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Uneven state spending and neglect of infrastructure threaten India’s renewable energy targets despite ambitious national pledges.

No country can scale renewable energy without robust infrastructure. Solar and wind power are variable, location-specific, and often generated far from consumption centres. Dedicated transmission corridors are needed to evacuate this power efficiently and reduce curtailments. Upgraded distribution systems and smart grids must manage intermittency, balance demand in real time, and enable two-way flows in decentralised systems such as rooftop solar.

Storage infrastructure—batteries, pumped hydro, and green hydrogen—provides grid stability during periods of low generation. At the local level, rural mini-grids and solar pumps support decentralised solutions. On the supply side, investments in domestic manufacturing of panels, turbines, and related equipment reduce import dependence. Institutional support, from forecasting tools to power exchanges and market mechanisms, makes renewable operations more efficient. Infrastructure, in short, is the backbone of India’s clean energy transition.

India’s ambitious targets and the reality gap

India’s rising energy demand, driven by urbanisation, industrialisation, and higher living standards, makes a transition to low-carbon systems imperative. The country has pledged net-zero by 2070 and a 500 GW non-fossil capacity by 2030. As of January 2025, renewable energy accounted for 46% of installed capacity, but just 22–24% of actual generation—evidence of intermittency, grid bottlenecks, and underutilisation.

The problem is uneven across states. Some regions with vast potential have failed to grow capacity, largely because of inadequate investment in renewable infrastructure.

State budgets and skewed priorities

A few states—Chhattisgarh, Jharkhand, Gujarat, Haryana, Maharashtra, and Uttar Pradesh—have prioritised renewable energy in their budgets. But most continue to spend disproportionately on revenue expenditure rather than capital investment.

Capital expenditure builds long-term assets—solar parks, transmission networks, storage facilities—while revenue expenditure covers salaries, operations, and subsidies. States that neglect capital formation risk stagnation, since infrastructure, not subsidies, determines future capacity.

State finances are central to India’s clean energy transition. With limited fiscal space and rising demands on welfare, subsidies, and infrastructure, many states struggle to prioritise renewable investments. Their dependence on central transfers and borrowings often leaves little room for capital spending on grids, storage, and manufacturing. Unless states improve fiscal management and reorient budgets toward long-term assets, the imbalance between revenue expenditure and capital formation will persist, slowing India’s march toward its clean energy targets.

Capital spending: The exception, not the rule

The contrast is stark. Chhattisgarh and Gujarat allocated 89% and 81% of their renbewable energy budgets, respectively, to infrastructure. Their approach shows a commitment to building lasting capacity.

By contrast, Haryana, Maharashtra, and Jharkhand devoted virtually their entire renewable budgets to subsidies and operations, leaving nothing for infrastructure. Uttar Pradesh spent 94% on revenue items. Even states with significant potential, such as Maharashtra and Haryana, report low installed capacity—underscoring the consequences of neglecting capital expenditure.

Towards a balanced fiscal strategy

Sustainable growth demands a more balanced allocation between capital and revenue. States must gradually raise capital expenditure shares by 15–20% annually over three to five years. This phased approach would preserve ongoing operations while steadily expanding infrastructure.

Public-private partnerships can help bridge funding gaps, as Gujarat and Chhattisgarh have demonstrated. To succeed, states will need flexible targets, regular progress reviews, financial innovation, and regulatory clarity. Capacity-building support for state agencies will also be essential.

India’s renewable energy journey is at a crossroads. Meeting ambitious national targets will require more than headline announcements of capacity expansion. Without systematic reforms in state-level spending, grid modernisation, and manufacturing, installed capacity will remain underutilised and generation targets unmet.

States that shift from subsidies to infrastructure, from short-term relief to long-term investment, will drive the next phase of India’s energy transition. Others risk falling behind, weakening the country’s collective march towards its clean energy goals.

Chetana Chaudhuri is Fellow, and Subrata Sekhar Rath Consultant at the National Council of Applied Economic Research (NCAER), New Delhi. Views are personal.

India’s goods and services tax (GST) is set for an overhaul by Diwali this year. With so much hope pinned on this reform, we must get every detail of the regime right. Here’s a look at some key issues that must be addressed by the GST Council. 

Indian Prime Minister Narendra Modi’s announcement on Independence Day about launching the next phase of goods and services tax (GST) reforms by Diwali this year adds tremendous heft and seriousness to this long-awaited policy change. There is a lot to be said about its timeliness too—with global headwinds in the wake of US tariff tantrums having dampened sentiment considerably in India’s manufacturing and export sectors.

The package not only clearly articulates the Centre’s vision of a reformed GST, but also pushes all the right buttons: we can expect a neater, less dispute-prone and stable rate structure; correction of rate-structure inversions; ease of living for businesses, with the streamlining of three key business processes of registration, return filing and refunds; a reduction in tax incidence for a wide array of constituencies ranging from students and women to the middle-class and farmers, with the burden eased on items of mass consumption as well as ‘aspirational’ goods.

The package on its way also acknowledges the need for stability in the rate structure, which is music to the ears of change-fatigued stakeholders.

In many ways, the level of ambition goes far beyond what was expected. First, what has been figural so far is mainly rate rationalization and the fate of the GST compensation cess. The current proposal, however, also goes into the administrative realm to address day-to-day pain points for businesses. It seeks to improve the mechanism for registration, return filing and refunds through greater use of technology.

Second, the expectation was that the four- rate structure of 5%, 12%, 18% and 28% slabs would be compressed to three. What is proposed now is a reduction to only two: reportedly, a standard rate of 18% and a merit rate of 5%, with a special rate of 40% only for a “select few” items that qualify as demerit or sin goods. Hopefully, this would be accompanied by broad banding goods of the same class under a uniform rate slab, so that classification disputes are minimized. Food products are a case in point.

Third, the proposed cuts are not only extensive in coverage but also deep.

But this is the Centre’s vision. For it to morph into reality, Indian states need to endorse it as and when the GST Council meets. According to reports, the group of ministers (GoM) on GST has already endorsed it. Judged by the yardstick of canons of taxation as well as mass appeal, the package is too attractive to be dismissed outright. Overall, at the national level, the proposal also seems to be revenue balanced or only marginally revenue negative, with the promise of losses expected to be neutralized in due course, thanks to its positive impact on retail prices and consumption.

It could be argued that some net revenue loss in the short-run is a small price to pay for such a simplified GST structure. In the absence of granular data on their respective consumption patterns and the balance between their imports from and export to others, it is not possible to compute the revenue implications for individual states.

Moreover, the GoM’s recommendations on the compensation cess remain unknown. The Centre appears to be of the view that the cess should go. Current Constitutional provisions do not allow GST-related cesses to be levied in any form. Given this background, it is legitimate for states—particularly those that foresee their revenues being impacted adversely—to seek some revenue-saving adjustments.

There are several possible ways in which these adjustments could be made. For instance, the current incidence (inclusive of compensation cess) on some ‘sin goods’ is much higher than 40% (the peak statutory rate of GST). This could be maintained through a suitable amendment of the GST law. Alternatively, the levy on tobacco products in excess of 40% could be loaded onto Central excise duty, which is also part of the divisible pool for revenue and would therefore reach state coffers too.

The list of items moving from 28% to 40% could include some ‘luxury goods’ in addition to demerit or sin goods. Likewise, some more items could migrate from 12% to 18% instead of going down to 5%. Another possible approach could be to phase in the reductions based on a pre-announced glide path, so that the drop in revenue is gradual.

While the proposed rate rationalization would receive a positive response both from industry and consumers, there are a few linked issues that need to be addressed for the transition to be painless. The ease of living pillar of the package already contains a reference to ironing out the GST refund process. If most items at 12% migrate to the lower rate of 5%, refunds arising from inverted rates would clearly increase under the new structure. It would impact pharmaceutical products, fertilizers and tractors, among others. Unless the refund mechanism for accumulated input tax credits is robust, timely and smooth, this would imply working capital being blocked for prolonged periods in such sectors.

Among the other major concerns that businesses have are whether and in what form the mechanism for implementation of anti-profiteering provisions would be reinstated, and whether they would have sufficient lead time to tweak their enterprise resource planning systems in the midst of the busy festival season. Hopefully, the GST Council will address these issues when it meets in September.

These are the author’s personal views. The author is senior advisor, KPMG and ex-chairman, central board of indirect taxes and customs.

Investing in robust public–private partnerships to deliver VET (Vocational Education and Training) is critical for successful skilling.

With a volatile external sector increasing the challenge of demand-driven growth, the Prime Minister unveiled a slew of proposed reforms from the Red Fort’s ramparts on August 15. While a recalibration of GST could induce higher domestic consumption and spur domestic investment with employment growth, India must seize this opportunity to also rethink its education system and increase the productivity and employability of its labour force. Our traditional education system — academic and rote-based — is unlikely to deliver a workforce equipped for the future of work.

In India and across the world, formal vocational or skill training is associated with higher chances of an individual being employed and obtaining a job in the formal sector. Yet, only 4 per cent of India’s workforce is formally trained, even though the institutional coverage of the Vocational Education and Training (VET) system is extensive — with over 14,000 Industrial Training Institutes (ITIs) and 25 lakh sanctioned seats. Actual enrolment was only around 12 lakh in 2022, implying just 48 per cent seat utilisation. Our VET system struggles with not only low uptake but also modest employment rates for those who undergo training. In 2018, the employment rate among ITI graduates was 63 per cent, whereas countries with robust VET systems such as Germany, Singapore, and Canada reported employment rates ranging between 80 and 90 per cent. These statistics point to a VET system that is both ineffective and unattractive to our youth.

The first factor is the stage of the education system at which VET is integrated. Countries that introduce VET earlier in the schooling system show a stronger association with better labour market outcomes. In Germany, for example, VET is integrated at the upper secondary level through a dual system, combining school education with paid apprenticeships. In contrast, in India, VET is an afterthought — offered post high-school education, which not only shortens the period available for hands-on training before the youth enter the job market, but also does not allow for orientation towards employable skills.

A second aspect is the absence of a defined pathway to higher (or academic) education via vocational skilling. For instance, Singapore offers VET either as technical education at the post-secondary level or via polytechnics at the tertiary level through dual vocational tracks, but has defined pathways from VET to traditional university education. India, in contrast, offers no formal academic progression from VET to mainstream higher education, nor does our education system offer credit transfers between systems. This reduces the uptake of VET by many who wish to keep the option of traditional, academic education viable.

Third, and possibly most important, is the perception and quality of VET in India. Singapore has industry-led curriculum design, high instructor quality, regular audits and a mechanism that seeks constant feedback from employers and trainees. Singapore also has a Skill Future Programme, where the government offers subsidies to upskill throughout one’s career. In India, in contrast, many courses are outdated and misaligned with industry needs. Over one-third of ITI instructor posts are vacant due to limited training capacity at National Skill Training Institutes. Quality monitoring is weak, with irregular ITI grading and no feedback systems.

Relatedly, investing in robust public–private partnerships to deliver VET is critical for successful skilling. In Germany, Singapore, and Canada, governments fund VET institutions, while employers pay for apprenticeships, share training costs, and also help design curricula. In India, the engagement of employers in the private sector is limited, if not absent. ITIs depend heavily on government funding, with minimal private sector investment in infrastructure and training apparatus. Medium and Small Scale Enterprises drive local job creation, but have low engagement with ITIs due to capacity constraints. Sector Skill Councils, which play a key role in integrating training with industry needs, lack state-level presence.

What can India learn from international experiences to overhaul its VET programme?

First, integrate VET into early schooling. The National Education Policy (NEP), 2020 recommends such integration, but progress has been slow. Second, fast-track reforms to implement the National Credit Framework that defines clear progression pathways and aims to have a board for nationally recognised certifications. Third, to improve training quality, align VET courses with local industry demand through regular market assessments, expand NSTIs and fast-track instructor recruitment to address capacity gaps, and strengthen ITI grading by incorporating trainee feedback. Fourth, scale models like the Private Training Partner approach by leveraging public infrastructure and private expertise. Involve MSMEs, and strategically use CSR funding to boost industry relevance. Fifth, increase public spending on VET and ensure the financial viability of institutions by linking public funding to their performance and granting them autonomy to generate their own revenue.

We must invest more in human capital. India allocates around 3 per cent of total education expenditure to VET, compared to 10-13 per cent in countries like Germany, Singapore, and Canada. Public funding can be optimised with improved financial viability of ITIs through lower per-student costs of training and by allowing ITIs autonomy to generate their own revenue.

Recent government schemes — such as the Employment Linked Incentive (ELI) scheme, the PM Internship Scheme, and the ITI Upgradation Initiative — reflect an increased focus on employment outcomes. ELI Part A offers up to Rs 15,000 for first-time EPFO-registered workers, while the revised ELI, Part B gives employers Rs 3,000 a month for every new hire. Both ELI schemes push formalisation of jobs but have no skilling components. The Prime Minister Internship Scheme aims to provide one-year placements to youth in top companies, but lacks pathways to permanent jobs. The ITI Upgradation Scheme focuses on modernising 1,000 government ITIs in partnership with industry, but not necessarily the quality of training.

Policy initiatives, thus far, have either tinkered on the margins of our existing education system or are afterthoughts. They are unlikely to transform the level of productivity and employability of our workforce unless we overhaul a system that is becoming increasingly outdated. Such an overhaul is crucial for making vocational training a pathway to jobs — an essential step towards a Viksit Bharat.

Afridi is professor of Economics, ISI (Delhi) and visiting professor, NCAER. Chandna is associate fellow, NCAER. Views are personal.