When i try to invoke the xinclude parser, it is not able to access the file even though i initialize the variable with a pre-determined path.

You say that as if the XML parser has a concept of variables, and that it interpolates those variables into file names to include, and that it uses a perl-ish syntax for doing so. I doubt any of those are true.

To add that feature, you'd have to modify or hook into the parser's include mechanism to add

my %safe = map { $_ => 1 } qw(
    HOME_ROOT
);

s/\$(\w+)/ $safe{$1} && exists($ENV{$1}) ? $ENV{$1} : "\$$1" /eg
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Update: I took a look at XML::Filter::XInclude. My suspicions were correct. But it would be easy to subclass XML::Filter::XInclude and override _include_text_document and _include_xml_document to add the functionality you want.