India’s Union Budget 2026–27 may not carry a standalone climate chapter, but its green intent runs deep through the fine print. From carbon capture and battery storage to critical minerals and clean manufacturing, the budget signals a strategic shift: climate action is no longer framed as an environmental add-on, but as industrial policy and economic risk management rolled into one.

Presented by Finance Minister Nirmala Sitharaman on February 1, 2026, the budget places clean energy and climate-aligned manufacturing at the heart of India’s growth narrative. With a GDP growth target of around 7 percent and a sharp focus on fiscal discipline, sustainability is being embedded into supply chains, cities, transport and finance—quietly but deliberately.

Carbon Capture Takes Centre Stage

The most striking climate-linked announcement is the Rs 20,000 crore allocation over five years for Carbon Capture, Utilisation and Storage (CCUS), aimed at hard-to-abate sectors such as power, steel, cement, refineries and chemicals. For the first time, industrial decarbonisation is being backed at scale through public finance, signalling recognition that renewables alone cannot carry India’s net-zero journey.

As Arunabha Ghosh of CEEW notes, the budget’s “prioritisation of carbon capture, utilisation and storage across power, steel, cement, refineries, and chemicals” places these sectors squarely at the centre of India’s long-term climate pathway. This marks a decisive move from aspiration to infrastructure.

Building the Clean Energy Ecosystem

The energy transition is supported by coordinated allocations across key ministries: Rs 32,915 crore for New and Renewable Energy, Rs 29,997 crore for Power, and Rs 24,124 crore for Atomic Energy. Customs duty exemptions have been extended to lithium-ion cells used in battery energy storage systems, inputs for solar glass manufacturing, and nuclear power project imports till 2035.

Aarti Khosla of Climate Trends captures this shift succinctly: “Coupled with the exemption given to battery manufacturing, VGF for BESS and grant to CCUS, the focus of the government is rightly tilting towards building an energy transition ecosystem.” She adds that continued reforms in power distribution could bring “360-degree improvement in India’s green energy supply chain.”

At the household level, the PM Surya Ghar Muft Bijli Yojana receives a major boost, reinforcing decentralised clean energy as a pillar of inclusive growth. Rooftop solar is increasingly being positioned not just as a climate solution, but as a competitiveness tool for small businesses and urban households.

Supply Chains, Not Just Solar Panels

Rather than headline-grabbing renewable capacity targets, Budget 2026–27 leans into industrial resilience. Duty exemptions for critical minerals processing equipment, solar glass inputs, and battery storage components underline a focus on domestic value addition.

Energy analyst Duttatreya Das of Ember observes that while there are “no big-ticket announcements for renewables,” the continued duty exemptions and manufacturing reforms are expected to “quietly strengthen clean energy supply chains.” This reflects a broader policy philosophy: competitiveness before capacity, foundations before scale.

Rare Earth Corridors and incentives for mineral-rich coastal states further indicate a push to secure upstream inputs essential for EVs, batteries, wind turbines and electronics—areas where geopolitical vulnerabilities are growing.

Clean Mobility and Greener Cities

Sustainability also shapes transport and urban planning. The budget proposes 20 new national waterways over five years, aims to double the share of inland and coastal shipping by 2047, and identifies seven high-speed rail corridors as environmentally sustainable growth connectors. Municipal finance incentives—such as Rs 100 crore support for cities issuing large bonds—open space for green urban infrastructure, including pollution control and climate-resilient services.

Labanya Prakash Jena,Director, Climate and Sustainability Initiative, highlights that such incentives can catalyse “green municipal bonds, particularly for pollution control and urban environmental projects,” linking fiscal reform directly with urban sustainability.

The Gaps That Remain

Despite these advances, the budget remains notably silent on climate adaptation. Heat stress, floods, water scarcity and climate-resilient agriculture receive no scaled-up fiscal roadmap. Vibhuti of IEEFA points out that while support for decentralised renewables and bioenergy has increased, spending on transmission and energy storage has stagnated or declined—areas that are “not optional but indispensable” for a high-renewables grid.

The absence of strong EV demand-pull measures and limited risk-sharing instruments for private capital also signal unfinished business in India’s clean transition.

A Budget of Signals, Not Slogans

Budget 2026–27 is not a climate manifesto. Instead, it is a signal budget—one that rewires incentives, de-risks clean manufacturing, and treats decarbonisation as an economic strategy rather than a moral appeal. Its strength lies in industrial tools and fiscal realism; its weakness, in adaptation and social resilience.

Whether this quiet green turn translates into measurable emissions reductions and climate resilience will depend on execution, state capacity, and private investment. But one thing is clear: India’s clean-tech transition has now entered the core of its economic planning.

The long-awaited free trade agreement (FTA) between India and the European Union is being billed as a trade breakthrough. But viewed through a climate and geopolitical lens, it is also a signal moment in how two major economic blocs are attempting to stabilise growth, supply chains, and decarbonisation pathways in a fractured global order.

According to a note by Climate Trends, the FTA arrives at a time when tariffs, carbon taxes, and industrial policy are increasingly weaponised, making the deal as much about strategic alignment as about market access.

The scale of the agreement is hard to miss. Together, India and the EU touch the lives of nearly 1.9 billion people — about 1.4 billion in India and close to 500 million in the EU. Combined, they account for around 30 percent of the world’s population and roughly 25 percent of the global economy, making this one of the most consequential bilateral trade pacts in recent years.

India and the EU together account for 11–12 percent of global trade

In trade terms, the partnership is already substantial. India and the EU together account for 11–12 percent of global trade, amounting to nearly $11 trillion out of an estimated $33 trillion global trade volume. Bilateral trade between the two currently stands at €124 billion ($136 billion) and is expected to double within five years.

India’s Commerce Minister Piyush Goyal and Ursula von der Leyen, President of the European Commission, have described the agreement as the “mother of all deals”.

Trade, geopolitics and climate converge

Beyond headline numbers, the agreement reflects a deeper geopolitical recalibration. With renewed uncertainty around US trade policy and rising economic nationalism globally, both India and the EU are seeking predictable, rules-based partnerships.

For India, the FTA provides diversification away from volatility in Western markets while strengthening its role as a manufacturing alternative under “China Plus One” strategies. For the EU, it secures long-term access to one of the world’s fastest-growing major economies at a time when supply chain resilience and strategic autonomy are becoming policy imperatives.

“The deal signifies strategic alignment at a moment of high geopolitical uncertainty,” said Aarti Khosla, Founder-Director of Climate Trends. “The EU has been the reigning power and India is a rising power. Their coming together, especially on climate goals, green industry and clean technology, signals where money and markets are going,” she said, adding that the agreement offers renewed space for multilateralism shaped by strategic choices rather than pure ideology.

Climate quietly embedded in the trade pact

While the FTA is not explicitly framed as a climate treaty, climate considerations run through the broader India–EU relationship. Cooperation under the Clean Energy and Climate Partnership (CECP), signed in 2016, continues across renewable energy, energy efficiency, and clean hydrogen.

Green hydrogen, in particular, has emerged as a key point of convergence. India has positioned itself as a potential exporter to Europe, backed by a growing domestic electrolyser manufacturing ecosystem. India is targeting $10 billion in foreign direct investment for 10 GW of electrolyser capacity by 2030, a scale that could help meet Europe’s future clean fuel import requirements, the Climate Trends note highlighted.

This cooperation is further reinforced through the EU–India Trade and Technology Council (TTC), which focuses on clean-energy technologies, regulatory interoperability, and joint research and development. India’s presence at European Hydrogen Week in Rotterdam last year underscored these ambitions.

Carbon borders and friction points

One of the most sensitive issues shaping the climate-trade interface is the EU’s Carbon Border Adjustment Mechanism (CBAM) — the world’s first carbon tariff on imports. Once fully implemented in 2026, CBAM could impose costs of $2–4 billion annually on Indian exporters in carbon-intensive sectors.

According to the Climate Trends note, while the FTA does not neutralise CBAM, it creates negotiating space. India has secured a most-favoured nation clause, ensuring it will not be treated less favourably than other trading partners under EU carbon rules. The agreement also includes support for Indian exporters to meet climate-related trade requirements, including cooperation on recognising India’s carbon pricing and verification systems, and assistance to cut emissions.

Beyond tariffs

The strategic significance of the deal lies in its long-term implications. From New Delhi’s perspective, the FTA could boost exports by up to $50 billion by 2031, particularly through services and diversified markets. For Brussels, it offers a pathway to build clean-energy industries without creating concentrated dependencies.

“The EU is already India’s largest trading partner. Conclusion of the FTA, long in the making, is a landmark moment,” said Madhura Joshi, Programme Lead – Asia at E3G. “It can be the building block for something more ambitious — a strategic partnership that goes beyond trade, providing a stable anchor for growth, resilience, and energy security,” she said. “A deeper partnership with clean technology as its foundation would strengthen global clean-energy supply chains,” she added.

Backing trade with finance, the European Investment Bank has already committed €2 billion towards climate-resilient infrastructure in India through the Coalition for Disaster Resilient Infrastructure, signalling that the EU is willing to support its trade ambitions with patient capital.

Taken together, the India–EU FTA represents more than a tariff-cutting exercise. As the Climate Trends note argues, it is both a hedge against protectionism and a springboard for climate-integrated growth — one that links nearly a third of humanity and a quarter of the global economy in an era of uncertainty.

Why the India–EU FTA Raises Eyebrows in a Trump World

While the India–EU free trade agreement is not explicitly targeted by Washington, it intersects with several trade and climate positions closely associated with Donald Trump, making it strategically relevant in the event of a second Trump presidency.

1. A powerful bloc outside US leverage

Together, India and the EU represent nearly 30 percent of the world’s population, around 25 percent of the global economy, and over 11 percent of global trade. Large, rules-based economic alignments formed outside US leadership have historically drawn Trump’s opposition, as they dilute Washington’s ability to use bilateral pressure.

2. Reduced impact of US tariff threats

Trump has relied heavily on tariffs as a negotiating and enforcement tool. The India–EU FTA gives both partners greater market diversification, reducing dependence on the US and limiting the effectiveness of future tariff-based pressure.

3. Climate-linked trade rules Trump opposes

The agreement unfolds alongside the EU’s Carbon Border Adjustment Mechanism (CBAM), which links climate policy directly to trade. Trump has consistently criticised carbon pricing and climate regulations, viewing them as economic constraints. India’s willingness to engage with EU climate-linked trade norms signals a shift towards a global trade architecture shaped by climate rules — even without US leadership.

Why it matters

The India–EU FTA reflects a move toward a multipolar, climate-integrated trade order. While Trump may not challenge the deal directly, its underlying logic runs counter to his preference for bilateral, tariff-driven negotiations — and could face friction in a more protectionist global environment.

India is investing in infrastructure at a scale unprecedented in its post-liberalisation history. Capital expenditure on infrastructure has now crossed 3% of GDP, spanning railways, highways, ports, power plants and airports—assets designed to last well over half a century. Yet, as new research shows, a growing share of this infrastructure is coming up in regions increasingly exposed to climate extremes, raising a critical question for policymakers, insurers and investors alike: can India afford to insure the future it is building?

A new report by Climate Trends on climate risks and insurance for India’s infrastructure argues that climate impacts are no longer episodic shocks. Instead, they are following a clear upward trajectory in frequency, severity and geographic spread, particularly after the mid-2010s. Hydro-meteorological disasters—floods, extreme rainfall, cyclones and landslides—now dominate India’s climate risk profile, with flood risk emerging as the most persistent hazard for fixed, high-value assets.

When Growth and Risk Rise at Different Speeds

One of the report’s central findings is the non-linear relationship between asset growth and climate exposure. Using Delhi as a case study, the analysis shows that while urban expansion grew at roughly 1.3% CAGR between 1986 and 2016, flood exposure increased at nearly 2.46% CAGR, creating a widening divergence that is projected to grow further over time.

This divergence matters because infrastructure assets are geographically fixed and designed for long operational lives. As asset concentration rises and climate impacts become more predictable, the report warns that certain regions may approach the threshold of uninsurability, where premiums become unaffordable or coverage simply unavailable.

Insurers See Opportunity—and Limits

To test these risks against market realities, the researchers surveyed leading non-life insurers and reinsurers operating in India, including SBI General Insurance, Munich Re India, Swiss Re India and General Insurance Corporation of India.

The responses reveal a nuanced picture. Insurers broadly agree that most of India remains insurable, and climate risk insurance is still viewed as a business opportunity. However, hydropower projects and national highways located in flood- and landslide-prone regions repeatedly emerged as areas of concern. One insurer reported rising premium unaffordability for hydropower projects—an especially notable finding given that many planned hydropower assets are located in high-risk Himalayan regions vulnerable to landslides, floods and glacial lake outburst floods (GLOFs).

A consistent challenge flagged across insurers is the difficulty of pricing climate risk under deep uncertainty. Respondents highlighted gaps in modelling for long-term risks such as sea-level rise, forest fires and compound events, raising the likelihood of a widening protection gap between economic losses and insured coverage.

Losses Are Already Mounting

The financial context underscores why these concerns are intensifying. Globally, insured property losses exceeded USD 140 billion in FY 2024–25, while India’s natural catastrophe losses in 2023 alone reached USD 12 billion, significantly above the previous decade’s average.

Sub-national data further sharpens the picture. States such as Assam, Andhra Pradesh, Odisha, Uttarakhand, Himachal Pradesh, Sikkim, Ladakh and several north-eastern states are identified as among the most climate-vulnerable. Yet these regions also host some of India’s largest infrastructure investments, amounting to nearly Rs 2.95 lakh crore—from port modernisation projects in Odisha and Andhra Pradesh to tunnels, highways and hydropower projects in the Himalayas.

Insurance Is Evolving—but Not Fast Enough

Insurers acknowledge the gap and point to ongoing innovation. Parametric insurance products for heat stress, excess rainfall and flooding are gaining traction, alongside state-level risk transfer mechanisms. Yet coverage remains absent for several high-impact events, including cloudbursts and landslides, even as these hazards grow more frequent.

At the same time, India’s insurance market is expanding rapidly. Premiums are projected to grow at 6.7% in life insurance and 8.3% in non-life insurance through 2028, reflecting both economic growth and rising climate vulnerability.

The concern, however, is whether risk pricing can keep pace with physical reality.

Integrating Climate Risk Before the First Brick

The report also says that climate resilience must shift from being a post-disaster consideration to a core design constraint in infrastructure planning. Among its key recommendations are the standardisation of regulatory frameworks for risk disclosure, underwriting, premium pricing and loss assessment, alongside investment in advanced actuarial models and innovative instruments such as parametric insurance and catastrophe bonds.

Aarti Khosla, Founder and Director of Climate Trends, notes: “As India seeks big investments at the World Economic Forum and plans double-digit (nominal) growth over the next five years, it would be remiss to not point out the risks to India’s infrastructure posed by climate impacts and extreme weather events – which are unarguably increasing in frequency, severity, and geographical spread. The country’s rising exposure for its essential assets could thus lead to mounting climate-induced losses, which would be a fiscal and financial burden. Climate resilience must therefore be integrated into infrastructure planning from the very beginning to minimise the costs of post-disaster reconstruction. Also, several steps will have to come together to ensure long-term insurance viability for such assets, such as advanced actuarial models and standardised frameworks for risk disclosure, premium pricing and loss assessment.”

The Risk Beneath the Growth Story

India’s infrastructure push is central to its growth ambitions and long-term self-sufficiency. But the evidence suggests that climate risk is fast becoming a primary determinant of whether that growth remains financially sustainable. Without integrating resilience and insurability into planning decisions today, the cost of tomorrow’s infrastructure may be borne not just by insurers, but by public finances and future generations.