India’s fast-growing economy must be offset by a corresponding quick growth in energy resources, and the most suitable and sustainable among them is solar power. Solar systems like solar photovoltaic (PV) systems and solar thermal systems have been a game-changer in India’s energy sector. It also has an important function to fulfill in curbing reliance on fossil fuels, achieving energy security, and promoting sustainable development. India with an average of 300 sunny days per year and a mean solar insolation of 4–7 kWh/m²/day, the potentiality for harnessing solar power is vast—of the order of over 750 GW.
The impact of solar power on the Indian economy can be gauged by its growing share in the energy basket of India. India’s installed solar power capacity stood at 81 GW as of March 2025, the world’s fifth-largest solar power generator. This capacity forms a total renewable energy goal as part of India’s ambitious National Solar Mission, whereby the goal is to achieve 280 GW of solar power capacity by 2030. This shift not only benefits climate goals, but also benefits GDP directly in terms of employment, foreign investment, and the energy cost savings potential at industry and domestic levels.
Employment generation is arguably the most glaring economic advantage of solar system installations. The Indian solar sector had given employment to 164,000 individuals in 2023, as per the International Renewable Energy Agency (IRENA), and the number is likely to increase manifold with follow-up installations. Employment generation is established at every level—from PV panel and inverter manufacturing to installation, maintenance, and grid connection. Especially in rural regions, distributed solar applications such as rooftop solar and solar microgrids have provided new opportunities for entrepreneurs, engineers, and technicians to do business, thereby directly impacting regional economic development.
Macro-economically, solar energy lowers the nation’s dependence on the importation of fossil fuel considerably. India imported more than 210 million tonnes of crude oil in the year 2023–24, which contributed significantly to the trade deficit. Solar energy substitutes part of this requirement with indigenous, green power sources. The Council on Energy, Environment and Water (CEEW) estimates that for every 100 GW of solar capacity installed, oil imports decline by $8–10 billion every year. This not only stabilizes the budget deficit but also cushions the economy against shocks to global oil prices, i.e., macroeconomic stability at large.
But one more significant contribution the solar industry has made is that of energy affordability and cost savings. With the Levelized Cost of Energy (LCOE) for solar dropping to the level of ₹2.2–₹2.6 per unit—lower than that of coal and gas in most instances—industry and consumers are saving on the cost of power. Industries that are investing in captive solar plants are saving on operational costs, achieving cost-effectiveness, and indirectly adding to GDP through increased output and exports. Further, high-power solar parks minimize transmission losses and provide grid stability through effective integration with battery storage and hybrid units.
The solar sector is also an investment magnet. From 2014 to 2023, India received more than $30 billion of foreign direct investment (FDI) in the renewable sector, most of which went into solar power initiatives. Multilateral institutions such as the World Bank and the Asian Development Bank have also provided funds for numerous solar projects from stand-alone rural village systems to giant solar parks. Besides this, green bonds and InvITs have ushered in alternative sources of capital inflow for the sector. This not only propels infrastructure growth but also propels the supporting industries of manufacturing, logistics, and smart grid solutions.
Solar power also bolsters rural and agricultural economies. Sachems such as PM-KUSUM (Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan) intend to install 30.8 GW of solar power through solar pumps and standalone solar power plants in rural India. More than 4.7 lakh solar pumps have been installed up to mid-2025, allowing farmers to irrigate their fields without the help of costly diesel or unreliable grid power. These measures increase productivity, lower the input cost, and improve farmers’ incomes—thus contributing to rural GDP and narrowing regional imbalances.
From an environmental economic perspective, solar energy is one of the driving forces in minimizing the social and economic cost of pollution and global warming. India saves about 1,500 tons of CO₂ annually per megawatt of solar power. India’s aggregate carbon savings due to solar, as of 2025, are more than 120 million tons annually. This natural advantage translates into economic benefit through lower healthcare expenses, enhanced productivity of the workforce, and enabling India to achieve its Paris Agreement climate target. Reduced air pollution and less heat stress also generate indirect labor efficiency savings, particularly outside and in the manufacturing sector.
India’s government has been promoting the development of solar power with policy interventions, tax benefits, and finance. The ₹24,000 crore Production Linked Incentive (PLI) Scheme for Solar PV Modules is designed to boost domestic production and wean India off Chinese imports. The scheme will establish 48 GW of manufacturing capacity, providing a robust value chain to solar manufacturing and lowering the current account deficit. Besides, creation of “Solar Cities” and the “Rooptop Solar Programme Phase-II”, with a goal of 40 GW, makes domestic urban consumers and enterprises energy producers, and directly links them to the economic value chain.
Solar technology revolution also facilitates further economic efficiency. Bifacial panels, solar-wind hybrids, and floating solar farms are augmenting energy production and maximizing land use. Floating solar, for example, is of very high potential in land-scarce states and is already adding up to more than 2 GW of under-development projects. Merging AI and IoT into solar infrastructure to facilitate grid forecasting, energy management, and predictive maintenance increases the level of operating efficiency and reliability, and hence value along the power supply chain.
Where the growth velocity exists, everything else presents the challenges—finance, land purchase, grid connectivity, and dependency on the value chain. There has to be the reforms, upgradation of the infrastructure, and building the capacities to confront the challenges for tapping the uppermost economic potential of the solar power. Recent government focus on the Green Hydrogen Mission and the energy storage is a movement in the right direction for opening the solar power in a longer decarbonized economy.
Conclusion
Short, the solar system is not only an Indian clean energy option but an Indian economic development tool of strategic value. Whether through GDP and employment expansion, trade balancing, rural empowerment, or green cost savings, its many benefits are obvious and compelling. As India is growing into a $5 trillion economy, integrating and scaling up solar power systems will be instrumental to ensuring inclusive, sustainable, and resilient growth. Tapping solar power can very well light up India’s economic future.
Prepared by
MD. Mujahid Irfan
Associate Professor,
Department of EEE, SR University, Warangal 506371, Telangana.