Union Budget 2025: Roadmap to Just Energy Transitions?

Is the Union Budget addressing the ‘just’ aspect of the Just Energy Transitions (“JET”)?

Introduction

While the Union Budget 2025-26 allocates funding to achieve energy security through nuclear, solar, and wind energy, a fundamental question persists: are these transitions to cleaner energy sources genuinely equitable? A just energy transition (“JET”) necessitates the inclusion of affected communities in the process of transition. Centered on the principle of ‘no one is left behind’, this approach promotes the participation of these stakeholders in the shaping of the net zero transition. This analysis extends beyond the budgetary allocations to critically evaluate its efficacy of enabling a JET, specifically through the promotion of Micro, Small, and Medium Enterprises (“MSMEs”).

What does the budget say about ‘Energy Security’?

The Union Budget 2025-26 lays out ambitious plans for long-term energy security, including expanding nuclear capacity to 100 GW by 2047 and promoting domestic manufacturing of key components like solar photovoltaic (“PV”)cells, batteries, and wind turbines. These efforts signal a significant shift towards clean energy.

Exemption of Basic Customs Duty

The budget’s exemption of Basic Customs Duty (“BCD”) on cobalt powder, lithium-ion battery scrap, and other essential minerals is designed to bolster India’s recycling sector. By removing duties on crucial scrap materials, the government aims to reduce costs for secondary producers engaged in recycling and attract investment in critical mineral recycling. For this financial year, the National Critical Mineral Mission has been allocated INR 410 crore.

Expanding Nuclear Power

In line with India’s strategy to diversify its energy sources, the budget sets a goal of expanding nuclear capacity by at least 100 GW by 2047. This initiative is intended to enhance long-term energy security, establish nuclear power as a reliable baseload alternative, and decrease reliance on fossil fuels. The budget has earmarked INR 2,086 crore for nuclear power projects in 2025-2026.

National Manufacturing Mission (“NMM”) for Clean-tech Manufacturing

The Budget announced the National Manufacturing Mission in furtherance of the ‘Make in India’ mission, with a budgetary allocation of INR 100 crore. This mission is designed to enhance domestic production of solar PV cells, wind turbines, batteries, and electrolysers, positioning MSMEs as the key drivers of this transition.

MSMEs: Drivers of JET

The MSME sector plays a crucial role in India’s economic landscape, with Micro enterprises accounting for over 99% of the estimated 633.88 lakh MSMEs. While Small and Medium enterprises constitute a much smaller fraction of 0.52% (3.31 lakh) and 0.01% (0.05 lakh), respectively, their impact on industrial growth and employment is still substantial. Notably, 51.25% of MSMEs (324.88 lakhs) operate in rural areas, underscoring the sector’s potential to support the decentralized implementation of sustainable solutions.

They are integral to India’s energy transition, which could potentially drive localised renewable energy solutions while ensuring inclusive economic growth. By industrialising rural and backward areas, MSMEs could enable transition at the grassroots level, reducing regional disparities. Their role in employment generation and supplying ancillary components for green industries ensures that communities actively participate in the transition, precluding the possibility of economic exclusion.

However, despite its scale, the MSME sector faces significant hurdles in transitioning to cleaner energy. The MSME sector faces a substantial funding need of INR 32.5 trillion ($650 billion), with restricted credit availability due to insufficient infrastructure, weak market linkages, and a lack of collateral.  Financial institutions view MSMEs as high-risk, limiting funding and making them vulnerable to a lack of progress. Only 16% of MSMEs in India have access to formal banking finance, leaving a massive credit gap of approximately USD 240 billion (INR 16.66 trillion, as of 2018). Furthermore, the sector remains highly Greenhouse Gas(“GHG”)-intensive, predominantly due to its dependence on fossil-based fuels and the challenges posed by its unorganized and informal nature.

Are the Benefits of the Budget Reaching the Individuals: Test of 4As?

"Taking into account the imperatives of a just transition of the workforce and the creation of decent work and quality jobs in accordance with nationally defined development priorities."

-Preamble, Paris Agreement

I propose that the ‘Just’ transitions can be effectively realized by fulfilling the criteria of 4As, namely, Accessibility, Awareness, Availability and Affordability.

Government initiatives, including but not limited to Pradhan Mantri Mudra Yojana (“PMMY”) and the Credit Guarantee Fund Trust for Micro and Small Enterprises (“CGTMSE”), have enabled MSMEs’ access to credit, allowing them to secure funding with greater ease and reduced collateral requirements. Nevertheless, accessing resources and availing the clean-energy policies remains a challenge due to inherent barriers, in cases of lack of formalization or, at times, even the agency to navigate the available financial tools and schemes. Thereby, Access to finance through formal financing institution structures like banks, union budgets, state budgets, government schemes, and international climate funds like the Green Climate Fund (“GCF”) and Global Environment Facility (“GEF”) remains impossible due to the stringent standards and regulations that lead to several bureaucratic barriers.

Recognizing the lack of knowledge as a key obstacle, state authorities have prioritized Awareness-building.  One of the primary objectives of the National Manufacturing Competitiveness Scheme is to introduce India’s MSME sector in India to energy-efficient technologies and manufacturing processes to reduce the cost of production and the emissions of GHGs. This initiative encourages MSMEs to adopt energy-efficient solutions through targeted awareness programs and financial support. The scheme includes education on efficiency benefits, energy audits in sample units, and model project reports outlining cost-effective solutions. This structured approach undoubtedly lays a strong foundation for a ‘just’ transition.

However, Affordability presents the next major challenge. According to the scheme, while the Government of India offers financial support to the extent of 25% of the project cost for the implementation of Energy Efficient Technologies (“EET”), the real concern is whether the MSMEs can finance the remaining 75%. If formal financing, through banks or budget allocations, remains out of reach, even the most well-structured schemes risk falling short. Ultimately, the success of this initiative depends not only on awareness of the clean technologies and the associated subsidies but also on ensuring MSMEs are aware and have access to the above-mentioned financial tools that are vital to enabling the transition.

Lessons from History

Germany's approach to closing coal mines in the Ruhr Valley is considered one of the most structured and well-planned transitions, minimising economic and social disruption. Once a key hub for coal and steel, the region’s mining industry peaked in 1957, employing over 600,000 workers. However, as coal became unprofitable, the government, businesses, and unions consolidated operations under Ruhrkohle AG (Germany’s coal mining corporation)  in 1968 and initiated a long-term phase-out plan. By 2018, the last mine was closed without major job losses, owing to social dialogue, early retirement schemes, work redistribution, and financial support mechanisms. Policies promoting economic diversification, environmental technology, and vocational training helped Ruhr transition into a centre for sustainable industries.

Germany’s transition in the Ruhr Valley offers valuable lessons, though it cannot be completely replicated in India due to differences in socio-political and socioeconomic conditions. However, their transitions, which were effectuated through a targeted and decentralised policy structure strengthened with adequate awareness, are cardinal to JET.  The Betul case study underscores the complexities of India’s energy transition. TERI’s work in Betul highlights the critical role of social dialogue, awareness and MSMEs, which, if sufficiently supported, can prevent communities from being left behind.

The Indian government has made commendable progress in advancing clean technologies and improving affordability for a segment of the population. However, for this transition to be truly just and for the allocated budget to achieve its intended impact, financial support must become more accessible. While subsidies play a crucial role, they fall short in reaching microenterprises, particularly those that either lack the means to invest at all or remain invisible to government schemes due to their classification as part of the unorganized sector. Betul also has a network of micro-enterprises, but lack of financial support and awareness hindered their growth. The solution cannot be one-size-fits-all; it must be specific to the locality, addressing local challenges and opportunities. Investment towards achieving such tailored solution(s) is essential to unlock the region’s economic potential and drive inclusive development.

Germany’s approach highlights the need for a targeted policy, one that places socio-economic factors on equal footing with financial investment. Similarly, India must move beyond budgetary allocations and subsidies to ensure that clean technology adoption is inclusive and equitable. While the budget rightly prioritizes clean technology, the reality remains: it’s not enough.

Conclusion

Fortunately, there is not a dearth of policies in India.  A  possible framework for such a transition is not absent. A policy which holistically identifies the steps to utilise the investment to transition to new technology and help the communities to transition as well is the need of the hour. So, the budget may allocate 100 crores or 1000 crores, but it is only a framework that makes ‘inclusive’ growth possible that can be the roadmap to a sustainable future. Importantly, a just energy transition in India must prioritise the growth MSME as a necessary step for attracting investment, building community resilience, and preventing the exclusion of vulnerable communities. As Nelson Mandela said, It always seems impossible until it’s done. A truly just transition is within reach, but only if the policy works beyond numbers and prioritises people at its core.

[This post has been authored by Bhuvana Katakam, a fourth-year law student at JGLS and the President of The Final Stand]