By Avneesh Sood, Director Eros Group
The construction industry is at the forefront of India’s economic growth, contributing nearly 7% to the GDP in 2024, as reported by the Ministry of Statistics and Programme Implementation (MoSPI). However, it is also a major contributor to environmental degradation, accounting for over 25% of India’s greenhouse gas (GHG) emissions, according to a 2024 report by the Council on Energy, Environment, and Water (CEEW).
As India aims to achieve its net-zero target by 2070, fostering eco-friendly construction practices is essential to align the real estate sector with sustainable development goals. Union Budget 2025 presents an unprecedented opportunity to address this challenge by incentivizing developers, manufacturers, and stakeholders to adopt greener construction techniques.
With the construction sector expected to grow at a compound annual growth rate (CAGR) of 8.5% till 2030 (IBEF, 2024), the adoption of sustainable practices will have a compounding effect on reducing the industry’s environmental impact.
By focusing on innovative policies such as subsidies for green certifications, tax incentives for eco-friendly materials, and funding for research in climate-resilient urban planning, the budget can create an enabling environment for sustainable development. The time is ripe for transformative measures that integrate ecological balance with economic progress.
Incentivizing Low-Carbon Construction Materials
India’s cement industry, a backbone of construction, emits approximately 240 million tons of CO2 annually, as per the Global Cement and Concrete Association (GCCA) 2024 report. Despite this, the adoption of low-carbon alternatives like geopolymer concrete and fly ash remains minimal, accounting for less than 5% of total construction materials used in 2024 (NITI Aayog). Budget 2025 can address this gap by introducing tax breaks and subsidies for manufacturers producing eco-friendly construction materials.
For instance, extending a 15% tax concession for companies investing in low-carbon manufacturing could accelerate adoption. Additionally, setting up a Green Materials Fund, with an allocation of ₹5,000 crores over the next three years, could promote research and production of sustainable alternatives. A similar initiative by the European Union in 2023 reduced cement emissions by 18% within a year, showcasing the potential of such targeted funding.
Moreover, mandatory carbon accounting for large-scale projects, supported by budget incentives, can make developers accountable for their carbon footprint. If implemented, this could reduce emissions in construction by 20% by 2030, aligning with India’s pledge under the Paris Agreement. With real estate contributing significantly to urban development, incentivizing the use of low-carbon materials can catalyze a sustainable transformation in the sector.
Promoting Decentralized Waste Management in Construction
In 2024, India generated 200 million tons of construction and demolition (C&D) waste, as highlighted by the Ministry of Environment, Forest and Climate Change (MoEFCC). Alarmingly, only 1% of this waste was recycled, leaving a significant environmental footprint. Decentralized waste management offers a solution, allowing on-site recycling of materials into reusable aggregates.
Budget 2025 can accelerate this transition by allocating ₹3,000 crores for establishing C&D waste recycling facilities in Tier 1 and Tier 2 cities. A similar initiative in South Korea saw waste recycling rates soar to 95% within five years, emphasizing the potential for replication. Grants for developers integrating waste-to-resource technologies in their projects can further encourage adoption.
Additionally, the introduction of mandatory recycling targets for real estate projects above 50,000 square meters, combined with penalties for non-compliance, can create a regulatory push. A pilot program in Bengaluru in 2024 demonstrated that incorporating recycled aggregates in construction could reduce project costs by 15%, showcasing both environmental and economic benefits.
Effective decentralized waste management can transform India’s construction waste problem into an opportunity, creating a circular economy that reduces resource extraction and landfill dependence. This requires proactive policy interventions, and Budget 2025 is the ideal platform to initiate such measures.
Introducing Green Construction Certification Subsidies
Green-certified buildings accounted for just 5% of India’s total building stock in 2024, as per a report by the Indian Green Building Council (IGBC). This is far below global leaders like the United States, where 15% of buildings are green-certified. High certification costs, ranging from ₹15 to ₹25 per square foot, deter developers from pursuing sustainable certifications.
Budget 2025 can bridge this gap by subsidizing up to 50% of green certification costs for residential and commercial projects. A similar policy in Singapore in 2023 resulted in a 40% increase in certified green buildings within a year. Fast-tracking regulatory approvals for green-certified projects can also act as an incentive, saving developers 6-8 months in project timelines.
Moreover, establishing a ₹2,000 crore Green Building Fund, specifically targeting affordable housing projects, can democratize access to sustainable practices. Affordable housing accounts for 20% of new construction in India, and integrating green certifications in this segment could benefit millions while reducing energy consumption by up to 30%, according to IGBC estimates.
Subsidies and streamlined processes would not only increase green certification uptake but also create a culture of sustainability, where environmental responsibility becomes a cornerstone of construction practices.
Funding Research on Climate-Resilient Urban Planning
The impact of climate change on Indian cities has been evident, with urban areas experiencing record heatwaves and floods in 2024, leading to ₹15,000 crores in damages (National Disaster Management Authority). To future-proof urban infrastructure, Budget 2025 must prioritize funding for climate-resilient urban planning and construction.
Allocating ₹10,000 crores over five years for establishing research centers on climate-resilient construction can drive innovation. These centers could focus on developing heat-resistant materials, flood-proof designs, and renewable energy integration in urban planning. For example, Amsterdam’s investment in climate-resilient infrastructure helped reduce flood-related damages by 50% over a decade.
Moreover, incentivizing public-private partnerships (PPPs) for research in sustainable urban planning can accelerate technology adoption. Tier 2 and Tier 3 cities, expected to house 120 million new residents by 2030 (UN Habitat, 2024), should be prioritized for pilot programs integrating these innovations.
By funding research and fostering collaboration, Budget 2025 can position India as a global leader in climate-resilient construction, ensuring that urban growth aligns with environmental sustainability.
Expanding Tax Incentives for Retrofitting Old Buildings
India has over 1.8 million old buildings, many of which are energy-inefficient and contribute disproportionately to GHG emissions (Energy and Resources Institute, 2024). Retrofitting these structures to improve energy efficiency and incorporate renewable energy systems is crucial to reducing their environmental impact.
Budget 2025 should introduce a 20% tax credit for retrofitting costs, capped at ₹1 crore per project, to encourage developers to undertake such initiatives. Similar measures in Germany reduced building energy consumption by 25% within five years.
Additionally, offering interest-free loans for retrofitting projects that install solar panels, rainwater harvesting systems, and energy-efficient lighting can drive adoption. Expanding the scope of tax deductions under Section 80EEB to include retrofitting costs could make these projects more financially viable.
Targeting retrofitting incentives at urban and peri-urban areas, where old buildings dominate, can reduce energy demand by up to 30% and significantly cut emissions. With a clear policy framework, retrofitting can become a cornerstone of India’s eco-friendly construction practices.
Conclusion
Union Budget 2025 offers a transformative opportunity to embed sustainability into India’s construction sector. By incentivizing low-carbon materials, decentralized waste management, green certifications, climate-resilient research, and retrofitting initiatives, the government can create a sustainable ecosystem that balances environmental responsibility with economic growth.
The real estate industry stands at a pivotal moment to redefine its role in building a greener future. Can Budget 2025 catalyze this shift and position India as a global leader in sustainable construction?
