India’s 2026 Budget: how well does the country balance its decarbonisation strategy with climate adaptation needs?

In her speech, Finance Minister Nirmala Sitharaman described an external environment where “trade and multilateralism are imperilled and access to resources and supply chains are disrupted” and resources such as “water, energy and critical minerals” are becoming strategically important. 

But along with these global pressures, India is also confronting something more immediate: the growing economic costs of climate change at home. 

The year 2025 gave a foretaste of India’s vulnerability to climate change impacts as well as the rising economic costs of responding to climate-induced disasters. 

According to the Indian Meteorological Department’s annual climate statement, India experienced its eighth warmest year on record in 2025. What stood out was not just higher daytime temperatures, but more hot nights. For the first time, heatwave conditions were recorded as early as in February in states like Goa and Maharashtra, which are typically considered the winter seasons. Additionally, a recent study warns that India is likely to have one of the largest populations exposed to extreme heat as global temperatures continue to rise.  

The monsoon had its own complications, resulting in rain-related disasters as the country’s deadliest weather hazard for the first time in 2025. Northwest India received around 127% of its usual rainfall, triggering cloudbursts, landslides and flash floods in states like Himachal Pradesh. Whereas, Punjab saw its worst floods since 1998, affecting all 23 districts and causing losses of estimated ₹13,000 crore (USD 1.5+ billion) and destroying an estimated 202,094.701 hectares of cultivable land. 

Meanwhile, air pollution continued to weigh heavily on everyday life. Nearly 44% of Indian cities, including Tier 2 and Tier 3 cities, now regularly face hazardous air quality levels. According to a study, air pollution reduces the average life expectancy in India by 3.5 years, and is estimated to cost India around 6% of its GDP, primarily due to health risks and productivity losses.   

The economic costs of each of these impacts is not just limited to the estimated losses but also includes the rising fiscal burden on the government to provide several relief packages and additional allocations to the state disaster funds. For instance, in 2025, the central government approved ₹3,100 crore (approx. USD 370 million) in emergency relief packages for flood-hit Himachal Pradesh and Punjab, along with ₹1,066.8 crore (approx. USD 130 million) for six states: Assam, Uttarakhand, Kerala, Meghalaya, Manipur, and Mizoram. 

Against this backdrop, there were great expectations from the Union Budget to signal the pathway to balance India’s decarbonization and adaptation strategies, especially as the Economic Survey dedicated a full chapter on it. 

But did the budget deliver on these expectations? 

Well, the answer is not a simple yes or no. 

The government delivered effectively on India’s 2070 Net Zero Strategy with focusing on energy transition, clean technology and industrial competitiveness. 

1. Carbon Capture, Utilisation and Storage (CCUS): The most direct climate-related announcement in the budget was the Rs 20,000 crore (approx. USD 2.4 billion) allocation over five years for CCUS across hard-to-abate sectors such as power, steel, cement, refineries and chemicals. These industries form the backbone of India’s industrial economy but are also among its most emission intensive. With public funding of CCUS, the government signals that decarbonizing heavy industries will require targeted technological interventions along with industrial growth, recognizing CCUS as the core technological pillar for achieving net zero. However, a recent study warns of state’s over reliance on cardon dioxide removal strategies could jeopardize the net zero goals.
2. Energy Transition: The government has taken subtle efforts to support the energy transition in the country by reducing the cost of manufacturing clean technologies at home.
3. Greener logistics and city-led growth: Infrastructure continues to dominate the Indian budget. While designed to push for economic growth, it can hopefully be tied to better environmental outcomes. The budget proposes new dedicated freight corridors, expansion of inland waterways, and a cargo promotion scheme to shift the freight away from road transportation.
4. Critical Minerals and Rare Earth Supply Chains: Basic custom duty has been exempted on the import of capital goods required for processing of critical minerals in India. Additionally, a dedicated Rare Earth Corridor for mineral-rich states like Odisha, Kerala, Andhra Pradesh and Tamil Naidu has been proposed. These corridors shall support ease in mining, processing, research and manufacturing.
5. Increased funding to MoEFCC: A key announcement has been the increased budgetary allocation to the Ministry of Environment, Forest and Climate Change to INR 3,759.46 crore, which roughly translates to an 8% increase from the previous estimate. The ministry is the apex body responsible for governing the environmental challenges across the country. 

While the budget does not explicitly mention climate change or mitigation, the priorities of the government towards clean-tech manufacturing and mitigation becomes clear. On the other hand, the budget not only omits to mention adaptation and climate resilience, it also fails to make any indirect allocation towards it. 

As per the government’s own estimates, around USD 206 billion (at 2014-15 prices) would be required from 2015 to 2030 to implement adaptation actions in agriculture, forestry, fisheries, infrastructure, water resources and ecosystem. Hence, there is a critical need for financing adaptation actions. Yet, the budget omits to set this agenda for adaptation and climate resilience. Three big gaps stand out.

1. Air pollution: The recognition of air pollution as a nationwide health and economic concern has far escalated from academic research to mass movements. In 2025, we saw hundreds of Indian citizens protesting for better air quality, not just in New Delhi, but across the country. Yet, the budget makes no mention of this imminent threat. On the contrary, the funding to the pollution control boards and the National Clean Air Programme has been reduced by over 15%.
2. Disaster preparedness and adaptive capacity: The budget has allocated INR 1.4 lakh crores to states as Finance Commission grants, which includes allocation for rural and urban local bodies and disaster management grants. These transfers are indeed substantial and shall give flexibility to states to respond to local risks. However, as climate impacts like heatwaves, floods, and other extreme weather events become more frequent and expensive, the expectation was for a stronger national signal to focus on preparedness.
3. Farmers and agricultural productivity: The budget frames agriculture largely around enhancing farmer's income, increasing productivity and diversifying crop products. The integrated development of 500 reservoirs and Amrit Sarovars (local ponds) for strengthening fisheries and value chains is another initiative targeted towards increasing farmer’s income. A multilingual AI tool has been proposed to support farmers by providing customized advisory. While all these initiatives are welcomed, the budget omits a larger conversation around building farmer’s resilience to the climate impacts, especially around comprehensive crop insurance reforms or other measures to protect against climate shocks. 

A common response to these concerns is that the Union Budget cannot and need not cover every aspect of India’s climate policy. This is true for a country like India, which has a quasi-federal structure, where many of the sectors critical to adaptation fall under state or concurrent list, such as agriculture, public health, water management. However, the Union Budget also serves another purpose: to signal priorities and set a direction for the policy instruments, markets, state budgets, and citizens. Hence, at the time when India is experiencing its climate vulnerability everyday, the budget was expected to signal adaptation and climate resilience as a core development priority. According to the Economic Survey, adaptation and “resilience-related” domestic spending had increased from 3.7% of the country’s GDP in 2016-17 to 5.6% in 2022-23. The budget could have built on that momentum with clearer framing and priority setting. 

India has already demonstrated leadership in scaling its renewable energy and clean-tech manufacturing capacities. The government has framed this budget around three Kartavyas (duties): accelerating and sustaining economic growth, expanding opportunities and capacities of citizens, and building resilience to an increasingly volatile global environment. As extreme weather events continue to threaten these duties, the government needs to signal their primary duty and leadership in adaptation by building systems that protect people, ecosystems, and infrastructure from the everyday climate shocks.

Ashima Gulati is a lawyer by training and a policy consultant with over eight years of experience in India’s public policy sector, working at the intersection of education, healthcare, and climate change to improve the well-being of marginalised communities. She is currently pursuing the MSc in Sustainability, Enterprise and the Environment at the Smith School of Enterprise and the Environment as an Indira Gandhi Scholar at the Oxford India Centre for Sustainable Development. Previously, she has completed her Master of Public Policy from the Blavatnik School of Government, University of Oxford.