What Happened
- Parliament received a compilation of updates on India's trade challenges in March 2026, covering three key areas: (1) the EU's Carbon Border Adjustment Mechanism (CBAM) entering into force on January 1, 2026, which imposes carbon levies on Indian exports to the EU in sectors like steel, aluminium, cement, fertilisers, and electricity; (2) the RoDTEP export incentive scheme's rates being cut by approximately 50% effective February 23, 2026, threatening the competitiveness of India's aluminium and other export sectors; and (3) the government's data on India-China trade showing over 1 lakh (100,000) exporters benefiting from RoDTEP in FY26, even as India-China trade dynamics are evolving.
- The combination of CBAM's carbon cost imposition and the simultaneous RoDTEP rate cuts is described by industry associations as a "double pressure" on Indian exporters — the domestic incentive is reduced at the same time that a major export destination is imposing new cost burdens.
- The Aluminium Association of India (AAI) has formally requested the Directorate General of Foreign Trade (DGFT) to exempt aluminium from RoDTEP cuts, warning that the 50% reduction makes Indian aluminium uncompetitive against Chinese and Middle Eastern producers in the EU market.
- India's total exports to the EU are approximately $75–80 billion annually, making the EU India's second-largest export destination and the CBAM impact a significant long-term trade policy concern.
Static Topic Bridges
EU Carbon Border Adjustment Mechanism (CBAM)
The Carbon Border Adjustment Mechanism (CBAM) is an EU policy tool that attaches a carbon price to imports of certain carbon-intensive goods, equivalent to the carbon price that EU producers pay under the EU Emissions Trading System (EU ETS). CBAM entered its transitional (reporting-only) phase in October 2023 and became fully operational on January 1, 2026, meaning importers must now purchase CBAM certificates corresponding to the carbon price embedded in their imports.
- Sectors covered: Steel, aluminium, cement, fertilisers, electricity, and hydrogen.
- Legal basis: EU Regulation 2023/956 (adopted May 2023).
- Mechanism: Importers into the EU must declare the embedded carbon emissions of their goods and surrender CBAM certificates priced at the EU ETS carbon price (approximately €50–70 per tonne of CO2 equivalent).
- WTO compatibility: India and several other countries have challenged CBAM's WTO compatibility, arguing it discriminates against developing country exporters that have not put domestic carbon prices in place.
- India's exposure: Steel and aluminium are India's most CBAM-affected export sectors to the EU; combined exports are several billion dollars annually.
- Impact estimate: CBAM could raise Indian aluminium export costs to the EU by 7–50% depending on the product's carbon intensity.
Connection to this news: CBAM's full enforcement from January 2026 means Indian exporters must now factor carbon costs into pricing for EU-bound goods — a structural shift that disadvantages high-carbon-intensity producers and creates pressure on India to accelerate its own carbon pricing mechanisms.
RoDTEP Scheme: Mechanism and the FY26 Rate Cuts
Remission of Duties and Taxes on Exported Products (RoDTEP) is India's export incentive scheme that replaced the Merchandise Exports from India Scheme (MEIS) from January 1, 2021. Unlike MEIS, which provided additional financial support and was found WTO-incompatible, RoDTEP only refunds embedded taxes and duties that are not otherwise refunded (central, state, and local levies built into production costs). It is structured as e-scrips (transferable electronic credits) that can be used to pay basic customs duty.
- Rates: Expressed as a percentage of FOB (Free On Board) export value; range from 0.3% to 4.3% depending on product.
- WTO compliance: RoDTEP is WTO-compliant because it only remits taxes actually paid on inputs — it is not a direct export subsidy.
- Replaced MEIS: MEIS (Merchandise Exports from India Scheme) was challenged at the WTO by the US in 2018 (DS541) as a prohibited export subsidy; RoDTEP was designed to be WTO-compatible.
- FY26 rate cuts (effective February 23, 2026): For Domestic Tariff Area (DTA) units, RoDTEP rates cut from approximately 3% to 1.5% (50% reduction); for Special Economic Zone (SEZ) units, from 2.2% to 1.1%.
- Aluminium sector: The Aluminium Association of India warns that the cut makes Indian aluminium uncompetitive against Chinese and Gulf producers in the EU and other markets, while CBAM simultaneously raises entry costs.
- Over 1 lakh (100,000) exporters benefited from RoDTEP in FY26, indicating broad base across sectors.
Connection to this news: The RoDTEP rate cut — at a time when CBAM is adding costs for EU-bound exports and US Section 301 probes threaten tariffs on Indian goods — compounds the competitiveness challenge for Indian exporters and has triggered urgent appeals from industry associations to the government.
EU ETS and India's Carbon Pricing Policy
The EU Emissions Trading System (EU ETS) is the world's largest carbon market, established in 2005 under EU Directive 2003/87/EC. It operates on a cap-and-trade principle: a cap is set on total greenhouse gas emissions from covered sectors; companies receive or buy emission allowances; those that reduce emissions below their allocation can sell surplus allowances. The ETS price drives the CBAM certificate price, creating a direct carbon cost for non-EU exporters into the EU.
- EU ETS carbon price (2024–25): approximately €50–70 per tonne of CO2.
- Sectors covered by EU ETS: Power generation, energy-intensive industry (steel, aluminium, cement, chemicals), aviation, and (from 2024) maritime shipping.
- India does not have a nationwide carbon tax or carbon trading system, though the Bureau of Energy Efficiency (BEE) operates the Perform, Achieve and Trade (PAT) scheme for energy efficiency.
- India's Carbon Credit Trading Scheme (CCTS), notified in 2023, is being piloted but has not established a market price comparable to the EU ETS.
- India has argued at the WTO that CBAM violates MFN and National Treatment principles (Articles I and III of GATT) and the special and differential treatment provisions for developing countries.
Connection to this news: India's lack of a domestic carbon price means Indian exporters cannot offset CBAM costs through domestic carbon credits (a provision CBAM allows for countries with equivalent carbon pricing) — creating competitive pressure to either decarbonise production or accept the price penalty in the EU market.
India-China Trade: FDI Reset and Trade Balance Dynamics
The backdrop to the Parliament trade data includes the Union Cabinet's March 10, 2026 decision to relax Press Note 3 (PN3) FDI restrictions for China in selected manufacturing sectors. This relaxation reflects a broader diplomatic and economic reset in India-China relations following the 2024–25 disengagement along the Line of Actual Control (LAC), and acknowledges that Indian manufacturing — particularly in electronics and solar — cannot achieve import substitution without access to Chinese capital and technology for upstream components.
- PN3 relaxation (March 2026): Chinese FDI allowed through automatic route up to 10% beneficial ownership in capital goods, electronic components, solar manufacturing inputs (polysilicon, ingot-wafer).
- The relaxation targets Indian dependence on Chinese imports for manufacturing inputs — allowing Chinese investment to produce those inputs locally.
- India's imports from China in FY25: $113.45 billion (+11.52% YoY); exports to China in FY25: $14.25 billion (−14.5% YoY) — showing the fiscal-year trend is more mixed than calendar-year data.
- Calendar year 2025 exports to China grew 9.7%, but fiscal year 2024-25 exports fell 14.5% — reflecting timing and commodity price fluctuations (iron ore, naphtha).
Connection to this news: The government's Parliament statement on improving trade trends is set against a complex reality — the bilateral trade deficit is at a record high by absolute measure, even if growth rates show some moderation. The PN3 relaxation signals India's pragmatic approach to managing the China trade relationship through selective engagement.
Key Facts & Data
- CBAM: fully operational from January 1, 2026 (EU Regulation 2023/956); covers steel, aluminium, cement, fertilisers, electricity, hydrogen.
- CBAM impact on Indian aluminium exports to EU: cost increase estimated at 7–50%.
- RoDTEP rate cut (effective February 23, 2026): DTA units 3% → 1.5%; SEZ units 2.2% → 1.1%.
- RoDTEP beneficiaries in FY26: over 1 lakh (100,000) exporters.
- India's exports to EU: approximately $75–80 billion annually (EU is India's second-largest export destination).
- EU ETS carbon price: approximately €50–70/tonne CO2.
- India-China bilateral trade (2025 calendar year): $155.62 billion; deficit $116.12 billion (record).
- India's FY25 exports to China: $14.25 billion (−14.5%); imports from China: $113.45 billion (+11.52%).
- Press Note 3 relaxed March 10, 2026: auto-route for Chinese FDI up to 10% in select manufacturing.
- MEIS WTO dispute: DS541 (US vs. India), filed 2018; RoDTEP designed as WTO-compliant replacement.