India’s FY2027 budget shifts focus from renewable deployment to manufacturing, but execution challenges persist, says Wood Mackenzie

Clean energy spending in India’s FY2027 Union Budget rises 40% year-on-year to around $5 billion as government prioritises CCUS, domestic supply chains and strategic manufacturing. However, execution delays and underutilisation of allocated funds could limit the near-term impact, according to an analysis by Wood Mackenzie.

The Budget marks a strategic shift in the country’s energy transition, with primary focus shifting from renewable deployment toward domestic manufacturing and industrial decarbonisation. It prioritises carbon capture, battery storage, domestic manufacturing and critical mineral supply chains, signalling a more industrial policy-led approach to the energy transition.

“India is repositioning itself as an alternative clean energy manufacturing hub as global trade dynamics shift,” said Rashika Gupta, Vice President, Power & Renewables, Wood Mackenzie. “Recent trade agreements with the European Union and the United States materially improve export competitiveness for India-origin solar modules. However, persistent underutilisation of allocated funds and execution delays could still limit the near-term impact of these commitments,” added Gupta

CCUS: High project costs remain the primary barrier to scale

The India government has allocated $2.2 billion over five years for carbon capture, utilisation and storage (CCUS), targeting emissions reductions across power generation, steel, cement, refining and chemicals. The scale of the allocation reflects growing policy focus on hard-to-abate sectors.

“To date, CCUS investment in India has been largely driven by public sector companies such as NTPC and ONGC, with limited private-sector investment,” said Gupta. “High project costs remain the primary barrier to scale. As regulatory and implementation frameworks mature, we expect CCUS to move from pilot projects to early commercial deployment, catalysing broader private-sector participation and laying the foundation for a globally competitive carbon management ecosystem.”

Manufacturing ambition meets market constraints

The FY2027 budget removes import duties on lithium-ion battery cells, solar glass, nuclear equipment and machinery for critical mineral processing, reducing tariffs from 2.5–7.5% to zero. Data centres are designated as critical infrastructure, with foreign investor tax holidays extended to 2047 and a 15% safe-harbour regime for domestic operators.

Despite these incentives, implementation gaps persist. India currently has approximately 37 GW of PV cell manufacturing capacity, but utilisation remains below 30%. With local content requirements at the cell level taking effect in June 2026, up to three-quarters of projected demand could face supply constraints without accelerated ramp-up.

“The market remains underprepared for implementation of the approved list of PV cell manufacturers,” said Ankita Chauhan, Director, Supply Chain, Power & Renewables, Wood Mackenzie. “Similarly for batteries, while 40 GWh of the 50 GWh Advanced Chemistry Cell target has been awarded, upstream raw material volatility and execution challenges continue to slow manufacturing capacity buildout.”

Supply chain security and storage acceleration

To strengthen supply chain resilience, the government is backing the National Critical Mineral Mission with approximately $4 billion. Amendments to the Mines and Minerals Act in September 2025 aim to accelerate domestic exploration, with more than 200 projects underway. India is also diversifying supply partnerships with Argentina, Australia, and Chile.

India operates 4.4 GWh of battery cell manufacturing capacity, with an additional 180 GWh in the pipeline. However, import dependence primarily on China remains high. A proposed 20% domestic content requirement for battery components is intended to support localisation, Wood Mackenzie noted.

Installed battery storage capacity stood at around 0.8 GWh at end-2025, with more than 59 GWh under development. However, funding for the Green Energy Corridor programme, focused on grid strengthening, was reduced 25% year-on-year, potentially constraining transmission readiness as renewable penetration increases.

Hydrogen underutilised as nuclear momentum builds

Funding for the National Green Hydrogen Mission remains unchanged at $68 million after approximately 50% of FY2026 allocations went unutilised due to execution delays. Around 3 GW of electrolyser manufacturing capacity has been awarded under production-linked incentive schemes, with production expected to begin in FY2027.

In contrast, nuclear policy support strengthened following passage of the SHANTI Act 2025 and removal of customs duties on nuclear equipment through September 2035. The measures support India’s ambition to expand nuclear capacity to 100 GW by 2047, up from roughly 9 GW today, including the deployment of at least five indigenous small modular reactors by 2033.

“The FY2027 budget provides continuity and policy clarity, balancing energy transition objectives with energy security and industrial competitiveness,” Gupta added. “However, translating allocations into delivered capacity will require stronger coordination, faster approvals and improved utilisation rates. Execution remains the decisive factor in determining whether India can meet its 2070 net-zero ambition.”

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