Archives: Publication

India is gearing up for green transition through policy and budgetary support to reduce dependence on finite fossil fuels, to curb greenhouse gas emissions, and to mitigate climate change. The Viksit Bharat 2047 vision aims to transform India into a developed nation, which will drive a significant rise in energy demand across industries, infrastructure, and households. To meet this growing demand sustainably, India must focus on renewable energy expansion and green technologies. India is moving towards its Net Zero goal by allocating budgetary support to the green energy sector to accelerate sustainable development, while balancing it with its growth and developmental aspirations. The primary focus of the mitigation effort on the budgetary allocation in the Union Budget 2025-26 is on solar and nuclear sources

Solar energy gets top priority
There has been 39% increase in net revenue expenditure in nominal terms in budget estimates for Ministry of New and Renewable Energy in 2025-26 as compared to 2024-25. For solar energy, there is 48% increase in budget allocation in 2025-26 as compared to 2024-25, in nominal terms, mainly allocated for revenue expenditure.

Under central sector schemes, major increase in budget allocation happened in PM Surya Ghar Muft Bijli Yojana, which increased from INR 6,250 crore in 2024-25 budget estimate to INR 20,000 crore in 2024-25. There is also increase in budget allocation on Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) from INR 1496 crore in 2024-25 to INR 2600 crore in 2025-26. These two programs are gaining importance in promoting solar energy, since the allocation for both these programs were increased in revised estimates on 2024-25 as compared to budget estimates. While under PM Surya Ghar Muft Bijli Yojana the government is targeting to solarizing one crore households by providing free electricity upto 300 units every month, KUSUM program aims to increase the income of farmers, provide sources for irrigation, de-dieselization the agricultural sector, promoting setting up of standalone solar pumps and solarization of existing grid-connected agricultural pumps.

Under the Other Central Sector Expenditure head, there is 42% increase in budget allocation in nominal terms on National Institute of Solar Energy, from INR 20 crore in 2024-25 to INR 28.4 crore in 2025-26. Majority of the expenditure happened in revenue section, while capital expenditure for these renewable energy sources has shown some dip

Budgetary push for nuclear energy
Significant importance is laid upon Nuclear Energy Mission for Viksit Bharat, which envisions the addition of 100 GW of nuclear energy capacity by 2047. This initiative is expected to be a major contributor to India’s low-carbon energy mix. Additionally, a dedicated Nuclear Energy R&D Mission of Small Modular Reactors (SMR) with a budget of INR 20,000 crore is announced to drive innovation. There is 12% increase in gross budgetary allocation on revenue expenditure to the Department of Atomic Energy from 2024-25 to 2025-26, and in net terms, it is 9% increase in budget allocation, after adjusting recoveries and receipts. However, budgetary allocation for capital expenditure has reduced by 14% in 2025-26 over the past year.

Low emphasis on other renewable energy sources
Under Other Central Sector Expenditure, there is 47% increase in budget allocation in nominal terms on National Institute of Bio Energy, from INR 9.5 crore in 2024-25 to INR 14 crore in 2025-26. But under Central Sector Schemes/Projects, wind energy sector faced deceased allocation from INR 800 crore in 2024-25 to INR 500 crore in 2025-26. Ideally for grid balancing with an increasingly higher share of renewable electricity, it is essential to encourage growth of alternative renewable sources like wind, pump storage electricity, etc. However, this year union budget has not been forthcoming in this direction.

Enhancing Energy Storage and Grid Infrastructure
The ‘Make in India’ initiative has been extended to include clean technology manufacturing. To improve domestic value addition and reduce reliance on imports, the government is promoting local production of solar PV cells, EV batteries, motors and controllers, electrolyzers, wind turbines, very high-voltage transmission equipment, and grid-scale batteries. These efforts will enhance India’s self-sufficiency in clean energy technology while creating employment opportunities in the sector.

A major challenge in transitioning to renewable energy is ensuring stable and reliable power supply, given the intermittent nature of solar and wind energy. There is also infrastructure needed for increasing acceptability of electric vehicles. To address this, India has prioritized investments in energy storage. There is also emphasis on enhancement of battery storage, through allocation on Production Linked Incentive (PLI) Scheme for National Programme on Advanced Chemistry Cell (ACC) Battery Storage, which is the new generation of advanced storage technology. This initiative is expected to drive significant growth in key battery-consuming sectors, including consumer electronics, electric vehicles, advanced power grids, and solar rooftops, and reduce dependence on imports. There is budget allocation of INR 155.76 crore on this scheme in 2025-26 union budget.

To encourage domestic manufacture of lithium-ion battery, which is required for both mobile phones and electric vehicles, budget 2025-26 also proposed to add 35 capital goods for EV battery manufacturing, and 28 capital goods for mobile phone battery manufacturing. The budget 2025-26 also proposed to fully exempt cobalt powder and waste, the scrap of lithium-ion battery, Lead, Zinc and 12 more critical minerals, to encourage domestic manufacturing, and thus enhancing employment.

Green Mobility Initiatives
There is significant emphasis on promoting electric mobility in the budget 2025-26. Under PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) Scheme, which targets to comprehensive ecosystem for electric mobility, there is budget allocation of INR 4000 crore in 2025-26, and this allocation has more than doubled from the revised estimates of 2024-25. This scheme facilitates the adoption of e-trucks, e-buses, e-ambulances, and EV public charging stations. To reduce emissions in urban transportation, there is significant increase in allocation for PM e-Bus Sewa Scheme, for capital expenditure (INR 500 crore) in the budget 2025-26. Launched at 2023, this scheme targets at deploying over 38,000 electric buses across the country. Additionally, INR 12 crore is allocated to promote manufacturing of Electric Passenger Cars in India (SMEC), which aims to attract investments from global Electric Vehicle (EV) manufacturers and promote India as manufacturing destination for e-vehicles.

Summing Up
The government’s initiatives reflect their approach towards sustainability through emphasis on renewable energy generation, which is evident from significant increase in allocation in solar sector development, while areas like domestic manufacturing of storage, electric mobility and grid modernization are also covered. With the constraint in resources due to slowing of economic growth in recent years, allocation of budget funds is a challenge in India, where social sector is always a priority. But also, to support the goals of Viksit Bharat and Atmanirbhar Bharat, we need to mobilize resources for development of energy infrastructure, fostering domestic manufacturing, ensuring financial viability of clean energy projects, and incentivizing technological innovation in energy sector for a greener and resilient energy future.

Chetana Chaudhuri, Fellow, National Council of Applied Economic Research (NCAER)) and Prof. Sanjib Pohit, Professor & Thematic Lead—CGE Modelling and Policy Analysis, NCAER. Views are perspnal.

India’s public debt, at about 80 percent of GDP, is disproportionately high for its per capita income. Yet committed constituencies advocating for smaller or higher quality debt are largely absent. The complacency is because high debt has neither resulted in runaway interest rates or rollover risks nor is it seen to be a drag on growth.

The stability of debt is ascribed to the way it has been financed–domestically, at fixed rates, for long-term,  and in local currency. While foreign investors have been virtually debarred, insulating the debt market from global shocks, domestic institutional investors (banks, provident funds, and insurance companies) are mandated to hold a part of their balance sheets in government papers in the guise of “safe assets”.

Downsides of high public debt— by using up nation’s savings, it crowds out private investments; and interest payments leave inadequate resources for growth enablers such as education, health, R&D, and infrastructure–are hard to establish, resulting in their absence from the discourse.

The complacency has encapsulated the states as well. Collectively, a third of India’s public debt is held by the states, —large than other federal economies. But the states’ debt is perceived to be as safe as that of the Centre, if not more, due to its similar composition and the Centre’s implicit guarantee.

Masked in this safety is the remarkable heterogeneity across states. State debts vary from less than 20 percent of respective state GDPs in Odisha, Maharashtra, and Gujarat to more than 45 percent in Himachal Pradesh and Punjab.

During the last decade, a majority of India’s larger states,  Andhra Pradesh, Bihar, Chhattisgarh, Haryana, Himachal Pradesh, Jharkhand, Kerala, Punjab, Rajasthan, Tamil Nadu, and Telangana, have added more than 10 percentage points to their debt-to-state GDP ratios. Five states — Goa, Assam, Karnataka, Madhya Pradesh, and Uttarakhand — have increased their debt ratios moderately by 3 to 7 percentage points; and the debt ratios of five states — Maharashtra, Gujarat, Odisha, Uttar Pradesh and West Bengal — have fallen or remained flat.

States with larger increases in debt have recorded higher primary deficits and larger contingent liabilities. More indebted states spend larger proportions of their revenues on committed expenditures such as wages, salaries, pensions, subsidies, and interest payments, thereby impairing their growth prospects. Under the business-as-usual scenario, a majority of these states will become even more indebted, further widening their fiscal and developmental gap with the less indebted states.

So, what can be done to strengthen fiscal health of states?

First, states should be mandated to conduct a forensic analysis identifying revenue shortfalls or expenditure over-runs; to orient spending toward investments; and limit contingent liabilities. For strengthening institutional capacity, states should be asked to establish their own independent fiscal councils. These councils should assess the realism of state government forecasts of revenues and expenditures, offer forecasts of their own, and provide analyses of the scope for realization of contingent liabilities. A model for setting up the councils can be proposed by NITI Aayog, while their initial funding can be allocated in the Union Budget.

Second, with many states violating their fiscal rules, it is time to re-assess and overhaul the fiscal rules.

Third, the role of the Finance Commission needs a relook.  Finance Commissions have perversely been mandated to allocate more resources to states with larger revenue deficits. They should instead factor in overall fiscal prudence when recommending allocations; suggest procedures to hold the states accountable for laxity; and ensure credible corrective action.

Fourth, states display little heterogeneity in the rates at which they borrow. Their borrowing rates do not vary with the level of indebtedness, primary deficit, or economic growth. Instead, more indebted states can issue longer tenor securities without having to pay a term premium or a risk premium. For example, Punjab, with a debt-to-GDP ratio of twice as large as that of Gujarat, pays the same interest rate on its securities as Gujarat.

This lack of variation reflects the perceived guarantee of the Centre, resulting in investors’ apathy to discriminate across states. In addition, the Reserve Bank of India ensures that interest rates on state debt remain in a tight range. The policy of defacto capped spreads on the bonds of heavily indebted states should be revisited while allowing market discipline to play a larger role.

Finally, as a last resort, there may be room for a fiscal “grand bargain”, where heavily indebted states receive some debt relief (a portion of their debt is transferred to the balance sheet of the Central Government) in return for them conceding additional Central Government oversight, amending their practices, and even some dilution of fiscal autonomy. Such bargains have worked in other fiscal federations.

A ‘Viksit Bharat’ needs Viksit states; and Viksit States need healthy public finances.

Enhancement of the limit is not sufficient to make the scheme more accessible or beneficial to a broader section of farmers. The repayment schedule is also a significant challenge.

Budget 2025 is one of the most promising Budgets in recent years, aiming to address the needs of the masses after a long time. One of its key announcements, the enhancement of interest subvention limit on the Kisan Credit Card (KCC) is undeniably a great move. However, there is this growing perception that increasing the credit limit will benefit all farmers. The reality, however, is more nuanced. Raising the interest subvention on short-term credit limit from ₹3 lakh to ₹5 lakh is likely to benefit only large farmers, not the majority of small and marginal farmers.

The KCC provides both short-term and term credit, depending on farmers’ needs. Short-term credit is primarily used for operational costs, determined by district-level technical committees and the size of a farmer’s landholding. An additional 30 per cent credit limit is also provided for household consumption and farm maintenance. While there is no upper limit on short-term loans under KCC, the interest subvention previously capped at ₹3 lakh has now been raised to ₹5 lakh. However, the criteria for term credit remain unchanged, so this discussion will focus solely on short-term credit.

As mentioned earlier, KCC is highly dependent on landholding size, which influences the credit limit eligible for interest subvention. This means that farmers who previously couldn’t access credit beyond ₹3 lakh will still not benefit from the increase. Only those with sufficiently large landholdings — who were already capable of borrowing above the previous limit — will now receive interest subvention on a higher amount.

Misleading figure

The claim that 7.7 crore farmers will benefit from this policy may be misleading. This figure represents all KCC holders, but not all will gain from the increased limit. Nonetheless, the role of KCC in improving farmers’ financial security remains crucial. The scheme has facilitated financial inclusion and farm insurance, helping even marginal farmers move away from exploitative informal credit sources. Studies have shown that the availability of credit has a significant impact on farmers’ income and KCC has enabled numerous farmers to sustain better by making crucial inputs accessible.

While raising the subvention limit was long overdue, it is not sufficient to make the scheme more accessible or beneficial to a broader section of farmers. Several challenges persist, the most significant being the repayment schedule. Farmers are required to repay the loan within 12 months, but agricultural income does not ensure a regular cash flow. Even after harvest, cash inflows may be delayed, making timely repayment difficult.

Introducing a repayment deferment period, allowing farmers to start loan repayment after a couple of months and extended repayment tenure, would provide much-needed flexibility, enabling small farmers to manage their credit more effectively and make better farming decisions. For short-term loans, an additional 10 per cent credit limit is provided under KCC for household expenses, which needs to be revised considering the ever-increasing cost of living.

Furthermore, Indian agriculture has an underdeveloped system for integrated farming mainly owing to the higher cost of implementation. Even though integrated farming has shown significant income growth for small farms which is the key highlight of Indian agriculture, this opportunity has not been tracked. Incorporating special provisions for integrated farming through KCC may help to increase farm income.

Data transparency

Information regarding KCC is fairly opaque and there is no publicly available data regarding the credit limit, credit utilisation, and repayment timeline, so it makes it quite unclear how much beneficiaries would benefit from this increased credit limit.

Currently, only data on KCC disbursement is reported, making it difficult to assess the scheme’s inclusivity for small and marginal farmers. Several primary studies have highlighted their limited participation, but this issue will remain unresolved unless comprehensive data on credit allocation and utilisation are made publicly available. Providing more transparent data would help policymakers and researchers evaluate the scheme’s real impact and address existing gaps more effectively.

There is a lot this scheme needs, however, increasing the subvention limit could be a significant step forward. Increasing the personal use limit from 10 per cent to higher, providing repayment deferment, and provisions to promote the implementation of integrated farming through KCC could benefit the smallholder and marginal farmers much more significantly. Better data availability on KCC would help contribute to greater knowledge creation unveiling the unseen issues this scheme may have.

The writer is Research Associate at National Council of Applied Economic Research. Views are personal.

A shift in focus from continuous expansion to ensuring sustainability and effectiveness of programmes is imperative for achieving policy success.

The world is at a crossroads, navigating unprecedented economic, technological, geopolitical, and environmental challenges. Donald Trump’s uncompromising “America First” policies and the use of coercion to achieve his objectives have heightened economic and geopolitical uncertainties, compelling nations to strike a balance between global integration and self-reliance. Against this backdrop, the finance minister presented a Budget that articulated the multipronged strategy adopted by the government to navigate these challenges and seize emerging opportunities. The Budget is anchored on a well-designed framework founded on four key pillars of the economy: agriculture, micro, small, and medium enterprises (MSMEs), manufacturing, and exports, incorporating a strategic mix of structural reforms, targeted investments, productivity growth, skill development, digital transformation, innovation, and green energy on the supply side. This is besides enhanced consumer spending power on the demand side to drive growth and competitiveness, while addressing social welfare concerns.

However, the thrust has been on announcing new programmes and policies across the four sectors, in addition to existing ones. This phenomenon, known in emerging literature as policy accumulation or policy layering, raises concerns about the effectiveness of implementation and governance.

Over the past few years, India has witnessed phenomenal policy dynamism, with policies/programmes piling up across sectors. However, this has not been reflected in macroeconomic indicators of structural change, growth, and competitiveness. Could it be that the ever-increasing policy stock, without commensurate strengthening of administrative and governance capacities, has resulted in an implementation deficit that negatively affects policy effectiveness? This issue is explored at the sector level, with a focus on MSMEs.

A major highlight of the Budget is enhanced support for MSMEs, through a revision of the classification criteria that enables businesses to scale efficiently without losing government benefits. The investment limits for MSMEs are set to increase 2.5 times with micro-enterprises’ limit rising from Rs 1 crore to Rs 2.5 crore, small enterprises from Rs 10 crore to Rs 25 crore, and medium ones from Rs 50 crore to Rs 125 crore. Turnover limits are also proposed to double, with micro-enterprises increasing from Rs 5 crore to 110 crore, small enterprises from Rs 50 crore to Rs 100 crore, and medium enterprises from Rs 250 crore to Rs 500 crore. To further support MSMEs in achieving economies of scale, the Budget directly addresses their most pressing challenge — access to finance — through several new initiatives, including a Rs 5 lakh credit card for micro-enterprises registered on the Udyam portal, a loan scheme targeting first-time entrepreneurs (particularly women and Scheduled Caste/Scheduled Tribe applicants), enhanced credit availability with a guarantee cover for MSMEs, start-ups, and exporters, an extension of tax benefits under Section 80-IAC to all eligible start-ups incorporated before April 1, 2030, a deep tech Fund of Funds to catalyse next-generation start-ups, and an Export Promotion Mission to facilitate export credit access, cross-border factoring support, and assistance in overcoming non-tariff barriers.

The fact is that numerous government schemes have already been launched or revamped over the past two decades to support MSMEs. These include Mudra loans for financial assistance, the Credit Guarantee Fund Scheme, the Zero Defect Zero Effect certification scheme to encourage quality manufacturing, the Prime Minister’s Employment Generation Programme for micro-enterprise establishment, the Credit Linked Capital Subsidy Scheme for technology upgrades, the Micro and Small Enterprises Cluster Development Programme for common facility centres and industrial estate upgrades, and the Reserve Bank of India (RBI)-initiated Restructuring of Advances scheme for loan restructuring under specific conditions. Yet, their effectiveness remains questionable. An analysis of the World Bank’s Enterprise Survey for India (2022) reveals that out of 9,003 MSMEs, only 663 (7.4%) reported receiving any government support in the previous fiscal year. Among them, 40% found the schemes ineffective in driving business growth, implying that only 4.4% MSMEs benefitted meaningfully. The most accessed schemes were the Cluster Development Programme (155 enterprises, 35.5% satisfaction), Restructuring of Existing Loans (141 enterprises, 75% satisfaction), Mudra loans (80 enterprises, 56% satisfaction), and the production-linked incentive scheme in textiles, food, and miscellaneous sectors (75 enterprises, 89% satisfaction). Other schemes had minimal impact. The overall low adoption and satisfaction rates suggest an implementation gap.

One of the primary challenges faced by MSMEs is delayed payments from larger companies, leading to cash flow shortages and inadequate working capital. The MSME Act, 2006, (Section 16) mandates that buyers must settle dues within 45 days of accepting goods or services, failing which they are liable to pay compound interest at thrice the RBI-notified bank rate. However, compliance remains weak. To address this, the RBI introduced the Trade Receivables Discounting System (TReDS) in 2014, enabling MSMEs to discount invoices via an auction mechanism. According to survey data, out of 814 MSMEs that uploaded invoices on a TReDS platform, 452 received funding, with 97% securing it within 45 days. However, adoption remains low, with only 962 enterprises (less than 11%) of the 9,003 surveyed registered on the platform. In 2017, the government also launched the MSME SAMADHAAN-Delayed Payment Monitoring System, yet 45% MSMEs selling on credit in the sample still reported payment delays, negatively impacting liquidity.

Evidently, extreme policy dynamism —introducing multiple programmes each year while maintaining existing ones — can overburden bureaucracy, strain resources, and compromise the implementation of initiatives. A shift in focus from continuous expansion to ensuring sustainability and effectiveness of programmes is imperative for achieving policy success.

The writer is senior advisor, Agriculture, Industry, Trade, Technology and Skills Team, National Council of Applied Economic Research. Views are personal.