Every year, the Union Budget allows the government to outline its priorities, chart a pathway for growth, and manage revenues and expenditures across critical sectors. In the upcoming Budget, the government is expected to continue its post-COVID fiscal consolidation, balancing growth-oriented measures with an infrastructure push while maintaining its focus on the green transition. This alignment is critical, as sustainable initiatives, such as investments in renewable energy and green infrastructure, not only address climate goals but also catalyse economic growth and job creation, creating a mutually reinforcing cycle between fiscal prudence and environmental responsibility.

Expectations from Union Budget 2025
Need for a revisit in current fiscal management strategy: Post-Covid-19, despite increased capital expenditure (capex) levels, the government typically utilises close to 60% of the budgeted capex by November every year. Notably, only 46.2% of budgeted capex is spent this year. Additionally, capex targets are revised downwards for the past two years with significant variations in the actuals, revised and budgeted estimates. On the receipts side, 97% of budgeted dividends and profits are already realised, compared to 144% with an upward adjustment last year. Revenue receipts have consistently offset revenue expenditure with around 60% of the latter achieved by November over the past three years. Furthermore, only 29% of the budgeted market borrowings are utilised this year while more than 2/3rd of the targets is usually borrowed by November every year. The cumulative impact of the above thus has allowed the requisite fiscal space for meeting the deficit targets irrespective of the subsequent upward or downward revisions in the fiscal projections. Going forward, we expect that GoI may revisit its current fiscal management strategy through early utilisation of capex levels preferably in the initial quarters of the year.
Considering past trends and the critical emphasis on capex, the government is likely to sustain momentum in key sectors while refining its approach. Some programs, such as the Production- Linked Incentive (PLI) scheme, may see sunset clauses if their objectives are deemed fulfilled. Presently, India's commitment to sustainable infrastructure development, as outlined in its ongoing fiscal and green initiatives, interalia, is evident across major areas:

Electricity: Under the National Electricity Plan (NEP) 2023 the target of reaching around 570 GW of renewable capacity by 2032 from the current 200 GW underscores India's commitment to clean energy transitions. This installed capacity can address rising domestic energy demand while also positioning India as a hub for renewable technology innovation and manufacturing. Mobilising climate finance to support such a massive transition, however, will remain a critical challenge. The Indian banking system’s exposure to the power sector stands at approximately USD 200 billion, with annual funding needs of USD 50-60 billion to meet sectoral targets. Given the long-term nature of this exposure, the banking sector may struggle to meet these demands. Establishing a dedicated financial institution, akin to NaBFID, could address these long-term financing challenges. Additionally, the Budget is expected to adjust allocations for initiatives like the Green Energy Corridors.

Housing: The urban and rural housing goal of constructing over 3 crore houses with substantial central assistance through the PM Awas Yojana could act as a significant driver for infrastructure and sustainability in the country. These houses, equipped with rainwater harvesting systems, thermal management, and energy-efficient features, are essential for improving resource efficiency, promoting circularity, and developing climate-resilient infrastructure. To achieve these sustainability targets in housing, larger budget allocations are anticipated.

Transportation and the Electric Vehicles (EVs) sector: The expansion of networks under the Bharatmala and PM Gram Sadak Yojana promotes inclusive development and can be further strengthened by integrating sustainable infrastructure using green materials and technologies. The recent introduction of green steel taxonomy is a positive step in this direction. India’s electric vehicle (EV) sector has transformed significantly due to initiatives like the PM-EDRIVE scheme and GST benefits. With decreasing battery costs and competitive vehicles from OEMs, EV adoption is set to rise. To sustain this momentum, it is crucial to extend incentives, improve infrastructure, and provide dedicated financing options for EVs, particularly to expedite the electrification of public transport and reduce emissions in freight logistics. Such support could significantly boost EV adoption nationwide.

Climate Finance and Taxonomy: There could be a notable increase in green bond issuance targets in this year’s budget, which would support market development and financing for various green initiatives across sectors, including solid waste management, sustainable housing, and other initiatives. More details about the climate finance taxonomy in this year’s budget could help with streamlining investments towards climate adaptation and mitigation, aligning financial flows with
the country’s Net Zero targets.

Conclusion
The Union Budget 2025 thus offers an opportunity to align fiscal priorities with India’s ambitious growth and sustainability goals. By addressing key challenges in electricity, housing, EVs, and MSME sectors, the government can create a robust foundation for a green and inclusive future.

By Vaibhav Pratap Singh and Honey Karun, respectively Executive Director and Economist, Climate and Sustainability Initiative

Originally published in The Hindustan Times (Online)