India Unveils Bold Budget To Boost Rare Earths And Clean Energy

On February 1, 2026, Finance Minister Nirmala Sitharaman took center stage in Parliament to unveil India’s Union Budget 2026-27—a document brimming with ambition, strategic vision, and a clear-eyed assessment of the nation’s needs in a turbulent global landscape. The budget, hailed by industry leaders and scrutinized by policy experts, lays out a comprehensive roadmap for economic resilience, technological advancement, and, most notably, a determined push toward self-reliance in critical minerals and clean energy.

The government’s focus on rare earth minerals, nuclear energy, and advanced science marks a pivotal shift in India’s economic strategy. According to The Economic Times, the budget proposes the creation of dedicated Rare Earth Corridors across mineral-rich states such as Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. These corridors are designed to integrate every stage of the value chain—from mining and separation to research, processing, and manufacturing—thereby reducing India’s overwhelming dependence on imports for materials essential to high-tech, clean energy, and defense sectors.

“By identifying, exploring, and processing rare earth minerals domestically, India aims to reduce its dependence on external sources,” Civil Aviation Minister Ram Mohan Naidu said, echoing a sentiment repeated throughout the day by government officials. The Rare Earth Permanent Magnets Scheme (REPM), launched in November 2025, was given a hefty budgetary outlay of Rs 7,280 crore over seven years, with a target of establishing 6,000 tonnes per annum of rare earth processing capacity. This move comes as China, which controls 90% of the global supply chain for rare earth magnets, imposed export restrictions last year, sending ripples across international markets and prompting India to accelerate its domestic capabilities.

“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,” Nitin Gupta, Co-founder & CEO of Attero, told Business Standard. However, some experts caution that success will depend on coordinated reforms. Vishnu Sudarsan of JSA Advocates and Solicitors highlighted the need for legal and policy changes, such as removing monazite from the Atomic Energy Act’s purview and introducing incentives to promote downstream processing over raw extraction. “Enhancing, securing, and fostering India’s rare earths corridor demands coordinated legal, policy, fiscal, regulatory, and administrative efforts. Success hinges on four interlocking reforms,” Sudarsan stated.

The budget also extends tax incentives for critical mineral processing, including full exemptions on basic customs duty for capital goods imported for processing these minerals. This is expected to bolster domestic supply chains in high-tech, electronics, and clean energy sectors. “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,” said Rajat Verma, founder and chief executive of LOHUM.

Beyond minerals, the Union Budget 2026-27 places a strong emphasis on energy transition and national security. Allocations for the Ministry of New and Renewable Energy, Ministry of Power, and Department of Atomic Energy total more than Rs 87,000 crore, underscoring the government’s commitment to diversifying India’s energy mix. The budget extends customs duty exemptions for lithium-ion cells to battery energy storage systems and removes key tariffs for solar glass manufacturing inputs. These steps are intended to accelerate domestic capacity creation in strategically vital segments of the clean energy supply chain.

In a significant policy shift, the government has also extended customs duty exemptions on nuclear power equipment until 2035, applying these benefits to all nuclear power plants regardless of capacity. This follows amendments to the Atomic Energy Act and the introduction of the SHANTI Act in December 2026, which allows private participation in nuclear energy projects. “The Union Budget 2026 consolidates India’s long-term transition towards clean, secure, and innovation-driven growth,” said Vibha Dhawan, director general of TERI, to Hindustan Times. “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.”

For the industrial sector, the budget’s message is clear: invest in domestic capacity, embrace innovation, and prepare for global competition. Baba Kalyani, CMD of Bharat Forge Ltd., praised the government’s “multi-pronged growth framework” and highlighted the 25% increase in the defense modernization budget as evidence of a new era of technological self-reliance. “The progression of the semiconductor programme to ISM 2.0 through ecosystem development, alongside the announcement of rare-earth corridors across eastern and southern India, will significantly strengthen domestic supply chains,” Kalyani stated, according to Mint.

The budget’s reach extends into creative industries as well. Asit Kumarr Modi, founder of Neela Film Production and Neela Mediatech, welcomed the formal recognition of animation, gaming, VFX, and comics as key growth sectors. The establishment of ABGC content creator labs in schools and colleges is seen as a move to institutionalize creative and technical learning, giving young Indians the tools to excel in storytelling, design thinking, and immersive technologies.

Job creation, another cross-cutting theme, receives a boost through initiatives such as the training of tourist guides, veterinary, hospitality, and allied healthcare professionals. The government’s bet on manufacturing is reinforced with special emphasis on modern infrastructure, high-speed rail corridors, and city economic regions. The fiscal deficit for 2025-26 is estimated at 4.4% of GDP, with gross market borrowing pegged at Rs 17.2 lakh crore and total expenditure revised to Rs 49.6 lakh crore. Capital expenditure, a key driver of growth, is set at about Rs 11 lakh crore.

Yet, not all feedback has been unreservedly positive. Some analysts, like Vibhuti of the Institute for Energy Economics and Financial Analysis, noted that while the budget boosts support for solar and bioenergy, spending on wind energy and grid infrastructure has stagnated. “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,” she said.

Others have called for expanded credit guarantee mechanisms and risk-sharing instruments to unlock private capital, especially for electric vehicle manufacturing and MSMEs in clean energy value chains. The restructuring of state-owned non-banking financial companies like Power Finance Corporation and Rural Electrification Corporation is seen as a first step in this direction, but many believe more is needed to crowd in private investment and enable access to low-cost finance.

Despite the debates, the 2026 Union Budget stands out for its boldness and breadth. From rare earth corridors and tax incentives for critical minerals to a renewed push for green energy and digital innovation, the government is betting big on self-reliance, resilience, and long-term growth. Whether these measures will fully deliver on their promise will depend on sustained execution, regulatory reforms, and the ability to adapt to rapidly changing global realities. For now, India’s budget has set the stage for a new chapter—one that aims to secure the nation’s future in an increasingly uncertain world.