Union Budget 2026 bets on critical minerals, nuclear energy, advanced science

Against a backdrop of rising geopolitical tensions, fragile supply chains and intensifying competition for resources, the government used the Union Budget 2026-27, which was presented by finance minister Nirmala Sitharaman in the Parliament on February 1, 2026 to sharpen India’s push for strategic self-reliance in minerals, energy and high-end science infrastructure.

Building on the Rare Earth Permanent Magnets Scheme (REPM) launched last November, the Centre will support mineral-rich states like Odisha, Kerala, Andhra Pradesh and Tamil Nadu in establishing dedicated Rare Earth Corridors. These clusters are intended to integrate mining, separation, processing, research and manufacturing, reducing India’s dependence on imported rare earth value chains.

Rare earth minerals contain a group of 17 chemically similar metallic elements (15 lanthanides plus scandium and yttrium) crucial for high-tech devices, clean energy, and defense, such as EV magnets and smartphones. Despite their name, they are relatively common in the Earth's crust but are rarely found in high-concentration, mineable deposits. 

With a budgetary outlay of Rs 7,280 crore over seven years, REPM was announced aiming at reducing import dependence and strengthening domestic supply chains for electric mobility, electronics, defence and aerospace, sectors that rely heavily on high-performance permanent magnets. This came after China, which controls 90 per cent of the global supply chain, imposed restrictions on exports of critical rare earth magnets last year. 

Under the scheme, India targets to set up 6,000 tonnes per annum (TPA) of REPM manufacturing capacity through five units of 1,200 TPA each, with production expected to begin within two to three years. India currently consumes about 4,000-5,000 TPA of permanent magnets, all of which are imported.

“By supporting domestic mining, processing, research and manufacturing, the government is building resilient supply chains that will be central to India’s clean-tech future,” said Nitin Gupta, Co-founder & CEO, Attero. 

But the Union Budget falls short of giving a footprint of operationalising such corridors, argued Vishnu Sudarsan, partner at JSA Advocates and Solicitor. “Enhancing, securing and fostering India’s rare earths corridor demands coordinated legal, policy, fiscal, regulatory and administrative efforts. Success hinges on four interlocking reforms,” he said.

“The Union Budget’s proposals on critical minerals, including duty exemptions for processing equipment and Rare Earth Corridors, points to a growing focus on supply chain security and moving up the value chain,” said Sehr Raheja, Programme Officer, Centre for Science and Environment (CSE). CSE’s recent work on the issue has highlighted green industrialisation and domestic value addition as important to the energy transition agenda.

Those four reforms, according to Sudarsan, includes: 

1. Removing monazite (and beach sand minerals) from the purview of Atomic Energy Act. Simultaneously, allow private and joint-venture mining, processing under strict licensing and radiation controls, with mandatory government custody of thorium by-products.

2. Introduction of a new chapter to the MMDR Act. The existing framework needs a distinct critical and strategic minerals category with longer tenures, accelerated allocation, and royalty structures that reward downstream processing over raw extraction. 

3. CRZ and EIA rules must recognize rare earth corridors as strategic infrastructure, enabling controlled coastal mining through project-specific approvals, continuous monitoring, and mandatory remediation. Environmental protection and strategic security are not contradictory, the law must reflect both. 

4. SEZ-style incentives, GST and duty rationalisation and export controls should prioritize domestic processing and magnet manufacturing. Export controls must discourage unprocessed rare earth exports while promoting value-added products. 

“Additionally, reforms require coordinated Centre–State efforts to ensure both the regulatory and operational administration is not working at cross-purposes, be it in terms of land acquisition, community benefit-sharing, taxation, or business facilitation,” Sudarsan added.

Such an integrated approach will bolster investor confidence and ensure project viability, he noted.

According to Vibhuti, Director, South Asia, Institute for Energy Economics and Financial Analysis, the government has shown intent in strengthening clean energy supply chains, particularly towards the tail end, with a focus on rare earth minerals.

“However, we see limited budgetary support under the PLI scheme for solar modules and cells: segments now considered mature and largely left to market forces. In contrast, electric vehicles (EVs), where cost barriers remain significant, warranted stronger policy and fiscal support. rs are still expensive, and targeted government support could have meaningfully accelerated adoption. This is especially critical in light of worsening air pollution in the Delhi NCR region, where transport electrification can deliver immediate public health benefits,” she added.

India is among the world’s top three countries in rare-earth reserves, with 6.9 million tonnes spread across coastal placer sands in Odisha, Andhra Pradesh, Tamil Nadu, Kerala, Karnataka, Goa, Maharashtra and Gujarat, as well as hard-rock deposits in Rajasthan and Gujarat. 

The mines ministry received Rs 3,806.45 of BE in FY27 against Rs 3,038 of BE which was later revised to Rs 3,165.14 crore.

Another key budget announcement is the full exemption of basic customs duty on capital goods imported for processing critical minerals, where duties earlier ranged from 5 per cent to 7.5 per cent. The move is aimed at building domestic processing capacity for minerals essential to clean energy technologies, electronics and defence manufacturing. 

According to Rajat Verma, founder and chief executive of LOHUM, “By increasing funding for component manufacturing, developing rare earth corridors, and reducing customs duties on equipment for these sectors, the government has given a clear indication that things can’t be done piecemeal, and that upstream, midstream, and downstream are all equally important.”

In a parallel step to spur upstream activity, additional critical minerals will be included in Schedule XII of the Mines and Minerals (Development and Regulation) Amendment Act, 2023, enabling companies to claim tax deductions on prospecting and exploration expenditure. About 24 critical and strategic minerals were inserted into Part D of the First Schedule of the MMDR Act, 1957. It will allow tax deductions for exploration and prospecting.

National Critical Mineral Mission (NCMM), launched in January 2025, which aims to enhance domestic production, recycling of critical minerals, and overseas acquisition of critical mineral assets. Its mandate includes technology development, skilled workforce creation, establishing an extended producer responsibility framework, and implementing a suitable financing mechanism, received a tad higher budgetary allocation of Rs 440 crore in 2026-27 (budget estimate) against Rs 410 crore BE and Rs 90 crore of revised estimate in the 2025-26 financial year.

Energy transition is seen as a priority with allocations across the Ministry of New and Renewable Energy Rs 32,915 crore, Ministry of Power Rs 29,997 crore and the Department of Atomic Energy Rs 24,124 crore work together to reduce risks from intermittency and import dependence.

In the nuclear sector, the government has extended the basic customs duty exemption on specified nuclear power equipment, including reactor components and absorber rods  until 2035. The benefit will now apply to all nuclear power plants, irrespective of capacity, signalling long-term policy backing for nuclear energy as a stable, low-carbon power source in India’s energy mix.

This comes after India amended legislation in Atomic Energy Act and Nuclear civil liability for nuclear damage Act and introduced the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India or SHANTI Act in December 2026 to allow private participation and meet India's goal of 100 gigawatts of nuclear power.

Vibha Dhawan, director general, TERI said, “The Union Budget 2026 consolidates India’s long-term transition towards clean, secure, and innovation-driven growth. The continued emphasis on green energy, particularly renewed attention to nuclear power alongside solar and battery energy storage, highlights the importance of diversifying India’s energy mix with reliable baseload capacity, especially for hard-to-abate sectors. Equally significant is the Budget’s push to mainstream artificial intelligence across sectors, from manufacturing to public services, with a clear focus on AI-led productivity gains, efficiency, and digital transparency.” 

Customs duty exemptions for lithium-ion cells are extended to battery energy storage systems, while key inputs for solar glass manufacturing are exempted. On cleaner fuels, the entire value of biogas is excluded while calculating central excise duty on biogas-blended CNG, improving the commercial viability of waste-to-energy pathways and city gas distribution. India will also upgrade four major telescope facilities to boost astrophysics research. Customs duty on sodium antimonate for solar glass manufacturing has been removed from 7.5 per cent currently.

Trishant Dev, deputy programme manager, CSE, said, "With measures like duty exemptions for capital goods for lithium-ion cell manufacturing or for inputs used in solar glass production, the budget frames India’s energy transition within a broader push for industrial competitiveness and resilient supply chains, supporting domestic production of critical inputs and access to key minerals." 

PM Surya Ghar received a budgetary allocation of Rs 22,000 crore (BE) in FY27 against Rs 20,000 (BE) which was revised downwards to Rs 17,000 crore for the previous financial year. Similarly, the budget for bioenergy has been raised from Rs 175 crore to Rs 275 crore.

However, spending on wind energy, and more critically on transmission and energy storage, has either stagnated or declined. “This is concerning because transmission infrastructure and storage are fundamental to integrating higher shares of renewable energy into the grid. As renewable penetration rises, these elements become not optional but indispensable, and the current level of support falls short of what is required,” said Vibhuti, Director, South Asia, Institute for Energy Economics and Financial Analysis.

The MNRE, power ministry and department of atomic energy were allocated Rs 2,6549.4 crore (BE) vs Rs 26549.3 (RE), Rs 2,1847 crore (BE) vs Rs 21587.66 crore (RE) and Rs 24049.1 crore (BE) vs Rs 24411.47 (RE) in FY26.

The budget outlined a vision for  state-owned non-banking financial companies (NBFC) for Viksit Bharat with clear targets for credit disbursement and technology adoption. To achieve scale and improve efficiency in the Public Sector NBFCs, as a first step, FM Sitharaman proposed to restructure the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), two of India's premier NBFCs under the power ministry and provide loans for power generation, transmission, and distribution projects. 

"The restructuring of PFC and REC can be a major boost for the power sector by improving credit allocation and supporting the clean energy transition," said  Labanya Prakash Jena, Director, Climate and Sustainability Initiative.

However, what was truly needed were expanded credit guarantee mechanisms and risk-sharing instruments to crowd in private capital and enable access to low-cost finance. Such instruments would have been particularly impactful for EV manufacturing and MSMEs across the clean energy and EV value chains, where financing constraints remain a major bottleneck, according to Garg of IEEFA. 

Prashant Mathur, CEO, Saatvik Green Energy said by locking in long-term domestic demand through a record Rs 12.21 lakh crore capital expenditure outlay and a nearly 29 per cent increase for the PM Surya Ghar Muft Bijli Yojana, the government has created much-needed visibility for large-scale investments across the solar value chain. 

"The extension of customs duty exemptions for lithium-ion cell manufacturing to battery energy storage systems directly strengthens both energy transition and energy security, while the exemption on critical inputs such as sodium antimonate for solar glass will improve cost competitiveness and accelerate domestic capacity creation in a strategically vital segment."