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India will ‘retaliate’ against unfair EU carbon tax, says Commerce Minister Piyush Goyal | India News

Amid brewing tensions between the European Union (EU) and supplier countries at the World Trade Organization (WTO) over the Brussels’ Carbon Border Adjustment Mechanism (CBAM), Commerce Minister Piyush Goyal said Friday that India will “retaliate” against such unfair taxes.

This comes as New Delhi is working on its own carbon tax mechanism which aims to penalise imports from developed countries for the historic carbon emission that has played a much larger role in fuelling global warming.

“Bharat will address the problem of CBAM with confidence. We will find solutions. We will see how we can convert CBAM to our advantage. Of course we will retaliate. India today does not do these things easily. Even with the US, we retaliated when they had put unfair taxes on us. And see what happened. We were able to resolve all the seven WTO disputes,” Goyal said while speaking at an industry event.

Policymakers have said that the EU’s carbon tax, that aims to impose tariffs on emissions embedded in goods produced outside Europe, is estimated to hit Indian metal exports worth over $8 billion annually, starting in 2026.

A transitional period for CBAM began on October 1, 2023 and is set to end on December 31, 2025, during which time quarterly emissions reporting will be required. Actual taxes will be imposed from 2026 onwards.

Festive offer

The impact is only expected to rise as the EU plans to widen the list of items to impose taxes on going forward. Currently, the items include iron & steel, aluminium, cement, fertilizers, electricity and hydrogen.

“The CBAM tax, between 20 per cent and 35 per cent, is far higher than the EU’s average import tariff of 2.2 per cent on manufactured products. High CBAM duties will make WTO and FTA-led zero duties meaningless,” Ajay Srivastava, former Indian Trade Service officer and co-founder of Global Trade Research Initiative (GTRI), said in a note.

Moreover, India is in talks with South Africa, Taiwan, and several developing nations to contest the Carbon Border Adjustment Mechanism at the WTO.

Goyal said the Indian economy is resilient and that the foreign exchange reserves can cover imports for the next five to six years. “While the IMF may have a formula and the RBI may report our $600 billion foreign exchange reserves as 11 months of imports…which is significantly higher than what most other countries have…my own perspective about our foreign exchange reserves is that they are now sticky,” Goyal said.

However, Indian exports are slowing while imports are on the rise. India’s trade deficit in October had surged to record levels after a sharp jump in gold imports during the festive season.

“In the most difficult situation where interest rates in Europe and the US and other parts of the world were at elevated levels and most people thought that there would be an outflow of foreign exchange, we found that people preferred to stay in India. Therefore, I dare say that if we really look at our foreign exchange reserves, they are enough for the next five to six years without a threat to the economy or foreign currency valuation even if we continue to have our current levels of current account deficit or trade deficit considering the other inflows such as foreign remittances or foreign investment,” he added.

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