Indian engineering goods exports could suffer an annual decline of 10 percent if the forthcoming India-EU free trade agreement (FTA) does not resolve issues regarding the steel safeguard and the carbon border adjustment mechanism (CBAM) in Europe, the Engineering Export Promotion Council (EEPC), a statutory body of exporters under India’s ministry of commerce said in a statement on Friday, January 23.
India and the European Union (EU) are scheduled to sign the FTA on January 27. The EU is India’s the second largest destination for engineering products, accounting for 17 percent of total engineering products shipped out of the country, with exports to the EU valued at $118 billion in 2024-25.
Under the EU’s carbon border adjustment framework, importers must declare the carbon emissions embedded in these products. While exporters can submit actual, verified emissions data, the EU applies default emission values when such data are unavailable or unverifiable.
“These default values are set deliberately high, above typical actual emissions, which can translate into CBAM costs of €400–500 per mt, compared with €250-400 per mt if verified emissions data are used, depending on the product. The inflated default values raise the carbon cost of imports, making Indian exports significantly more expensive in the EU market and indirectly subsidising European producers,” EEPC chairman Pankaj Chadha said in a statement.
“CBAM’s scope could also widen, leading to a disproportionate impact on engineering goods, which rely heavily on steel and aluminium inputs. Engineering goods to the bloc account for around 17 percent of India’s total exports in the segment,” Chadha added.
The European Commission on October 7, 2025, announced a proposal to limit tariff-free import volumes of steel to 18.3 million mt a year, reducing them by 47 percent compared to the quota set in 2024, while also doubling the out-of-quota duty to 50 percent.
This proposal will replace the steel safeguard measure set to expire by June 2026.