The Union Budget represents far more than a simple financial balancing act. It serves as a vital instrument for fiscal adjustment, a platform for significant policy announcements, and, crucially, a clear signal of the strategic priorities the Indian government aims to advance. This signaling function holds immense consequence for the energy sector—an industry experiencing rapid expansion, absorbing enormous capital, yet facing profound strategic vulnerabilities.
A Watershed Moment for Global and Indian Energy
Recent union budgets have primarily focused on attracting investment and reducing operational friction within the energy domain. However, the context for the 2025 budget is fundamentally transformed. The year 2025 stands as a watershed moment in global politics and economics, marked by geopolitical fragmentation, concentrated supply chains, and renewed great-power competition reshaping worldwide economic decisions. Despite these formidable headwinds, the Indian economy has demonstrated notable resilience. Sustaining this growth trajectory and bolstering resilience will demand a dramatic expansion of reliable and affordable energy supplies.
Energy Security: The Core of Economic Sovereignty
This reality elevates the Union Budget from a mere lever for economic growth to a critical instrument for national security. In the contemporary landscape, security transcends traditional borders and balance sheets. Energy security has become central to economic sovereignty, and on this front, India remains deeply exposed. The nation imports nearly 90 percent of its crude oil, sources more than half of its natural gas from abroad, and relies heavily on overseas suppliers for most clean energy components—including solar cells, modules, batteries, and critical materials. Even in emerging technologies poised to define the next decade, import dependence remains the norm rather than the exception.
This strategic vulnerability coincides with a mounting environmental challenge. Rising fossil fuel consumption contributes significantly to global emissions, while local pollution has reached crisis levels in many Indian cities. Energy policy sits squarely at the intersection of both these critical issues. Pathways forward include cleaner coal technologies, expansion of nuclear power, accelerated deployment of renewables, large-scale energy storage solutions, and rapid electric mobility expansion. The Union Budget provides a unique opportunity to signal which of these pathways India intends to prioritize and the seriousness of its commitment.
Learning from Past Initiatives: The PLI Experience
Such fiscal signaling is not without precedent. Previous budgets have attempted to shape sectoral outcomes through incentives and subsidies, though results have been mixed. The experience with Production-Linked Incentive (PLI) schemes for energy storage is particularly instructive. Announced three years ago with an outlay of ₹20,000 crore aimed at creating 50 GWh of battery manufacturing capacity, the scheme struggled to gain momentum. The core constraint was not a lack of capital but a deficit in technology. Access to competitive, scalable battery technology was limited, and global manufacturing and intellectual property in this domain have since become even more concentrated, particularly in China.
A Strategic Shift: Moving Up the Value Chain
The lesson is unequivocal. For India to achieve a successful clean energy transition while simultaneously strengthening its security posture, it must move decisively up the value chain—from mere assembly and manufacturing into product development and core technology innovation. The Union Budget can meaningfully advance this strategic shift in three distinct ways:
- By clearly signaling national priorities within the energy sector, not just broadly by industry but by specific segments of the value chain.
- By recognizing that these monumental challenges cannot be solved by firms acting in isolation and must instead be addressed through structured, purposeful collaboration between industry and the state.
- By designing targeted fiscal measures that make such collaboration an integral and attractive component of corporate strategy.
Collaboration as a Strategic Imperative
Collaboration in this context is not a vague ideal; it is a strategic necessity. The scale of capital required and the nature of the research involved extend far beyond incremental innovation. Past research and development (R&D) incentives have yielded limited results because they were often fragmented, generic, and underpowered—a "spray and pray" approach ill-suited to capital-intensive sectors like advanced solar technologies, energy storage, nuclear power, and advanced chemicals. Multiple firms independently attempting to recreate foundational technologies is inefficient and ultimately self-defeating.
This logic of collaboration extends beyond clean energy. In the oil and gas sector, indigenous development of core technologies necessitates upstream cooperation, even if healthy competition continues downstream. The same principle applies to advanced chemicals, where import dependence remains critically high. Encouragingly, institutional platforms such as the Anusandhan National Research Foundation (ANRF) have been established by the government to support joint investment and collaboration. The Union Budget must now align fiscal incentives to make participation in such platforms both attractive and strategically unavoidable for industry players.
The Role of Technology: AI and Digital Platforms
Speed, scale, and precision will be decisive factors in this transition. This is where modern artificial intelligence (AI) and high-performance computing can play transformative roles—particularly in materials science, process optimization, and fundamental research—compressing development timelines and enabling experimentation at a previously unattainable scale. Given the magnitude of India's energy ambitions, AI must be treated not as a peripheral tool but as a core enabler of innovation across the energy spectrum.
India's successful experience with the Unified Payments Interface (UPI) offers a useful parallel. UPI succeeded because it created a common, robust technology stack upon which private innovation could flourish. The energy sector needs similar shared core and digital technology platforms—spanning storage, smart grids, renewables integration, and advanced fuels—on top of which firms can differentiate through products and services. Strategic fiscal signaling through the Union Budget can catalyze the creation of such foundational platforms.
Beyond Specific Measures: Building Energy Capability
Naturally, industry stakeholders will look for specific budgetary measures, such as the inclusion of natural gas under the Goods and Services Tax (GST) regime and steps to reduce the overall cost of capital. There are also pertinent issues facing foreign capital, such as provisions under Section 94B concerning the permanent disallowance of interest costs due to time limitations—often inadequate for long-gestation energy and infrastructure projects. While these specific issues are important, the larger question before the Budget is the extent to which the government is prepared to use fiscal policy not merely to finance energy consumption, but to systematically build indigenous energy capability.
That strategic intent, more than any single tax change or subsidy announcement, will ultimately determine the trajectory of the country's energy future and its position in an increasingly complex global order.
