India to Absorb 90% of CBAM Compliance Costs for MSMEs

The Indian government is developing a support scheme to cover 90% of the compliance costs incurred by micro, small, and medium enterprises (MSMEs) under the European Union’s Carbon Border Adjustment Mechanism (CBAM). This policy initiative aims to mitigate the heavy financial burden imposed by the EU's carbon tax, which came into effect on January 1, 2026. Smaller businesses have struggled significantly with the costs of carbon accounting, verification, and digital reporting, which are estimated between Rs 15 lakh and Rs 20 lakh per unit, and have disproportionately affected their competitiveness in European markets.

The primary difficulty for Indian MSMEs arises from a lack of technical expertise and the financial capacity to meet the EU's stringent reporting requirements. Furthermore, if companies fail to provide actual emission data, the EU forces the use of default emission values, which are subject to escalating mark-ups of 10% in 2026, 20% in 2027, and 30% from 2028. These mark-ups create significant risks for Indian exporters, particularly in the iron and steel, aluminium, and fertiliser sectors, which represent a large portion of the nation's trade with the EU.

The iron and steel sector is expected to bear the brunt of the CBAM impact, with studies indicating a potential 24% decline in exports to the EU. While the government’s proposed subsidy is intended to ensure smaller firms remain commercially viable, the broader effectiveness of such measures depends on the implementation of better verification systems. With the UK also planning to introduce its own CBAM from 2027, this initiative represents a critical defensive move for India’s small-scale industrial sector to prevent long-term erosion of its market access in developed economies.