India-EU pact builds safety net against carbon tax
There is a comprehensive work plan under the India-EU free trade agreement to address concerns over the European Union’s carbon tax, a senior government official said on Thursday, expressing hope that domestic small and medium enterprises will not face any problems due to that measure.
Additional Secretary in the Department of Commerce Darpan Jain said there are provisions, such as extension of flexibility to India by the EU, if the 27-nation bloc extends relaxation to other countries.
CBAM (carbon border adjustment mechanism) took a lot of negotiating capital. In the text, there is a separate Annexure on dealing with CBAM, and there are certain pillars. “The first pillar is that, in case of flexibility in future, that will be available to India. So there is an obligation in that”, he said.
“Second, CBAM compliances are a concern among SMEs in terms of verification, in terms of finding out what is the value of embedded carbon, in terms of ensuring that the verifiers are recognised by the EU authorities.
“So, there are separate provisions, and we also have a provision in which we can engage with EU authorities on taking into account the carbon price, which is paid in India. As you would know, India also is developing its own carbon pricing mechanism. So, how to offset what is paid in India from what is paid in Europe, so even that is part of it,” Jain noted.
He was speaking at the IGCC (Indo-German Chamber of Commerce) Industry Dialogue 2026 here. He was replying to a question that MSMEs are apprehensive that the mechanism may affect their exports to the EU member nations.
“So, there is a comprehensive, I would say, work plan under annexure on CBAM and we’re working on it, and I am very hopeful that SMEs will not face any problem,” he said. Carbon Border Adjustment Mechanism (CBAM) or the carbon tax came into effect on January 1.
Under the mechanism, the EU will impose a carbon tax on goods such as steel, aluminium, fertiliser and cement as they emit carbon beyond a specified threshold during manufacturing. Presently, the tax applies to steel and aluminium products.
Jain also said that to spread awareness about the trade agreement, the commerce ministry has chalked out a very elaborate programme of outreach to almost all the different districts of the country.
“We want to go to all the districts and conduct outreach programmes there and tell industry about what is there in the FTA, how they can use it, how they can explore opportunities under that. We are also exploring other tools like electronic tools, so that we can engage with them, especially small businesses,” he said.
Both sides in January announced the conclusion of talks for the pact. It is expected to be signed later this year and may come into force next year. Jain said the deal will provide huge business opportunities to both sides. India and the EU trade is about one-third of the global trade, which is about USD 33 trillion.
He said Germany is a powerhouse of auto, and its exports from the sector are about USD 286 billion, and the pact provides huge opportunities for the European country in India.
