Budget 2026: Fiscal dole-outs could recharge energy engine

In a fast-paced volatile world order, strengthening one’s own economic fundamentals is the key to staying on top. Nations are increasingly looking to diversify their markets and supply chains through new economic and trade partnerships. Some recent world actions have already affected energy supply chains, impacting countries such as India that already has high import dependence on oil and gas and critical minerals. At this juncture, the Union Budget 2026 presents a timely opportunity to indigenise higher value addition in the energy supply chain and make it resilient to global price and supply interruptions.

Given India’s ambitious goal of achieving 500 GW of non-fossil fuel power capacity by 2030, and to also reduce carbon intensity by 50% by 2030 from the 2005 levels, competitive corporate tax rates for independent power/electricity producers, such as reinstating 15% headline corporate tax rate or 100% tax exemption for the first seven years, will help the industry. One of the eligibility conditions for this tax incentive could be pegged to localisation requirements, for instance, a certain minimum percentage of local solar cell or module procurement. Competitive tax cost can also help boost investments in the sector, strengthen domestic manufacturing, and complement the PLI scheme for manufacturing of renewable energy devices.

As power markets mature in India, we have been increasingly seeing central/state nodal agencies preferring bids with 24x7 dispatchable and storage-integrated solutions to improve grid stability and intermittency, over plain renewable energy projects. Given the importance, the government may consider rolling out 100% investment-linked income tax deduction for battery energy storage systems (BESS) projects. On the GST front, a lower rate of 5% for grid-scale BESS can reduce input costs and improve financial viability of the projects, thus, facilitating energy storage infrastructure in the country. Also, the GST rate rationalisation in September 2025 for renewable energy components has resulted in inverted duty structures that can unlock working capital and reduce project costs, if addressed in the upcoming Budget.

Another important aspect is facilitating mining of critical and rare earth minerals. The government introduced the National Critical Mineral Mission (NCMM) in 2025 to establish a robust framework for self-reliance in the critical mineral sector—key to supporting clean energy technologies like solar panels, wind turbines, electric vehicles, and BESS. In line with the global best tax practices in China (that produces 80-90% of the world’s supply of critical and rare earth minerals), Argentina, Brazil etc., a blanket 100% tax deduction for a period of 10 years from commencement of commercial production will be vital. Also, to incentivise foreign technology collaborations in the sector and reduce time to market for the Indian entities operating in the critical minerals value chain, a simplified presumptive taxation for foreign technology suppliers can bring about tax certainty and improve ease of doing business in India.

Similar presumptive taxation regimes should also be considered for incentivising foreign technology in small modular reactors (or SMRs), a critical element in nuclear power generation. This will bode

well for the government’s intent to operationalise at least five indigenously designed SMRs by 2033, with a macro target of achieving 100 GW of nuclear power capacity by 2047.

While the foreign technology is welcome for time-sensitive and highly strategic areas as noted above, it is equally important that the Budget promotes research, innovation, and development in India. Tax deductions equal to 100% of total spends, or 120% in some of the cases approved by the recognised authorities, ought to be considered. Corporate social responsibility (CSR) provisions under the corporate law can be widened to include R&D contributions made to specially notified sunrise sectors. This shall be aligned with global economies such as South Korea that have been focussing on targeted R&D investment with tax credits for investments in strategic technologies and new growth sectors.

In last year’s Budget speech, the power sector was mentioned to be one of the six transformative domains that can augment our growth potential and global competitiveness. Higher budgetary allocations last year (over the previous year) are reflective of this larger intent. Budget 2026 is expected to continue the momentum and set out a clear policy roadmap—in terms of how the future energy mix will evolve and drive growth in the country.

(Agarwal is Partner, Deloitte India, and Sikaria is Associate Director, Deloitte India. Views are personal)