India is bracing for yet another EU sustainability regulation, this time in the form of proposed due diligence obligations with respect to human rights and the environment, and is studying its possible impact and ways of mitigation, sources tracking the matter have said.

“In addition to the Carbon Border Adjustment Mechanism (CBAM) and the “Deforestation-Free” regulations, a proposed EU legislation on due diligence obligations with respect to human rights and the environment is set to make things difficult for Indian exporters to the bloc. The draft circulated by the EU provides for an enforcement mechanism with possible sanctions for violations,” the source said.

Target sectors

As the proposed legislation, called the Corporate Sustainability Due Diligence Directive (DD), targetting “high impact” sectors such as textiles, agriculture, and mining, has still not been formalised, Indian officials are studying its possible implications and weighing various options for dealing with it. Some EU countries, such as Germany, have already come up with their own legislation on due diligence, and New Delhi is studying those as well.

“India will start talking to the EU once the draft legislation is adopted, but officials want to be well prepared as it could have serious implications for exporters. It is especially true for MSME suppliers. They may not be in a position to submit all the information asked for by the EU importers to complete their due diligence process for possible human rights abuse, including the use of child labour, and environmental degradation,” the source said.

As the burden of proof is on EU importers, who may face various penalties in case there is a breach in obligations from their suppliers side, they would be very careful in their sourcing, the source added.

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“There is a risk that many Indian exporters to the EU would lose business if the importers are not satisfied with the response to the information that they seek,” the source said.

The EU is one of India’s largest trading partners, accounting for 16.6 per cent of the country’s total exports in 2022–23 at $74.83 billion. India exports a wide variety of products to the EU, including engineering goods, textiles, leather, agricultural produce, and gems and jewellery.