Lower GST on recyclables to boost green economy: CSE to finance minister ahead of Budget 2026

Transition to clean energy and industrial decarbonisation have been in focus in the Union budgets of the last few consecutive years. To bolster this "green growth" and drive the momentum towards India's Net Zero by 2070 ambitions, the central government must carry out tax reorganisation for the waste sector, Delhi-based think-tank Centre for Science and Environment (CSE) wrote in a letter to the Union Finance Minister Nirmala Sitharaman ahead of her Budget presentation on February 1, 2026.

The goods and services tax (GST) and fiscal structures will play a major role in accelerating India's transition towards a greener economy, said CSE Director-General Sunita Narain. This, she highlighted, would add to the progress the country has already made in this direction by enabling the design of conducive policies across energy, industry, waste, transport and agriculture sectors.

The letter by the think tank particularly urged two reforms for the waste sector: Reducing GST on recyclable waste and integrating the informal supply chains. Currently, the authors pointed out, India's tax system treats recycled materials in the same manner as virgin ones, effectively penalising the very sectors that can drive the country's transition to a circular economy.

Based on findings of its new study, CSE found that the current GST structure on recyclable waste has resulted in a "double loss", driving a large share of transactions into informal channels while simultaneously weakening recycling, resource security and industrial competitiveness.

This was demonstrated in the organisation's report Relax the Tax, that showed that reducing GST on recyclable waste to 5 per cent or zero, combined with integration of informal supply chains, can convert this structural loss into a net fiscal gain of around Rs 34,000 crore annually with partial integration and over Rs 90,000 crore with full.

Micro, small and medium enterprises as well as millions involved in the informal waste sector will benefit from such a budgetary provision, the CSE experts stressed.

“In our analysis, we have examined 12 major waste and recycling sectors, including metal scrap, plastic waste, e-waste, battery waste, paper, glass, tyres and end-of-life vehicles," said Nivit K Yadav, programme director, industrial pollution, CSE. "In each sector, the opportunity for reuse is enormous; there is also a potential to optimise material efficiency as well as reduce waste and pollution.”

The change will reduce dependence on imports of virgin materials and align fiscal policy with India's circular economy and industrial priorities, the letter noted.

Narain observed that “this reduction of GST rates could prove to be an incentive to drive greener production”. India's cement sector, for instance, currently produces multiple types of cement which have varying CO2 emissions, with ordinary Portland cement (OPC), one of the most commonly produced, being the most emission-intensive cement. Other types have lower emission intensity because of the use of waste as raw material in their production processes. 

Despite this benefit, India's tax structure doesn't incentivise these other varieties, levelling the same GST on all cement types irrespective of their emission intensity. This way, "there is no incentive for industries and consumers to move towards green production and consumption,” added Narain.

CSE has proposed a solution to this in another report, Decarbonizing India: The Cement Sector. Cement types with lower CO2 emission intensity — like Portland pozzolana cement (most commonly produced in India), Portland slag cement, composite cement and limestone calcined clay cement (as already defined by the government based on the type and proportion of waste material used for replacement of raw material) — could be provided with lower GST, the organisation suggested. This would, in turn, limit OPC production and boost the manufacture and demand of low-carbon cement in India.

“In the report on decarbonisation pathways for cement and iron and steel sectors, we find that the reuse of waste material – slag, fly ash or municipal waste in the case of cement, and steel scrap in the case of the iron and steel – offers a vital opportunity for waste reduction and decarbonisation," said Parth Kumar, programme manager, industrial pollution, CSE. "However, the current regime of GST at 18 per cent for recycled and low carbon materials is a huge disincentive.”

The letter to Sitharaman noted that “this rationalising of the tax on waste is not just about fiscal reform; it’s about acknowledging that waste is a resource”. 

Apart from decarbonising industries and securing India's resource future, the change will also produce social benefits by bringing millions of informal waste workers, who are right now engaged in precarious employment arrangements stripped of rights, into the policy fold.