India’s 2026-27 budget backs solar supply chain growth, but execution remains key

The budget also announced a INR200 billion (US$2.3 billion) Carbon Capture, Utilisation and Storage (CCUS) scheme targeting hard-to-abate industrial emissions. 

A series of customs duty exemptions, aimed at strengthening domestic clean-energy manufacturing, was also welcomed by the Indian solar sector, and Charith Konda, energy specialist, Institute for Energy Economics and Financial Analysis (IEEFA), who spoke to PV Tech Premium about the budget. 

According to Konda, the budget focuses on “establishing of a stronger supply chain within the solar and PV cell and module manufacturing sector in India.”  

Fixing the ‘inverted tax structure’ and cost reduction 

A key issue being addressed is India’s longstanding inverted duty framework. 

“India is famously known for its inverted tax structure, where upstream materials and raw materials are charged at a higher tax rate than the finished product,” Konda told PV Tech Premium. “This budget will change that.” 

Previous policy efforts, Konda noted, had prioritised downstream products, reducing duties on finished modules while leaving higher taxes in place on upstream inputs. The latest measures, including reductions in BCD on materials used in solar glass and other components, seek to lower production costs and improve competitiveness. The same logic has been extended to lithium-ion cells used in battery energy storage systems (BESS). 

“We cannot differentiate. Nowadays, we hardly see standalone solar or wind auctions. Ultimately, it’s the cell manufacturing capacity that will come into play,” he said, referring to the decision to align incentives for stationary batteries with those already available for electric vehicle cells. 

The move comes as storage becomes increasingly embedded in India’s renewable tenders. The country’s energy storage market saw strong growth in 2025, with a total of 69 tenders issued, representing 102 GWh, a 35% increase from 2024. Commissioning during the year stood at 0.5 GWh, while 60 GWh are under execution and 115 GWh in various tendering or awarded stages.  

However, this shift in tax prioritisation is unlikely to deliver any cost relief for module buyers in the short term, according to Konda. 

“It will take some time, and we will not see an immediate reflection in the module or cell or module prices. At least we should give it three to six months,” noted Konda. “Even then, the scale of any price reduction remains uncertain. How much of it will translate into cost reduction for module prices remains uncertain.” 

India’s China-plus-one positioning and supply chain 

Beyond domestic market dynamics, the measures also have implications for India’s positioning in global supply chains, particularly as Western economies pursue diversification away from China. 

Konda noted that the push reflects geopolitical realignments and supply chain vulnerabilities, including trade barriers, tariff risks and regulatory scrutiny. Indian solar manufacturers must navigate complex compliance requirements, diversify markets and maintain competitiveness against low-cost producers, particularly from China. 

He added that the capacity being built is not solely for domestic deployment. Lowering upstream input costs, he said, improves India’s ability to compete internationally, even as price gaps remain.

“The capacity that we build is just not for Indian domestic consumption, but also for export … although we cannot compete with them on the price,” Konda said, referring to Chinese manufacturers. He noted that the budget measures are aimed at “improving our competitiveness, increasing our competitiveness in the global markets.” 

At the same time, he stressed that the budget reforms will strengthen domestic supply chains over time. 

“My expectation is that the budget will improve India’s situation in terms of supply chain security and strengths, maybe not immediately. It will be a very gradual progress.” 

However, Konda cautioned that strengthening domestic supply chains will be a gradual process. “Supply chains cannot be built overnight. They require ecosystem changes. These require systemic changes,” added the analyst.

He pointed to broader challenges including land acquisition, electricity costs, labour availability and technical expertise, arguing that fiscal tweaks alone will not deliver rapid transformation. Policy stability will be critical for investors, he stressed. 

Execution remains a risk 

The implementation of India’s solar policies continues to face significant hurdles. According to Konda, the key challenges that remain include inadequate infrastructure, slow land acquisition, high compliance and monitoring costs, complex bureaucracy, labour constraints and difficulties in accessing policy subsidies, all of which can hinder the effective rollout of renewable manufacturing and storage projects. 

He also flagged the tight timelines under such government schemes: “Two years for any policy to come on to the ground is a short time,” adding that “at least we need five –to-seven years of policy window.” He stressed that “Execution is as important as the policy itself.” 

Beyond timelines, systemic challenges remain a key barrier. “Monitoring and compliance costs should be lowered and free from bureaucracy,” said Konda. “Incentives are in place, but companies shouldn’t ignore them or operate outside the system. Doing so defeats the purpose and wastes the allocated funds.” 

Giving an example of one such case, the analyst noted that the ACC (advanced chemistry cell) PLI (production-linked incentive) scheme for ACC battery storage, launched in October 2021 to establish 50GWh of domestic manufacturing capacity, saw some companies like Amar Raja and Exide pursue capacity building independently after missing out on incentives. 

Konda underscored that “execution is critical” to ensure policies effectively support manufacturers.