CBAM feels unfair, but India can gain

From a developing-country perspective, the EU's Carbon Border Adjustment Mechanism (CBAM) can seem unfair. After all, it compels developing nations like India to meet EU's 'First World' standards or pay a price - despite the former's relatively small contribution to CO₂ emissions compared to developed countries. This concern is further heightened by the European Commission's confirmation that the India-EU FTA does not provide any exemption from CBAM.

India's demand for an exemption must be understood in the context of considerable financial, technological and capacity burden that aligning with EU climate norms would place on a large segment of industry, particularly MSMEs. These are two economies with vastly different capacities. In 2025, the EU's nominal per-capita GDP was about $46,000, while India's was around $2,800. The proposed EU-India platform for cooperation on climate action, to be set up by June, along with ₹500 mn in likely conditional EU support over the next 2 yrs, will help. But it will clearly not suffice.

However, just because CBAM feels unfair does not mean it has to be detrimental. New Delhi can turn it to its advantage. Talks on investment agreements should be approached with a clear sustainability lens and a concrete plan to decarbonise and transform the industrial base. The focus should be on attracting investments and partnerships in clean energy supply chains, clean tech manufacturing and decarbonisation technologies. Leveraging the complementarity of the two economies to create strategic opportunities that strengthen resilience and sustainability should be the guiding principle. If engaged with proactively, CBAM could catalyse India's industrial transformation, rather than merely posing a constraint.