towards India’s ability to secure capital to meet its domestic climate action needs and international climate commitments.

The former budget also announced a potential roadmap for ‘hard-to-abate’ industries with an aim to shift them from ‘energy efficiency’ targets to ‘emission targets’. There has been no movement towards this move that can have a huge impact on decoupling India’s economic growth from emissions trajectory.

The July 2024 budget indicated that a new initiative called ‘Critical Minerals Missions’ would be setup. While this budget makes notable additions regarding critical minerals, key aspects of the potential mission – such as technology development, workforce skilling, framework for extended producer responsibility, and financing mechanisms – remain unaddressed.

Critical Omissions

While the budget promotes sustainable agriculture, it does little to address agricultural emissions, which make up 13.5% of India’s total emissions, largely from livestock (60%) and rice cultivation (20%). With 45% of India’s workforce reliant on agriculture and climate change threatening to cut farm output and shrink GDP by 15%, sustainable farming alone won’t be enough. Greater investment in biotech solutions, resource-efficient techniques, and climate-resilient inputs is crucial for long-term food security and economic stability.

Due to initiatives like the FAME scheme (Phases I and II), several companies now manufacture two-, three-, and four-wheeler EVs for the passenger segment. The budget makes several provisions to further boost domestic EV manufacturing, including batteries. However, two critical challenges limiting EV adoption remain unaddressed—a robust charging infrastructure and EVs for freight transport. Expanding public-private partnerships (PPPs) for charging networks, providing targeted incentives for station deployment, and integrating EV-ready planning into urban and highway infrastructure could accelerate progress. Without targeted interventions, these gaps will continue to hinder emissions reductions in the mobility sector.

Lastly, there has been no further comment or clarity provided on the ‘India Carbon Market’ framework. This is a regulatory framework consisting of two mechanisms – compliance and voluntary – aimed at reducing India’s emission intensity and driving it towards net-zero.  Several aspects of the framework including the ‘Carbon Credit Trading Scheme’ have been evolving with time and still lack standard processes and guidelines to be able to implement it thoroughly.

While the budget presents exciting opportunities across sectors for climate action in mitigation, adaptation and resilience, it also falls short on critical aspects including climate finance. The shortcomings highlight the need for continued advocacy and private sector innovation.