EU Carbon Tax Could Hit Indian Exports in Era Echoing Cold War

The survey's observation comes as India engages in negotiations for free trade agreements with the EU and UK

- Dhirendra Kumar

The Economic Survey 2024-25 warned that escalating trade conflicts among major economies, including China, the US, the European Union, and other G7 nations—with echoes of the Cold War—could disrupt global climate commitments and impose significant economic costs on India.

Drawing a link between what it called geo-economic fragmentation and economic growth, the survey highlighted the likely adverse impact of the European Union's Carbon Border Adjustment Mechanism (CBAM) on India, which it described as a "disguised trade barrier".

"In a re-enactment of the cold war era, countries are once again getting grouped into two blocs and phrases like friend-shoring have come to play centre-stage in global policymaking," it said.

"Fragmentation—economic, social and cultural—is a direct consequence of the imposition of a 'one-size-fits-all' emission, as well as social and labour standards by western nations."

With developed economies accounting for over 50% of global greenhouse gas emissions, the survey pointed to the risks of geopolitical tensions spilling over into trade policies, undermining global efforts to transition to green energy.

The observation comes as India navigates the challenges posed by CBAM, a tax on carbon-intensive exports that the survey flagged as a restrictive trade measure. Scheduled to take effect next year, CBAM could significantly impact India's exports and widen the current account deficit if implemented in its original form.