India's Finance Minister Nirmala Sitharaman has voiced strong concerns about the European Union’s Carbon Border Adjustment Mechanism (CBAM), labelling it as a trade barrier that could impose severe challenges on Indian industries. During an interview with the UK’s Financial Times on October 9, Sitharaman argued that the mechanism, along with other unilateral trade measures by the developed world, threatens to disrupt Indian business interests. “It is unilateral, arbitrary, a trade barrier, and not helpful for a country like India,” she stated.

The EU Carbon Border Adjustment Mechanism, slated to be implemented in 2026, is a carbon tariff levied on carbon-intensive goods such as steel, cement, and certain forms of electricity imported into the European Union. The mechanism is part of the EU’s ambitious European Green Deal, which seeks to promote environmental sustainability by putting pressure on industries to reduce carbon emissions.

However, Sitharaman warned that such measures could create an uneven playing field. She pointed out that while developed nations could continue producing "dirty steel" domestically, they would impose strict regulations on imports from countries like India. This, according to her, would hurt Indian exporters, especially those operating in sectors like steel and cement.

Concerns over WTO Compliance

Sitharaman further questioned the World Trade Organization (WTO) compliance of the CBAM, suggesting that it could lead to legal and economic disputes. “We are not sure if the CBAM is compliant with WTO rules,” she stated, emphasizing the need for a level playing field and fair treatment in global trade. The Indian government remains concerned about whether such unilateral measures could breach international trade norms.

At the same time, the EU-India Free Trade Agreement (FTA) talks are ongoing, with both parties looking for common ground. While Sitharaman acknowledged the importance of these negotiations, she made it clear that India will continue to press its concerns over CBAM. “We hope the issue will not escalate to the point where it jeopardizes the EU-FTA talks,” she said, highlighting that India intends to take a strong stand on the issue.

Impact on Indian Supply Chains

In addition to the CBAM, Sitharaman raised alarms about other EU regulations, particularly the EU Deforestation Law, which she warned could further complicate matters for Indian industries. This law, which aims to prevent deforestation linked to the production of commodities like palm oil and soy, is expected to increase costs for businesses and disrupt supply chains. “Even before the impacts of the CBAM are felt, the EU Deforestation Act is poised to cause significant disruptions,” she said.

The finance minister expressed particular concern about how these new measures would affect the ability of traditional Indian industries to adapt to more stringent environmental standards. She noted that as industries work to switch to more sustainable practices, the additional costs imposed by these regulations could stifle their growth. “We are going to be stifled with newer challenges, as our traditional industries strive to switch to more sustainable practices,” Sitharaman remarked.

India’s pushback against the EU’s carbon border tax comes at a time when global discussions on climate change are gaining momentum. Developing countries like India are under increasing pressure to accelerate their energy transition, but Sitharaman pointed out that they often lack the resources available to wealthier nations.

International Dialogue on Carbon Tariffs

The broader issue of carbon tariffs has been a topic of debate in international forums, with many developing countries arguing that such measures disproportionately affect them. India has consistently maintained that the developed world should take on a greater share of the burden when it comes to reducing global carbon emissions, given their historical responsibility.

While there is still room for negotiations, the outcome of the EU-India FTA talks could hinge on how issues like CBAM and other trade barriers are addressed. The Indian government has made it clear that it will not compromise on issues that could harm its industries and exports.

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