India's Union Budget 2026 27: An Emerging ESG And Climate Roadmap

India's Union Budget 2026-27, presented by Finance Minister Smt. Nirmala Sitharaman on February 1, 2026, represents a transformative fiscal commitment to Environmental, Social, and Governance (ESG) frameworks, with substantial investments directed toward climate resilience, sustainable infrastructure, and inclusive growth. The budget proposes complementary reforms to make industry cleaner, agriculture more resilient, and to support vulnerable populations during the transition. The budget also proposes to "mix-in" social spending on poverty alleviation, gender equality, health, skills, and regional balance as part of a comprehensive development strategy. This enhances the social aspect of the ESG framework (the 'S' pillar). The structural reforms associated with the governance (the 'G' pillar) aspect of the ESG framework include simpler tax laws, greater transparency and digitisation of public administration, and clearer accounting standards, all of which provide a more predictable environment for sustainable and climate-responsive investment. Taken together, these strands show public finance being consciously used to steer India towards Viksit Bharat in a way that aims to reduce climate risks, protect natural resources and ensure that growth remains inclusive and accountable.¹

Green growth and climate-resilient infrastructure

A central ESG theme of the Budget is the use of public capital expenditure and infrastructure policy to steer the economy towards lower-carbon and more resource-efficient growth. Public capex has been raised from ₹11.2 lakh crore in BE 2025‑26 to ₹12.2 lakh crore in FY 2026‑27, with a clear emphasis on transport and logistics that reduce emissions over the long term.

Key climate-relevant infrastructure measures include:

• New Dedicated Freight Corridors from Dankuni in the East to Surat in the West to promote environmentally sustainable movement of cargo, shifting freight from road to more efficient rail.
• Operationalisation of 20 new National Waterways over the next five years, beginning with NW‑5 in Odisha, connecting mineral-rich and industrial regions to ports, which supports low‑carbon inland water transport.
• Development of seven High‑Speed Rail corridors (Mumbai–Pune, Pune–Hyderabad, Hyderabad–Bengaluru, Hyderabad–Chennai, Chennai–Bengaluru, Delhi–Varanasi, Varanasi–Siliguri) as "growth connectors" to provide environmentally sustainable passenger systems.
• These measures strengthen the "E" in ESG by reducing transport emissions, improving urban air quality and encouraging a modal shift away from road, while simultaneously enhancing economic competitiveness and regional connectivity.

• Energy transition, critical minerals and clean technology

The Budget aligns fiscal policy with the long‑term energy transition by targeting clean energy supply chains and critical inputs. It extends the basic customs duty exemption for capital goods used to manufacture lithium‑ion cells, a core component of electric mobility and stationary storage, directly supporting India's battery ecosystem. Basic customs duty is also exempted on capital goods used for processing critical minerals, which are essential for renewables, batteries and advanced manufacturing.

Further clean‑energy‑linked steps include:

• Exemption of basic customs duty on sodium antimonate used in manufacturing solar glass, reinforcing domestic solar value chains.
• Extension of duty exemption on imports needed for nuclear power projects until 2035, supporting a low‑carbon baseload source.
• Exclusion of the entire value of biogas when computing Central Excise duty on biogas‑blended CNG, improving the economics of cleaner gaseous fuels.
• Taken together, these measures show a shift from pure consumption subsidies towards industrial policy for green technologies and, in ESG terms, help de‑risk long‑term energy security while lowering lifecycle emissions.

Sustainable cities, corridors and mobility

The Budget links climate objectives with urban development, spatial planning and mobility – critical for India's net‑zero pathway. It proposes mapping and financing City Economic Regions (CERs), with ₹5,000 crore per CER over five years through a reform‑cum‑results‑based mechanism, encouraging cities to plan for compact, transit‑oriented, and resilient growth.

On a regional scale, the planned East Coast Industrial Corridor with a node at Durgapur and the provision of 4,000 e‑buses directly advance low‑carbon transport and urban air‑quality improvements. By integrating climate-conscious design into industrial and urban corridors, the Budget moves from project‑level green interventions to systems‑level planning, an important shift from an ESG perspective.

Climate-smart agriculture and rural resilience

On the environmental and social axis, agriculture emerges as a core climate‑resilience priority. The proposed Bharat‑VISTAAR (Virtually Integrated System to Access Agricultural Resources) a multilingual AI tool integrating AgriStack portals with ICAR packages of practices is intended to enable customised advisory to farmers, improving productivity and managing climate risks such as erratic rainfall and heat stress.

By promising better farm‑level decision-making and risk reduction through digital advisory, the scheme links climate adaptation with rural incomes and food security. At the same time, extensions of deductions to cooperatives handling cattle feed and cotton seed, and support for veterinary colleges and breeding facilities, can improve livestock productivity and resource efficiency, issues increasingly material for both climate and biodiversity discussions.

• Social inclusion and human capital (the "S" in ESG)

The Budget's framing around three kartavya embeds social equity into growth and climate strategy. Close to 25 crore people are noted as having exited multidimensional poverty over a decade, and new measures aim to consolidate these gains in a changing climate and technology context.

"S" initiatives with indirect climate and resilience co‑benefits include:

• One girls' hostel in every district for higher‑education STEM institutions, improving gender parity in fields central to green technologies and climate research.
• Regional Medical Hubs for integrated healthcare (including AYUSH and rehabilitation), strengthening public health resilience to climate‑sensitive diseases and heat events
• Expansion of Khelo India into a decade‑long Mission, supporting health, well‑being and community resilience – an increasingly recognised component of climate adaptation
• Development of Buddhist Circuits and tourism destinations in Purvodaya and the North‑East with a focus on preservation of temples, monasteries and pilgrim infrastructure, which, if implemented with sustainable standards, can protect cultural and natural heritage assets vulnerable to climate impacts
• For ESG analysts, these measures enhance social capital, inclusion, and regional balance, all of which affect long‑term political and social stability – key to sustaining ambitious climate policy.
• Governance, transparency and enabling environment

On the governance side, the Budget pushes hard on simplification, predictability and digitalisation of tax and customs administration, which indirectly supports ESG by de‑risking investment in green sectors.

Key governance reforms relevant to ESG and climate finance include:

• A new Income Tax Act, 2025 effective April 2026, with simplified rules and forms to improve compliance and reduce friction for individuals and businesses, including those in green sectors.
• Integration of Income Computation and Disclosure Standards into IndAS through a joint MCA–CBDT committee, eliminating dual accounting regimes from tax year 2027‑28 and improving comparability of financial statements, including ESG‑relevant metrics.
• Rationalisation of penalty and prosecution, integration of assessment and penalty orders, and decriminalisation of certain technical defaults, which reduces regulatory risk and encourages formalisation – important for scaling climate‑relevant MSMEs
• Trade‑facilitation measures such as a single interconnected digital window for cargo clearance, transformation of customs warehousing into operator‑centric systems with risk‑based audits, and expanded non‑intrusive scanning using AI. These steps support efficient low‑carbon supply chains and reduce dwell times and energy use in logistics
• For foreign and domestic investors looking at India through an ESG lens, these governance changes improve the predictability of the regulatory environment in which climate and sustainability investments will be made.

• Implications for ESG investors and corporate strategy

For corporates and investors, the Union Budget 2026‑27 provides clear signals about the sectors and themes that will anchor India's medium‑term ESG and climate agenda. Rail‑based freight and passenger transport, electric mobility and batteries, solar and nuclear power inputs, critical minerals processing, climate‑smart agriculture, green urban corridors, and digital public infrastructure for logistics and tax are poised to benefit from supportive public spending and tax policy.

From an ESG reporting and strategy standpoint, companies can:

• Align transition plans with the Budget's focus areas (e.g., shifting freight to rail, exploring inland waterways, and electrifying fleets, engaging with e‑bus tenders).
• Integrate climate‑smart agriculture and rural resilience into supply‑chain strategies, especially in FMCG, textiles and agri‑processing, leveraging Bharat‑VISTAAR once operational.
• Use the governance and tax simplification measures to structure green investments, joint ventures and R&D in sectors like Biopharma SHAKTI, lithium‑ion cells, and critical minerals, while enhancing transparency in ESG disclosures
• The 2026‑27 Budget positions ESG and climate not as standalone add‑ons but as cross‑cutting priorities within growth, inclusion and governance, offering a clearer policy backdrop for India's transition to a resilient, low‑carbon economy.

Climate-Aligned Sector Reforms

• Conclusion

India's Union Budget 2026‑27 marks an evolution from viewing ESG and climate as peripheral concerns to treating them as cross‑cutting design principles of fiscal policy, industrial strategy and state capacity. It does not resolve every tension between growth and decarbonisation, but it clearly tilts public capital, tax incentives and regulatory reforms towards cleaner infrastructure, greener value chains and more climate‑resilient agriculture, while anchoring this shift in social equity and institutional strengthening. For policymakers, the task now is one of credible execution: turning corridor plans into low‑carbon assets, making Bharat‑VISTAAR a genuinely useful adaptation tool for farmers, and ensuring that customs, tax and accounting reforms actually de‑risk green investment rather than adding new complexity. For corporates and investors, the message is equally clear future‑proof business models in India will be those that align with rail‑ and waterways‑based logistics, electrification, critical‑mineral and battery ecosystems, climate‑smart rural value chains, and higher expectations on transparency and governance. If these signals are followed through over successive budgets and translated into on‑ground outcomes, the 2026‑27 Budget could be remembered as a pivot point where India's pursuit of Viksit Bharat was more explicitly tied to building a low‑carbon, inclusive and well‑governed economy.

Footnote

1 Ministry of Finance. (2026, February 1). Summary of Union Budget 2026-27. Press Information Bureau. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2221458®=3⟨=2

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