India Considers ₹2,000 Crore MSME Tech Upgrade as Rising Global Carbon Tariffs Loom

In order to encourage the adoption of energy-efficient machinery, India may announce a ₹2,000 crore technology upgradation programme for small businesses in the 2026–2027 budget, two people with knowledge of the development told Mint.

The technology upgradation scheme, proposed by the Union ministry of micro, small and medium enterprises (MSME), and currently under discussion, is expected to cover MSMEs with annual turnover of less than ₹50 crore, offering them a 20% capital subsidy for purchase of energy-efficient machinery, smart manufacturing and automation upgrades, said the first of the two persons cited earlier, both of whom spoke on the condition of anonymity.

A micro enterprise has an annual turnover of up to ₹5 crore, a small enterprise up to ₹50 crore, and a medium enterprise up to ₹500 crore.

The proposal coincides with a number of nations imposing their own carbon taxes on imports from countries with laxer climate regulations. The Carbon Border Adjustment Mechanism (CBAM) of the European Union will take effect on January 1. In 2027, the UK and Norway intend to implement their own CBAM-like systems. Taiwan plans to enact CBAM laws and taxes in 2026, while Canada and Australia are also in the early phases of developing CBAM, reported Mint.

These carbon taxes will pose a threat to Indian MSME manufacturers and their exports amid rising global tariff barriers. While these small businesses are already impacted by the steep 50% tariff imposed by the US, Mexico also has announced a 50% tariff on select Indian goods starting 1 January 2026.

The second person said that the ongoing MSE-GIFT (Micro and Small Enterprises Green Investment and Financing for Transformation) scheme may be integrated with the new scheme. Launched in December 2023 as part of a World Bank-backed Raising and Accelerating MSME Performance (RAMP) project, the scheme provides interest subvention on loans and risk-sharing facilities to micro and small enterprises on loans for cleaner and greener operations. The total corpus of the MSE-GIFT scheme is ₹478 crore.

Trade Pressure, Technical Shift

Global studies show technology upgrades are critical for MSMEs facing carbon-linked trade barriers.

The World Bank and Organisation for Economic Co-operation and Development (OECD) note that energy-efficient machinery and automation help smaller firms reduce emissions intensity, comply with CBAM-type rules, and protect export competitiveness as climate-related tariffs reshape global manufacturing and supply chains.