India and the EU plan to sign a free trade agreement by December 2026, with implementation in early 2027. The deal gives duty-free access to 93% of Indian exports, benefiting textiles, pharmaceuticals, and agriculture. But the EU's Carbon Border Adjustment Mechanism (CBAM) will impose a carbon tax on high-emission imports like steel, aluminum, and cement. Indian exporters in energy-intensive sectors face higher compliance costs and new reporting requirements. Even with tariff reductions, meeting EU sustainability standards could erode short-term margins. The final tariff phase-in schedule and how domestic auto and chemical companies handle European competition will determine real market impact. Investors should track CBAM compliance costs, non-tariff barriers, and sector-specific tariff timelines. The deal opens export opportunities but also pressures domestic manufacturers to decarbonize faster or lose price advantage.
