Union Finance Minister Nirmala Sitharaman on Wednesday, October 9, raised strong objections to the European Union’s Carbon Border Adjustment Mechanism (CBAM), labelling it a trade barrier that could significantly harm Indian industries. The FM was speaking with UK’s Financial Times, and emphasised that the CBAM, along with other unilateral measures from the developed world, presents a serious challenge for Indian businesses.

“It is unilateral , arbitrary, a trade barrier and not helpful for a country like India,” Sitharaman asserted, underlining the lack of a level playing field created by carbon tariff.

The EU Carbon Border Adjustment Mechanism is a carbon tariff imposed on carbon-intensive products like steel, cement, and certain types of electricity imported into the European Union. As a component of the European Green Deal, CBAM is set to take effect in 2026.

Sitharaman argued that the mechanism might allow developed nations to continue producing “dirty steel” while imposing stringent regulations on imports from countries like India, creating an uneven playing field.
“We are not sure if the CBAM is compliant with World Trade Organization (WTO) rules,” she stated, highlighting the potential legal and economic implications of such measures.

While acknowledging the importance of ongoing discussions about a Free Trade Agreement (FTA) with the EU, the finance minister stressed that India will not hesitate to voice its concerns over the CBAM.

“We hope the issue will not escalate to the point where it jeopardises the EU-FTA talks. However, we must address our apprehensions,” she said.

In addition to the CBAM, Sitharaman pointed out that the EU’s deforestation legislation could further disrupt Indian supply chains, exacerbating challenges related to energy transition.

“Even before the impacts of the CBAM are felt, the EU Deforestation Act is poised to cause significant disruptions, adding to our costs,” she warned.

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Sitharaman also raised concerns about the ability of traditional industries to adapt to new emission norms amid these escalating challenges.

“We are going to be stifled with newer challenges, as our traditional industries strive to switch to more sustainable practices,” she noted.