Out of Europe? India's steel MSMEs battle data gaps, rising cost and EU's carbon wall

Micro, small, and medium enterprises (MSMEs) in India’ steel industry are facing a growing compliance challenge under the European Union’s carbon border rules. Gaps in emissions data from steel suppliers, along with the rising cost of carbon accounting, audits, and verification could further make it harder for these businesses to compete in the European market, India’s largest destination for iron and steel exports.

India, the second-largest producer of crude steel with 220 million tonnes per annum capacity, is among the fastest growing steel market. MSMEs account for 38-47% of the country’s total crude steel production, according to the government’s data.

For these smaller manufacturers, the challenge begins even before any carbon-related cost is calculated. Many downstream units depend on primary and secondary steel producers for emissions data but struggle to get the information needed to calculate their products’ carbon footprint. Even when the data is available, measuring emissions, maintaining records, and third-party verification can be expensive, particularly for businesses without dedicated compliance teams.

“The immediate challenge is getting reliable carbon-footprint data from steel producers. Without it, MSMEs cannot calculate their total emissions accurately and may have to rely on default values,” says Arun Kumar Garodia, Managing Director of Kolkata-based Corona Steel and former chairman of the Engineering Export Promotion Council of India (EEPC India).

“Primary and secondary producers are not giving carbon footprint certificates. Without them, MSMEs can’t calculate total emissions,” Garodia adds.

Industry representatives say the challenge calls for targeted financial and technical assistance from the government, including affordable verification facilities, simplified emissions-reporting systems, and support for smaller units to meet overseas buyers’ requirements.

The EU’s Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase on January 1, 2026, following a transitional reporting period that began in October 2023. It initially covers specified goods in six sectors: iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen.

Under the mechanism, EU importers are responsible for reporting emissions linked to covered imports and meeting the related certificate obligations. Indian exporters do not have to meet these obligations directly. However, European customers may still ask them to give reliable emissions data, particularly if they want to use actual emission figures rather than prescribed default values.

More than 80% of India’s steel production is dependent on coal-based direct reduced iron (DRI) and blast furnace-basic oxygen furnace methods, as per Global Energy Monitor. This dependence on coal is reflected in the industry’s carbon footprint. India’s average carbon intensity estimated at 2.55 tonnes of CO₂ per tonne of steel by ICRA, which is much higher than the global average of around 1.85 tonnes and the EU’s blast furnace benchmark of 1.37 tonnes.

Notably, the European Commission set CBAM certificate prices at €75.36 per tonne of carbon dioxide for the first quarter of 2026, €75.28 for the second quarter and €82.32 for the third quarter. From 2027, certificate prices will be calculated weekly instead of quarterly.

As per industry data, the EU imported about €3.9 billion worth of iron and steel from India in 2024, and iron and steel account for roughly 90% of India’s CBAM-exposed exports to the bloc.

The first annual declaration and certificate-surrender deadline, covering imports in 2026, is September 30, 2027. Certificate purchases through the EU’s common platform are scheduled to begin in February 2027, leaving MSMEs a few months to address CBAM-related challenges.

Supplier data gaps could increase compliance burden

Garodia says manufacturers must account for emissions associated with the steel they purchase and those generated during further processing. Without supplier-level information, establishing the product’s overall carbon footprint becomes difficult. “If we must pay on higher default values, it will be very tough. We first need certificates from producers,” he says.

Smaller manufacturers could face a disadvantage when they depend on larger raw-material suppliers for emissions information, says Ajay Srivastava, Founder of the Global Trade Research Initiative (GTRI). “MSMEs often source steel and aluminium from large producers, where most production emissions occur. If these suppliers do not share the necessary data, CBAM liability may be calculated using default values,” he says.

According to his estimates, preparing a factory to collect and report emissions-related information could cost Rs 20 lakh or more, depending on the facility, production process, and product category. Separate industry estimates suggest that recurring administrative expenses, including emissions measurement, reporting systems, software and third-party verification, could reach Rs 15-20 lakh annually for some MSME units.

While these are industry estimates, not representative survey findings, and should not be treated as standard costs for every exporter, these estimates indicate the additional financial burden staring at MSMEs. These expenses are also separate from any certificate costs borne by EU importers and the investment that MSME exporters may need to upgrade their manufacturing technology.

Rising costs add to pressure on smaller exporters

The cost of establishing emissions-monitoring systems and obtaining verification comes at a time when some Indian exporters are reporting greater caution among European customers.

The uncertainty surrounding CBAM had begun influencing purchasing decisions among some European clients, says Digvijay Singh Chauhan, Managing Partner, UNISPARES India, a Noida-based machinery parts manufacturer and exporter.

“The impact is already visible. I know a few exporters whose European clients have clearly indicated that they do not want to deal with another issue like this. Some clients have reduced their orders, while others are not placing new orders,” says Chauhan.

He says smaller businesses often lacked the resources to hire advisers and understand the requirements. “Many businesses do not even know what requirements they need to meet. Those who have the resources are hiring advisers and seeking recommendations, but smaller companies may not be able to afford this support,” he adds.

A director of a Jamshedpur-based steel manufacturer says some smaller European customers, who previously bought one or two containers of steel products, typically 15-20 tonnes each, have withdrawn from the market; enquiries from potential buyers have also declined.

The company manufactures around 40,000 tonnes annually and exports approximately 20,000 tonnes, primarily flanges, tubes and pipes. The director says some European buyers are exploring sourcing arrangements involving finished products, rather than raw materials, partly because of additional compliance expenses. However, he cautions that it is too early to quantify the full impact of CBAM.

Rajbir Singh, an industrialist from Fatehgarh Sahib (Punjab), whose company Modern Steel exports around 60,000 tonnes annually against production of approximately 80,000 tonnes, also says the precise impact of CABM remained unclear.

While these company-level accounts point to emerging concerns, they do not establish a sector-wide decline in European orders. The impact is likely to vary depending on product, its emissions intensity, customer requirements, and supply-chain arrangements.

Compliance support emerges as a key demand

Industry representatives say government intervention needs to extend beyond awareness programmes to practical assistance with emissions measurement, verification, and reporting.

Gulzar Didwania, Partner at Deloitte India, says industry estimates suggest approximately 25,000-30,000 MSMEs across steel, foundry, forging, fasteners, and aluminium value chains could face indirect emissions-data and reporting requirements from European customers and importers.

This is an industry estimate, not an official government count of MSMEs directly covered by CBAM. The number of firms directly affected depends on the goods they export, their customs classifications and the applicable EU rules. Other businesses may face indirect commercial pressure through supply-chain requests.

Didwania also points out to the limited access to recognised verification agencies as a concern. He says that domestic accreditation alone does not guarantee that a verifier will meet the EU’s requirements under CBAM, making it important for exporters to ensure that their verification arrangements are accepted under the relevant rules.

He calls for simplified emissions-monitoring tools, cluster-based facilities, and better access to verification services to help spread compliance costs across smaller manufacturers.

India is developing its domestic emissions-measurement and reporting ecosystem through initiatives such as the Carbon Credit Trading Scheme and the Green Steel Taxonomy. Exporters must nevertheless ensure that the information and verification they provide meet the EU's specific requirements.

India also has broader green-transition programmes, including MSE-GIFT, which supports financing for cleaner technologies, and MSE-SPICE, which promotes circular-economy investments among smaller enterprises. Neither programme was specifically designed as a CBAM-compliance scheme.

Namrata Rana, Partner and National Head for ESG at KPMG in India, says carbon-related border measures were adding pressure on manufacturers already operating on thin margins. “Specifically, for MSMEs who are already working on thin margins, this is an additional cost that they would rather not incur,” Rana adds.

She says more work is needed on training, emissions monitoring, and verification to strengthen India’s domestic carbon-market ecosystem. She also calls for incentives to help businesses manage compliance costs and potential disruptions from carbon-related trade measures.

Srivastava says financial assistance could help exporters collect emissions data, arrange verification, and maintain documentation required by overseas customers. He also argues that consignment-level export data held by the Directorate General of Commercial Intelligence and Statistics could help establish how EU-bound shipments were changing before and after CBAM implementation.

An email seeking details of measures being taken to help MSMEs address CBAM-related challenges has been sent to the Union MSME Ministry. A response is awaited.

Technology upgrades pose a further challenge

Beyond emissions data and verification, smaller manufacturers may also struggle to finance cleaner production technologies.

Badish Jindal, President of the World MSME Forum, says larger manufacturers were better positioned to absorb the investment required to upgrade technology, while smaller units faced financing constraints.

“The government is only doing advisory sessions and some financial assistance for certifications but not providing any financial support to upgrade the technology as per EU norms,” Jindal says.

The cost of technology upgrades is separate from the expense of emissions reporting and verification, and the requirements will vary across products and manufacturing processes. The broader trade exposure makes these challenges significant. According to industry estimates cited by NITI Aayog, the EU accounts for 39.3% of India’s iron and steel export exposure. This does not mean that the same proportion of all Indian steel production or MSME exports is subject to CBAM.

So far, India’s overall finished steel exports remain strong. Steel ministry data show that exports reached 6.94 lakh tonnes, valued at Rs 5,541.2 crore, in August 2026, up 31.3% in volume and 41.5% in value from a year earlier. During April-August, exports rose 34.1% in volume to 29.86 lakh tonnes and 32% in value to Rs 23,646.6 crore. These figures cover all destinations and do not isolate EU-bound shipments or exports by MSMEs.

But a June 2026 working paper by ICRIER estimates that CBAM could reduce India’s steel exports to the EU by around 24% under the model’s assumptions.

For Indian MSMEs, the immediate priority is to secure reliable emissions information from suppliers and make compliance affordable. Access to supplier-level data, recognised verification services, simplified reporting tools, and targeted financial assistance could help smaller manufacturers retain access to European markets while preparing for tighter carbon-related trade requirements.

Whether the new rules will lead to a wider loss of orders or market share remains to be seen. This will become clearer as more EU-specific export data and company-level evidence emerge. For now, industry representatives say that without practical support, the cost of demonstrating a product’s carbon footprint could become an additional competitive hurdle for India's smaller exporters.