The annual Union Budget presents a critical opportunity to realign India’s energy transition by redirecting existing energy subsidies toward a coherent clean energy roadmap. Previous budgets have enabled large-scale renewable energy (RE) deployment through incentives for domestic manufacturing and financial support across clean energy value chains. However, clean energy adoption in rural India has remained uneven, with deployment concentrated in high-resource regions and urban rooftop solar markets, while rural energy systems continue to lag in technology diffusion.
The 2026 Budget offers scope to explicitly prioritise a rural clean energy transition. As India’s electricity systems evolve, they are increasingly capable of integrating distributed renewable energy (DRE) technologies. Grid-connected solar PV, in particular, can be rapidly deployed to support agro-farm infrastructure such as cold storage, agro-processing units, healthcare facilities, and rural service centers. These investments can generate multiplier effects through local employment creation, enhanced service delivery, community empowerment, and human capital development, supporting integrated and sustainable rural growth.
India’s agricultural sector is among the most energy-intensive segments of the economy, consuming approximately 17-20 per cent of national electricity demand. This demand is largely met through highly subsidised or zero-tariff electricity supplied via dedicated agricultural feeders operated by state electricity distribution companies (DISCOMs). While this model has supported irrigation expansion and food security, it has also introduced structural inefficiencies.
Three interlinked challenges define the current paradigm.
First, economic constraints: Cross-subsidisation for agriculture has widened DISCOM revenue gaps, undermining financial viability and limiting investment in grid upgrades.
Second, operational challenges: Time-restricted power supply, often during night hours, reflects grid and load management constraints but misaligns with optimal irrigation schedules and agricultural productivity needs.
Third, environmental pressures: Flat-rate or unmetered supply incentivises groundwater over-extraction, while reliance on diesel pumps in weak-grid or off-grid areas raises costs, fuel insecurity, and emissions.
Launched in 2019, the PM-KUSUM scheme sought to address these challenges through solarisation of agriculture with five interlinked objectives:
Promote distributed solar and other renewable energy sources in rural areas
Reduce DISCOM subsidy burdens by offsetting agricultural power demand
Enhance farmer incomes through sale of surplus solar power
Replace diesel irrigation pumps with clean alternatives
Strengthen rural energy security while supporting climate and water sustainability
Despite its ambition, scheme performance—particularly under Components A and C—has been weak. As per recent data, Component A has achieved only 7.2 per cent of targets, Component B 74 per cent, Component C (ILS) 21.3 per cent, and Component C (FLS) 33.7 per cent. Component B’s relative success is attributable to its modular design, simpler approvals, and higher upfront subsidy share (exceeding 60 percent).
According to forthcoming analysis by Delhi-based think tank Centre for Science and Environment (CSE), PM-KUSUM’s underperformance stems from inherent scheme complexity. Implementation involves multiple stakeholders and sequential approvals spanning land-use permissions, financing arrangements, technical clearances, and power procurement agreements. Limited applied expertise among farmers, Farmer Producer Organisations (FPOs), and small developers further constrains their ability to navigate these processes.
Commercial viability is also undermined by regulatory ceiling tariffs averaging ~Rs3.10/kWh. These tariffs fail to reflect higher per-unit costs arising from site-specific constraints, land aggregation challenges, design specifications, and minimum plant sizing requirements. As a result, smaller installations face structural disadvantages relative to utility-scale solar, discouraging participation by the intended rural beneficiaries.
Stakeholder consultations highlighted four recurring thematic challenges:
Project execution within existing regulatory frameworks
Scheme design, relevance, and governance mechanisms
Ease of implementation from a technical performance perspective
Cost of capital, financing access, and power procurement arrangements
While PM-KUSUM is often assessed through irrigation pump solarisation outcomes, efforts to deploy small-scale solar plants (below 2 MW) reveal deeper systemic constraints. These are shaped by three interconnected factors: land availability, commercial viability, and grid readiness.
Land-use constraints
High land costs and fragmented ownership significantly constrain project development. Agricultural-to-non-agricultural land conversion is mandatory, with state-specific eligibility conditions and costs. Incomplete digitisation of land records and frequent title disputes further delay project timelines and power purchase agreements (PPA) execution. The requirement to locate projects within approximately 5 km of substations narrows the pool of viable land. With nearly 85 per cent of landholdings below 1 hectare, aggregation becomes transaction-intensive, raising engineering, procurement, construction and administrative costs and complicating joint-ownership arrangements. Grid connectivity adds further complexity through Right-of-Way negotiations for transmission infrastructure.
Restricted participation
PM-KUSUM projects face high capital intensity, with benchmark costs of Rs 3.25-Rs 3.75 crore/MW. Financing for DRE projects attracts higher interest rates due to perceived risk, while agricultural land offers limited collateral value. Insufficient upfront subsidies—especially under Component A—require high equity contributions, increasing levelized cost of energy. Tariffs discovered through reverse bidding (Rs 2.80-3.30/kWh) are benchmarked against utility-scale solar despite higher risk profiles and smaller project sizes, often leading to underpricing and post-award developer exits. Multiple approvals, performance guarantees, and compliance with ALMM (Union government approved Approved List of Models and Manufacturers) and DCR (domestic content requirement) mandates further elevate costs and extend timelines.
Grid unavailability and operational risks
PM-KUSUM is layered onto rural distribution grids that were not designed for distributed generation. High losses, seasonal irrigation-driven loads, aging infrastructure, and limited monitoring characterise these networks. Many substations operate near capacity and are unable to accommodate reverse power flows, resulting in voltage instability, inverter tripping, curtailment, and revenue losses. Under Component C, reverse injection stresses distribution transformers designed solely for consumption. Weak provisions for deemed generation and delayed network augmentation externalise grid risks to farmers and developers, undermining project bankability.
Institutional and governance barriers
Implementation is further constrained by fragmented institutional roles between DISCOMs and state implementing agencies. Grid feasibility assessments are delayed by capacity constraints, weak load forecasting, and insufficient funding for upgrades. Delays in tendering, bidding, and central financial assistance (CFA) sanctioning, combined with inconsistent state-level net-metering and tariff frameworks, create uncertainty. Limited in-house capacity for tender design, evaluation, and outreach suppresses uptake under Components A and C. DISCOM liquidity constraints, availability of cheaper alternative solar procurement, and delayed subsidy reimbursements further reduce willingness to sign PPAs.
Accelerating PM-KUSUM deployment requires a coordinated technical approach addressing land, finance, tariffs, and grid readiness as interdependent challenges.
Land and ownership reforms should institutionalise standardised long-term (e.g., 25-year) lease frameworks for public, panchayat, and revenue lands, ensuring tenure security and cost containment. States should promote agrivoltaic and productive land-use models through dedicated tenders and incentives, alongside community-led and cooperative ownership structures to enhance inclusion of small and marginal farmers.
Commercial and financial de-risking must include robust payment security mechanisms using redirected subsidy flows and procurement savings, complemented by state-level Payment Security Funds and letters of credit. Tariff structures should be indexed and two-part, reflecting fixed and variable costs, compliance requirements, and compensation for outages and curtailment. Portfolio-based PPAs and clustered procurement models can reduce transaction costs and diversify risk.
Improved access to finance requires standardised financial documentation, including model PPAs and lease agreements, to reduce lender due diligence costs. Targeted CFA enhancements for small farmers and high groundwater stress regions, along with flexible, installment-based equity contributions linked to cash flows, can ease liquidity constraints.
Grid augmentation and planning must treat grid availability as co-equal with generation assets. Feeder-level hosting capacity assessments should guide project siting, while targeted strengthening of 11/33 kV infrastructure, reactive power compensation, and modular battery storage can improve absorption capacity, reduce curtailment, and defer conventional network investments.
There has been anticipation in the markets for a revision and upgrade in the scheme’s guidelines. The expectations extend towards strengthening design implementation and commercial viability which includes evolving deployment models; such as with energy storage and inclusion of technologies such as Agrovoltaics (Ag-PV) which shall increase the market share in deployment. Utilities stand to immensely gain from DRE based power procurements especially for rural areas, expanding financing for component A shall attract private and farmer interest. The budget can allocate financial incentives built within power sector schemes to facilitate power procurement from rural solar DRE plants.