Budget 2025: India eyes nuclear energy as a low-carbon substitute for coal

Finance minister Nirmala Sitharaman’s Budget 2025-26 envisions powering a low-carbon future with nuclear energy, resilient agriculture, and sustainable cities

India’s tax-payer friendly Union Budget 2025-2026 has reaffirmed its commitment to cleaner energy and transport systems, with significant allocations aimed at accelerating the transition to a low-carbon economy. Among the most notable provisions in this year’s budget is the renewed focus on nuclear energy, particularly through the introduction of a ₹20,000 crore Nuclear Energy Mission aimed at developing Small Modular Reactors (SMRs). This initiative signals a strategic shift towards nuclear power as a potential substitute for coal, reinforcing India’s long-term energy security and sustainability goals.

A renewed focus on nuclear energy

The budget’s emphasis on nuclear energy comes at a critical juncture, as India seeks viable alternatives to its coal-dependent power sector. The introduction of the Nuclear Energy Mission aims to fast-track the deployment of at least five indigenously developed SMRs by 2033. These next-generation nuclear reactors are expected to play a crucial role in cutting emissions, providing a stable power supply, and reducing the country’s reliance on fossil fuels.

Historically, coal has dominated India’s energy landscape, accounting for nearly 70% of electricity generation. While renewable energy sources such as solar and wind have gained traction, they remain intermittent and dependent on weather conditions. Nuclear power, with its ability to generate consistent, low-carbon electricity, presents itself as a strong alternative capable of complementing India’s expanding renewable energy infrastructure.

As India continues to strive for its ambitious net-zero by 2070 goal, the budget’s focus on nuclear energy is a strategic move that acknowledges the need for a stable, large-scale, and low-carbon energy source. However, the success of this initiative will depend on effective policy execution and financing mechanisms. “India’s push for nuclear energy is bold, but with high capex and tail risks, the key challenge remains—who will fund it, and who will bear the risks?,” said Labanya Jena, sustainable finance specialist. 

Supporting India’s clean energy and transport sectors

Beyond nuclear energy, finance minister Nirmala Sitharaman introduced several measures to support domestic clean technology manufacturing, expand credit access, and enhance climate resilience in agriculture. A key provision is the expansion of the credit guarantee scheme, which is expected to unlock ₹1.5 lakh crore in additional credit over the next five years for MSMEs, startups, and exporters, including those in the clean technology and renewable energy sectors. Although renewable energy did not find much of a mention in Sitharaman’s speech, its budget allocation received a ₹10,000 crore boost, reinforcing the government’s commitment to accelerating the sector’s growth and meeting India’s clean energy targets.

Boosting domestic manufacturing of clean energy technologies

Recognising the importance of self-reliance in the clean energy sector, the budget has prioritised domestic manufacturing in key areas such as solar PV cells, EV batteries, motors and controllers, electrolysers, wind turbines, high-voltage transmission equipment, and grid-scale energy storage. To further support local production, the government has removed basic Customs duties on critical minerals such as cobalt powder, lithium-ion battery scrap, lead, zinc, and 12 additional key materials. This policy follows the July 2024 exemption of import duties on 25 key minerals, ensuring a steady supply of raw materials for India’s clean energy industry.

By reducing input costs and promoting localised production, these measures are expected to drive investment in renewable energy and electric mobility and create job opportunities in sustainable energy technologies.

“Exempting the Basic Custom Duty on critical minerals and impetus on sustainable transport are signals that India is investing in a climate-friendly economy. However, focussed initiatives to target air pollution, river rejuvenation for water security and adaptation measures beyond agriculture would have further strengthened India’s vision for a cleaner greener future,” said Professor Sachchida Nand Tripathi, Dean, Kotak School of Sustainability, IIT Kanpur 

Climate-resilient agriculture and credit access

India’s agricultural sector, which remains highly vulnerable to climate change, has also received significant attention in the budget. Sitharaman’s announcement of the National Mission on High Yielding Seeds aims to develop pest-resistant and climate-resilient crop varieties, ensuring improved agricultural productivity. Since July 2024, more than 100 improved seed varieties have been introduced, and the budget seeks to accelerate their commercial availability.

Additionally, the Kisan Credit Card (KCC) loan limit has been increased from ₹3 lakh to ₹5 lakh, providing greater financial flexibility for 7.7 crore rural entrepreneurs. This move is expected to enhance credit access for climate-smart agricultural practices, encouraging investments in sustainable farming and rural livelihoods.

Climate adaptation takes centre stage

Sitharaman also announced the Prime Minister Dhan-Dhaanya Krishi Yojana, which targets 100 districts with low productivity by boosting agricultural output, promoting crop diversification, and enhancing post-harvest storage and irrigation. This has the potential to enhance India’s climate adaptation efforts. 

Also, the Urban Challenge Fund announced in the budget that seeks to allocate up to 1 lakh crore rupees to modernise urban infrastructure and boost climate adaptation in Indian cities seeks to support projects under initiatives such as ‘Cities as Growth Hubs’, ‘Creative Redevelopment of Cities’, and improved ‘Water and Sanitation.’

The missing piece: EV industry concerns

Despite the robust clean energy push, the budget has overlooked a key expectation from the electric vehicle (EV) industry—a favourable tax structure catering to different automotive technologies. While EV manufacturing incentives were introduced, there was no direct policy intervention to restructure taxes on electric and hybrid vehicles, leaving the industry looking for further clarity on government support.

The budget lays the groundwork for a transformative shift in India’s energy landscape. While challenges remain, particularly in scaling up SMR deployment and addressing the needs of the EV industry, this budget has the potential to help accelerate India’s journey toward a sustainable and low-carbon future.

Sitharaman also announced the launch of a National Manufacturing Mission aimed at boosting clean technology (cleantech) manufacturing under the Make in India initiative. She emphasized that the mission will play a key role in supporting and advancing cleantech manufacturing in the country. “The National Manufacturing Mission’s focus on clean tech is a step in the right direction. However, the real question is: Can India’s green industry compete with China, where there are massive subsidies for green industries?” said Jena. 

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