Extension Highlights Program's Deep-Rooted Issues

The Ministry of New and Renewable Energy has extended the PM-KUSUM scheme until March 31, 2027. This signals a recognition of the significant gap between its ambitious goals and actual progress. The delay highlights ongoing financial and structural hurdles slowing India's efforts to replace diesel with solar power in agriculture. The extension reflects deeper systemic issues affecting the entire program.

Funding Problems Hamper Agri-Solar Growth

A major reason for the scheme's slow progress is financial hesitation from lenders. Banks and financial firms are cautious about giving loans for solar projects, especially to farmers and small developers, because of insufficient collateral. This has left much of the ₹34,422 crore allocated for the scheme undisbursed. Power distribution companies (Discoms), crucial for buying the solar power generated, also face financial difficulties. With accumulated debt around INR 7.4 trillion, Discoms are reluctant to sign new long-term power purchase agreements (PPAs), worrying about future prices and their own ability to pay. This risk can add an estimated 100-107 basis points to solar project borrowing costs. While rules like the Late Payment Surcharge (LPS) have helped clear old dues, the sector's overall financial strain continues to be a significant barrier.

Structural Challenges and Farmer Adoption

Besides funding, structural problems hinder PM-KUSUM. Limited grid infrastructure, including poor connectivity, delays projects and power evacuation. Component B, for replacing diesel pumps, has seen over 9 lakh installations by October 2025, but other parts of the scheme, like decentralized plants (Component A) and feeder solarisation (Component C-FLS), have met far fewer targets. Farmers also face barriers, including the required 40% upfront contribution for Component B and low initial solar tariffs that made projects unattractive for developers. Meanwhile, India's solar manufacturing capacity has grown, with over 120 GW for modules and 29.3 GW for cells by June 2025, supported by Production Linked Incentive (PLI) schemes. However, the sector still relies heavily on imported upstream components like polysilicon and wafers. Global price swings and trade policies add risks to the domestic supply chain. Even the solar PLI scheme has not fully met its execution goals.

Ongoing Risks Threaten Program Goals

The PM-KUSUM extension underscores several major risks. Banks' continued hesitancy due to collateral problems means securing project finance remains difficult, potentially requiring more upfront capital from developers and slowing new capacity. The weak financial state of Discoms poses a significant risk to the long-term viability of power purchase agreements (PPAs), raising fears of payment defaults that could affect the wider financial system. Program design issues, like farmer contributions, and persistent grid connection deficits are fundamental implementation challenges that timeline extensions alone cannot fix. Past large government initiatives have also shown that ambitious targets often face major on-the-ground execution obstacles. While agrivoltaics offers promise for land use and farmer income, it faces upfront investment hurdles and needs careful policy integration to grow.

Looking Ahead: Phase Two and Market Growth

With the first phase winding down, the extension offers time to address these challenges and prepare for PM-KUSUM 2.0. The next phase is expected to incorporate lessons learned, possibly with more funding and a greater emphasis on feeder solarisation and agrivoltaics. India's overall solar market is forecast to become the world's second largest for annual installations by 2026, fueled by strong demand, supportive policies, and growth in utility-scale and rooftop solar. However, PM-KUSUM's success will depend heavily on resolving the persistent financial and infrastructure issues that have marked its initial rollout.