India’s Finance Minister, Nirmala Sitharaman, presented the Union Budget 2025-26 outlining an ambitious roadmap towards a sustainable future with a focus on economic growth and sustainable development. The budget outlines several initiatives and allocations through four engines of development- Agriculture, Micro, Small & Medium Enterprises (MSME), Investments and exports and is not just India’s financial blueprint for the fiscal year but a positive force for sustainable development & clean energy revolution.
Key Highlights of the Budget – The Influence of “Engines of Development” on Sustainability
Driving sustainability across agriculture
The 2025-26 Union Budget emphasizes agriculture as a key growth driver, with initiatives like the Prime Minister Dhan-Dhaanya Krishi Yojana (PM-DDKY) targeting 100 low-productivity districts and benefiting 1.7 crore farmers. The scheme focuses on crop diversification, sustainable irrigation practices, and credit access, with a special focus on women, youth, and small farmers. Measures include raising the Kisan Credit Card loan limit from INR 3 lakh to INR 5 lakh, launching a self-reliance mission for pulses for the 6-year “Mission for Aatmanirbharta in Pulses” with focus on Tur, Urad and Masoor Dal, a high-yielding seeds mission, and a urea plant in Assam with annual capacity of 12.7 metric tons. Additional initiatives aim to boost productivity in cotton, Makhana production in Bihar, and promote sustainable fisheries in India’s exclusive economic zones with special focus on Andaman & Nicobar Islands and Lakshadweep. However, concerns remain over the reduced Pradhan Mantri Fasal Bima Yojana (PMFBY) allocations and fertilizer subsidies, which could impact agricultural sustainability and farmer welfare.
Promoting environmental and socially responsible operations among MSMEs
The budget highlights MSMEs as a vital component of India’s economic growth, proposing an increase in investment and turnover limits to 2.5 and 2 times respectively, and enhancing credit guarantees for MSMEs and start-ups. The Ministry of MSMEs receives INR 23,168 crore, with targeted support for sectors like footwear, leather, and toys to boost productivity and exports. A new loan scheme for women and SC/ST entrepreneurs, offering loans up to INR 2 crore, was also introduced. Additionally, the “Fund of Funds” (FoF), which is a type of mutual fund investing in other funds, for Start-ups is expanded by INR 10,000 crore, with a 19% increase in entrepreneurship training allocations, focusing on empowering and growing MSMEs. These budgetary provisions emphasize MSMEs’ role in innovation and job creation. Additionally, encouraging MSMEs to integrate sustainable business practices, facilitating access to green finance, supporting their transition toward more environmentally responsible operations.
Investments
The budget prioritizes investments in welfare, innovation, and infrastructure. Welfare programs like Saksham Anganwadi and Poshan 2.0 target children, women, and adolescent girls, while educational innovations include 50,000 Atal Tinkering Labs and rural broadband connectivity. An Urban Challenge Fund of INR 1 lakh crore has been announced to implement the proposals for Cities as Growth Hubs, Creative Redevelopment of Cities, and Water and Sanitation allocation of INR 10,000 crore proposed for 2025-26. Infrastructure investments include INR 1.5 lakh crore for interest-free loans to states, as well as reforms to boost the maritime sector and electricity distribution and intra-state transmission capacity through reforms, and an additional 0.5% borrowing limit for states contingent on these reforms. To support long-term energy goals, India plans to develop 100 GW of nuclear energy by 2047 for Viksit Bharat, supported by a INR 20,000 crore Nuclear Energy Mission. The budget also allocates INR 20,000 crore for private sector-driven Research & Development and launches a Deep Tech Fund of Funds for emerging technologies.
A second gene bank will be set up for future food security, and the National Geospatial Mission will help modernize land records and urban planning. Additionally, the Gyan Bharatam Mission will preserve India’s manuscript heritage and establish a National Digital Repository for Indian knowledge systems, ensuring the long-term sharing of knowledge and resources. Through these initiatives, the government aims to ensure that India remains at the forefront of sustainable growth, technological innovation, and energy development. As green finance gains traction in today’s world, there will be a greater need for companies to demonstrate their environmental credentials to attract investments. This will drive the demand for robust and standardized sustainability reporting.
Exports
To boost India’s global trade and manufacturing, the budget introduces an Export Promotion Mission with sector-specific targets and creates the Bharat Trade Net (BTN) platform for streamlined trade documentation and financing. The budget focuses on enhancing domestic manufacturing capacities in key sectors and creating Global Capability Centers in tier-2 cities to promote skill development and infrastructure. Infrastructure upgrades for air cargo and horticultural exports are also planned, aimed at improving efficiency and global competitiveness. These initiatives aim to strengthen India’s position in global trade supply chains.
Projections and Gaps in Sustainability & Climate Action in India’s Union Budget, 2025-26
The 2025-26 Union Budget demonstrates a commitment to economic growth while presenting a nuanced picture regarding its contribution to sustainability and ESG objectives. While certain initiatives, such as the focus on nuclear energy for the R & D of Small Modular Reactors (SMR) and the promotion of climate-resilient agricultural practices through PM-DDKY, signal a positive direction, critical gaps persist across the four aspects relating to sustainability necessitating further policy attention and strategic actions. The budget’s emphasis on MSME development, particularly with targeted support for women and SC/ST entrepreneurs, acknowledges the social dimension of sustainable growth, yet a more holistic approach is needed to address frameworks required to help them establish environmental sustainability. While investments in R&D and deep tech hold promise for future sustainable solutions, their effectiveness will depend on alignment with clear environmental and social priorities.
Agricultural productivity and environmental sustainability
A key area for improvement lies in addressing the complex interplay between agricultural productivity and environmental sustainability. While the budget acknowledges the need for sustainable agriculture, the reduction in fertilizer subsidies and PMFBY allocation raises concerns about potential trade-offs. A more strategic approach would involve incentivizing balanced fertilization practices, promoting organic alternatives, and strengthening climate risk management mechanisms for farmers. Furthermore, the budget’s silence on crucial agricultural reforms, such as addressing Minimum Support Price (MSP) and loan waiver issues, risks exacerbating farmer distress and hindering long-term sustainability.
Approach to environmental sustainability
Beyond agriculture, the budget’s approach to environmental sustainability requires greater depth. While renewable energy is acknowledged, the absence of concrete measures for promoting green hydrogen, a critical element in long-term decarbonization strategies, represents a missed opportunity. Similarly, the lack of focus on establishing a robust carbon market framework, crucial for incentivizing emissions reductions, limits the budget’s impact on climate change mitigation. Furthermore, while infrastructure development is prioritized, the budget lacks specific provisions for integrating environmental safeguards and impact assessments into project planning and execution. This raises concerns about potential environmental externalities associated with rapid industrialization.
Gaps in promoting ESG integration
Finally, a crucial element missing from the budget is a comprehensive strategy for promoting ESG integration. While social inclusion is addressed to some extent, the absence of a mandatory framework for ESG reporting, which is still in a nascent stage, limits India’s opportunity to become a global sustainability leader for the future-ready vision of Viksit Bharat, when compared to the other countries. This makes it difficult to assess the true impact of various initiatives on environmental and social outcomes. A more robust approach would involve ESG reporting guidelines, incentivizing sustainable business practices, and promoting investor engagement on ESG issues.
Summary
The 2025-26 Union Budget presents a mixed picture regarding its commitment to a sustainable future. While it highlights positive strides in areas like renewable energy and MSME support, significant gaps remain relative to all four engines in terms of sustainability. A focus on crucial elements of a robust sustainability strategy, including the development of green hydrogen markets, green finance for businesses, carbon markets, establishing comprehensive environmental safeguards, and outlining a strong ESG reporting framework, are either missing or underdeveloped. While the budget includes some positive steps towards sustainability, it requires further refinement to fully align with ESG principles in areas such as green investments and supply chain sustainability that are crucial for achieving a truly sustainable and inclusive growth trajectory. This would not only mitigate environmental risks but also enhance India’s attractiveness as a destination for responsible investment.
Ways to Capitalize on Opportunities
- Develop Green Finance Frameworks: The government can work with financial institutions to develop clear frameworks and guidelines for green finance, including taxonomies for green projects and standards for green bonds.
- Incentivize Sustainability Reporting: The government can provide incentives for companies to adopt sustainability reporting, such as tax breaks or preferential access to government contracts.
- Build Capacity: The government can invest in capacity-building programs to train professionals in sustainable finance and sustainability reporting.
- Promote Data and Technology: The government can support the development of data and technology solutions to facilitate sustainability reporting and analysis.
This article is penned by Preethika Kadire, Technical Lead- ESG Consulting at NeoImpact. Preethika is an enthusiastic ESG research professional with expertise and knowledge in ESG reporting, sustainability strategy, and regulatory compliance across global and regional sustainability standards.
