India expects the EU’s carbon tax to hit exports of steel, iron ore and cement

India’s exports are already facing subdued demand from developed nations and are likely to be hit by the European Union’s 20-35 percent tariffs on high-carbon goods like steel, iron ore and cement, the finance ministry said in a report released on Thursday.

In April, the EU approved the world’s first plan to levy a levy on imports of high-carbon goods from 2026. The goal is to become a net-zero greenhouse gas emitter by 2050, some 20 years ahead of India’s target.

From 1 October 2023, carbon reporting would be required for exports to the EU. Steel, cement, aluminum, fertilizers, electricity and hydrogen would be particularly affected.

“Among the looming downside risks for India’s exports is the introduction of the European Union’s carbon border adjustment mechanism,” the finance ministry said in its annual economic report.

On the positive side, according to the report, energy prices are likely to remain at lower levels for the remainder of the year, which should ease pressure on the trade deficit.

India’s goods trade deficit widened faster-than-expected to US$22.12 billion in May, compared to US$15.24 billion in April, on lower demand for Indian exports from developed countries.

The report also states that India’s rural demand is on the path to recovery and the country is expected to experience sustained economic growth for a long time to come.

However, risks related to geopolitical tensions and the impact of the El Niño weather phenomenon on the agricultural sector were highlighted.

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