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Union Budget 2025-26 - Key Highlights for the Infrastructure and Energy Sectors

Anticipating a ripple effect on employment generation and attracting private capital, the government has doubled down on massive public spending through infrastructure in Budget 2025-26, with large connectivity projects and urban redevelopment being the main focus. Key highlights for the infrastructure sector in the Union Budget – 2025-26 are as follows:

  1. Capital Expenditure: ₹11.21 lakh crore has been allocated for infrastructure, which is 3.1% of GDP. This significant investment aims to boost infrastructure development across the country, focusing on roads, railways, urban development, and more.
  2. Urban Development: A ₹1 lakh crore Urban Challenge Fund has been created to transform cities into growth hubs and improve water and sanitation infrastructure. The fund will cover up to 25% of the cost for bankable projects, with a stipulation that at least 50% of the funding comes from bonds, bank loans, or public-private partnerships (PPPs).
  3. Public-Private Partnerships (PPP): Each infrastructure ministry will present a three-year list of PPP projects, with a focus on three PPP proposals per ministry. An initial ₹10,000 crore has been proposed for the fiscal year 2025-26 to launch the initiative. This aims to encourage private sector participation in infrastructure projects.
  4. Interest-Free Loans: ₹1.5 lakh crore in interest-free loans for capital expenditure has been proposed. This measure is designed to provide financial support to states and union territories for their capital expenditure needs, without the burden of interest.
  5. Asset Monetisation Plan: A ₹10 lakh crore asset monetisation plan for the 2025-30 period has been introduced to boost infrastructure growth. This plan involves leasing out government-owned assets to private players, generating revenue that can be reinvested in infrastructure projects.
  6. Jal Jeevan Mission: The outlay for the Jal Jeevan Mission has been increased to ensure 100% coverage of potable water supply to households. This mission aims to provide safe and adequate drinking water through tap connections to every rural household by 2024.
  7. UDAN Regional Connectivity Scheme – The scheme, which aims to make air travel more affordable and accessible, has been allocated ₹540 crore for FY26 to connect 120 new destinations and facilitate the travel of four crore passengers over the next 10 years. This expansion is part of the government’s efforts to enhance regional connectivity, especially in underserved areas.
  8. Bihar is set to get a Greenfield Airport to supplement the existing Patna and Bihta airports.

Key Highlights from the Union Budget 2025-26 focussing on Energy Transition.

The Union Budget 2025-26’s much desired and anticipated focus on clean power, manufacturing and sustainability will foster growth for the green energy sector. The promotion of nuclear energy along with the proposed legislative reforms demonstrates progressive approach to energy security and decarbonization. The key highlights from the Union Budget -2025-26 catalysing energy transition are as follows:

  1. National Manufacturing Mission: This initiative aims to support domestic manufacturing of clean-tech products like solar PV modules, EV batteries, wind turbines, and electrolyzers. The mission includes the creation of global manufacturing clusters to position India as a global industrial powerhouse.
  2. Solar Power: ₹1,500 crore has been allocated for grid-connected solar power projects; The PM Surya Ghar: Muft Bijli Yojana has received ₹20,000 crore to promote rooftop solar installations. This scheme has already achieved over 600,000 rooftop solar installations in under a year.
  3. Green Hydrogen: The National Green Hydrogen Mission has been allocated ₹600 crore to position India as a global leader in green hydrogen production. This initiative aims to decarbonize sectors like shipping, fertilizers, and petrochemicals.
  4. Energy Storage: Duty exemptions on critical minerals like cobalt, lithium, and zinc, and capital goods for EV and mobile phone battery manufacturing have been introduced to build a resilient energy storage ecosystem.
  5. Power Sector Reforms: ₹48,396 crore has been allocated to the power sector, focusing on grid modernization, prepaid smart metering, and infrastructure upgrades. The budget emphasizes strengthening electricity distribution and incentivizing states to implement critical distribution reforms.
  6. Nuclear Energy: A target of 100 GW nuclear power capacity by 2047 has been set. A ₹20,000 crore research and development initiative for SMRs has been launched, aiming to have at least five indigenously developed SMRs operational by 2033. SMRs are smaller, more flexible nuclear reactors that can be built more quickly and at a lower cost than traditional reactors.
  7. Battery Storage: The budget introduces significant tax exemptions to promote the production of lithium batteries. The government has removed the Basic Customs Duty (BCD) on essential materials like cobalt, lithium-ion battery scrap, lead, zinc, and other critical minerals. This measure aims to lower costs for industries reliant on these materials, such as EVs, clean energy, and electronics manufacturing.
  8. Solar PV Cells: The budget emphasizes promoting domestic manufacturing of solar PV cells. The National Manufacturing Mission aims to boost domestic production of solar PV modules, wind turbines, grid-scale batteries, and electrolyzers1. This initiative is expected to reduce dependency on imports and strengthen India’s position in the global renewable energy supply chain.