India and the European Union have worked out a detailed plan under their upcoming free trade agreement to help Indian businesses, especially small and medium enterprises, deal with the EU's carbon tax, a senior commerce ministry official said on Thursday.
Darpan Jain, Additional Secretary in the Department of Commerce, said the FTA text includes a dedicated annexure on the Carbon Border Adjustment Mechanism (CBAM), the EU's mechanism for taxing imports based on their carbon footprint. He said getting this annexure into the agreement took considerable negotiating effort, and it rests on a few key pillars.
The first, he explained, ensures that if the EU extends any flexibility on CBAM to other countries in the future, India will automatically be entitled to the same relief. "So there is an obligation in that," Jain said.
The second pillar deals with something that's been worrying exporters directly: compliance. Many SMEs are unsure how to calculate the "embedded carbon" in their products, or how to get verifiers recognised by EU authorities. To ease this, the agreement includes provisions for India to engage directly with EU authorities on factoring in whatever carbon price is already paid in India, since the country is in the process of building its own domestic carbon pricing system.
Jain was speaking at the Indo-German Chamber of Commerce's Industry Dialogue 2026, responding to concerns that CBAM could hurt MSME exports to EU countries. "There is a comprehensive work plan under the annexure on CBAM, and I am very hopeful that SMEs will not face any problem," he said.
CBAM came into force on January 1 this year and currently applies to steel and aluminium, though the EU's stated scope covers goods like fertiliser and cement too, once they cross a certain carbon-emission threshold during manufacturing.
Beyond CBAM, Jain said the commerce ministry is planning a nationwide outreach campaign, aiming to reach businesses in nearly every district to explain how the FTA works and what opportunities it opens up. The ministry is also looking at digital tools to make it easier for smaller businesses to engage with the process.
For many SMEs, this is really a data and documentation challenge as much as a trade one; being able to demonstrate exactly how much carbon price has already been paid domestically depends on having clean, verifiable records to begin with. That's where solid bookkeeping services in india come in, helping exporters maintain the kind of accurate financial and emissions-linked records that CBAM verification will eventually demand.
India and the EU announced the conclusion of FTA talks in January. The deal is expected to be signed later this year and come into effect in 2027. Jain noted that India-EU trade already accounts for roughly a third of global trade, and pointed to Germany's USD 286 billion automotive export industry as one sector that stands to gain significantly from the pact.