The Union Government's annual budget for 2025-2026 ("Budget") recognizes 'securing energy supplies' among the 10 broad focus areas. Additionally, the Budget also aims to augment transformative reforms across power sector and mining. Other notable focus areas include: (a) 'investing in people, economy and innovation'; and (b) 'supporting MSMEs'. The update highlights certain key changes proposed in the Budget for infrastructure and power sector.
Infrastructure Sector:
- Public Private Partnership ("PPP") in Infrastructure: Bringing significant focus on the PPP model, the Union Government announced that each ministry involved in infrastructure sector will come up with a 3-year pipeline of projects that can be implemented in PPP model.
- Support to State Government for Infrastructure Capacity Building: The Union Government has promised infrastructure capacity support to the State Governments. The State Governments are also encouraged to promote PPP model and have been permitted to seek support from the India Infrastructure Project Development Fund ("IIPDF") scheme to prepare PPP proposals. Additionally, a fiscal outlay of INR 1,50,000 crore has been proposed for providing 50 year interest free loans to State Governments for capital expenditure and incentives for reforms.
- Urban Challenge Fund: Reiterating its commitments in the past budget for 2024-2025, towards 'Cities as Growth Hubs', 'Creative Redevelopment of Cities' and 'Water and Sanitation', the Union Government has announced the setting up of an Urban Challenge Fund of INR 1,00,000 crore to implement the proposals for aforementioned aims. The fund will finance up to 25% of the cost of bankable projects with a stipulation that at least 50% of the cost is funded from bonds, bank loans, and PPPs. An amount of INR 10,000 crore has been proposed to be allocated for 2025-2026.
- PM Gati Shakti Data for Private Sector: In addition to the financial push for promoting PPPs, the Union Government proposed sharing of access to relevant data and maps from the PM Gati Shakti portal to assist the private sector in project planning.
- UDAN – Regional Connectivity Scheme: Highlighting the success of the UDAN-Regional Connectivity Scheme, the Union Government proposed a modified UDAN scheme aiming to enhance regional connectivity to 120 new destinations and carry 4 crore passengers in the next 10 years.
Power Sector:
- Incentivising Distribution and Intra-state Transmission capacity: The Union Government has proposed an additional borrowing equivalent to 0.5% of the gross state domestic product for states, which augment the intra-state transmission capacity and undertake electricity distribution reforms.
- Clean Technology Manufacturing: The Union Government announced a National Manufacturing Mission for small, medium and large industries. The mission involves policy support, execution roadmaps, improved governance. Additionally, the mission, in order to support India's commitment to climate-friendly development, will aim to improve domestic value addition and build the ecosystem for solar PV cells, EV batteries, motors and controllers, electrolyzers, wind turbines, very high voltage transmission equipment and grid scale batteries.
- Nuclear Energy: In order to promote the energy
transition efforts, the Union Government has set the aim of
developing at least 100 GW of nuclear capacity by 2047 and has
promised amendments to Atomic Energy Act and the Civil Liability
for Nuclear Damage Act. The amendments will be aimed at promoting
active partnership with private sector for achieving the nuclear
energy targets.
To facilitate the nuclear targets, the Union Government has also proposed establishing a Nuclear Energy Mission for research & development of Small Modular Reactors ("SMR"). The proposed target is to have at least 5 indigenously developed SMRs, operational by 2033. - Duties: In order to boost the domestic manufacturing of lithium-ion batteries for electric vehicles, the Budget proposes 35 additional capital goods to the list of exempted capital goods. Further, taking forward the basic custom duty waiver announced in the budget for 2024-2025, the waiver has been expanded to of lithium-ion battery, Lead, Zinc and 12 more critical minerals.
- Allocation: The net allocation under the Budget for the Ministry of Power is INR 21847 crore whereas the allocation for the Ministry of New and Renewable Energy is INR 26549.38 crore.
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