Union Budget puts sustainability at the core of India’s growth strategy

Budget balances renewable expansion with transitional technologies to protect industry and jobs

The Union Budget 2026 marks a clear shift in India’s economic thinking by placing sustainability and climate responsibility at the heart of national development.

The Budget, presented on February 1 by Union Finance Minister Nirmala Sitharaman, reflects a growing understanding that long-term economic growth cannot depend only on higher output and consumption, but must also protect natural resources, reduce carbon emissions, and build resilience against climate-related risks.

One of the strongest signals of this shift is the 53 per cent increase in green energy allocation to Rs 26,549.38 crore, reinforcing India’s commitment to achieve 500 GW of non-fossil fuel capacity by 2030. Importantly, the Budget goes beyond renewable capacity addition and addresses deeper challenges of the energy transition. Investments in grid modernisation, improved transmission networks, and large-scale energy storage systems are aimed at ensuring that clean power is reliable, affordable, and available throughout the day. These measures are critical for integrating renewable energy into the mainstream economy and reducing dependence on fossil fuels.

Decarbonisation receives further momentum through the launch of India’s domestic compliance carbon market, which introduces a formal price on emissions and encourages industries to treat carbon reduction as a business necessity rather than just an environmental concern. This market-based approach is supported by a Rs 20,000 crore allocation for carbon capture, utilisation and storage, particularly for hard-to-abate sectors such as steel, cement, chemicals, and refineries.

These initiatives reflect a practical and balanced policy approach, recognising that while renewable energy is the future, transitional technologies are essential to reduce emissions without disrupting industrial production, employment, or overall economic stability.

Alongside decarbonisation, the Budget places strong emphasis on promoting a circular economy and strengthening ESG accountability across businesses. Proposals to rationalise GST on recycled materials aim to remove long-standing tax disadvantages faced by recycled inputs, making recycling commercially viable and encouraging industries to reduce waste, improve material efficiency, and adopt ecofriendly product design. This shift away from the traditional ‘take-make-dispose’ model helps conserve natural resources while also lowering emissions across supply chains.

Incentives for critical mineral recycling and the development of rare-earth corridors are designed to secure domestic supply chains for electric vehicles, batteries, and renewable energy technologies, while reducing dependence on imports and environmentally harmful mining practices. These circular economy measures directly support decarbonisation by lowering energy consumption and improving resource productivity.

The Budget also signals a decisive shift in ESG practices, with sustainability reporting moving from voluntary disclosures to mandatory and auditable requirements. Energy- and water-intensive sectors such as manufacturing and data centres will now be required to demonstrate measurable improvements in efficiency and responsible resource use. Significantly, the newly introduced ‘Corporate Mitra’ programme extends this sustainability and ESG journey to small and medium enterprises by supporting their professional development and helping them comply with sustainability and ESG-related requirements, ensuring that SMEs are not left behind in the evolving regulatory and global supply-chain environment.

By linking policy support and finance with measurable environmental and social outcomes, Union Budget 2026 makes it clear that sustainability, decarbonisation, circular economy, and ESG are now core to India’s economic strategy, marking a decisive shift from intent to action toward a resilient, low-carbon, and inclusive growth path.

Ranjith Krishnan is a Thane-based sustainability consultant, Ashish P Thatte is chairman, Sustainability Standards Board, ICMAI, and Arunabha Saha is a Thane-based practising cost accountant.

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)