No Plans to Review Curbs on Chinese FDI by Commerce and Industry Minister

No Plans to Review Curbs on Chinese FDI by Commerce and Industry Minister

Sub: Eco

Sec: External sector

Statement on Chinese FDI Curbs:

• Ministry of Commerce and Industry, clarified that there are no plans to review the restrictions on Chinese investments in India via Foreign Direct Investment (FDI).
• The Economic Survey’s recommendations to reconsider these curbs are not binding on the government.
•   Economic Survey Context:
• The Chief Economic Adviser’s report offers new ideas and perspectives, but it does not dictate government policy.
• Goyal emphasized that there is no rethinking on supporting Chinese investments in the country at this point.

European Union’s Carbon Border Adjustment Mechanism (CBAM):

• The EU has suggested that India could consider levying a domestic tax instead of paying the CBAM levy directly to the EU.
• Ministry indicated that the Indian government is in dialogue with the EU on this matter.

Concerns About CBAM:

• Goyal expressed that CBAM might negatively impact the EU’s economy, increasing costs for infrastructure, living, and consumer products.
• Despite these concerns, the EU is keen on implementing CBAM.

Decision on Domestic Mechanism:

• A decision on whether India will adopt a domestic tax mechanism in place of the CBAM levy will be based on what benefits the Indian industry and the people of India.
• The government will prioritize the interests of India’s economy and its citizens in making this decision.

About Carbon Border Adjustment Mechanism (CBAM)

The European Union (EU) has announced the introduction of its Carbon Border Adjustment Mechanism (CBAM) in its transitional phase from October 2023. This mechanism will impose a carbon tax on imports of products made from processes that are not environmentally sustainable or non-Green. The CBAM will translate into a 20-35% tax on select imports into the EU starting 1st January 2026.

CBAM is part of the “Fit for 55 in 2030 package”, which aims to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, in line with the European Climate Law. The CBAM ensures that imported goods are subject to the same carbon costs as products produced within the EU, thereby promoting fair competition and reducing carbon emissions globally.

Implementation:

• Importers must declare the quantity of goods imported into the EU and their embedded Greenhouse Gas (GHG) emissions annually.
• To offset these emissions, importers will need to surrender a corresponding number of CBAM certificates, priced based on the EU Emission Trading System (ETS) allowances.

Objectives:

• The CBAM aims to prevent carbon leakage, encourage global adoption of stricter environmental regulations, and support cleaner production practices worldwide.

 Significance:

• CBAM can incentivize non-EU countries to adopt more stringent environmental standards, thereby reducing global carbon emissions.
• It helps prevent carbon leakage by discouraging companies from relocating to countries with weaker environmental regulations.
• The revenue from CBAM will support EU climate policies, offering a model that other countries could adopt to promote Green Energy.

Impact on India’s Exports:

• CBAM is likely to affect India’s exports of metals such as iron, steel, and aluminum products to the EU, which will face additional scrutiny and potentially higher costs under the mechanism.
• From 1st January 2026, the EU will start collecting the carbon tax on each consignment of steel, aluminum, cement, fertilizer, hydrogen, and electricity.

Indian products have a higher carbon intensity due to the dominant use of coal, with approximately 75% of India’s energy coming from coal. This is much higher than the EU’s 15%