National Manufacturing Mission Phase II: Green manufacturing and the CBAM challenge
Phase I focused on establishing the institutional framework and sector-specific PLI schemes. Phase II, approved in May 2026, introduces a green manufacturing component that ties industrial policy directly to India's climate commitments.
Key provisions
| Provision | Details |
|---|---|
| Green PLI top-up | Existing PLI beneficiaries in textiles, steel, cement, and chemicals receive an additional 2-3% incentive if they reduce carbon intensity by 20% within 3 years |
| Circular Economy Fund | ₹5,000 crore to support MSMEs in adopting waste-to-resource technologies: recycling, remanufacturing, and industrial symbiosis |
| CBAM preparation cell | A dedicated cell within the Ministry of Commerce to help Indian exporters comply with the EU's Carbon Border Adjustment Mechanism |
| Green hydrogen pilots | Three pilots for green hydrogen in steel, ammonia, and oil refining. Total allocation: ₹1,200 crore |
The CBAM context
The EU's Carbon Border Adjustment Mechanism is the most significant external pressure on Indian manufacturing. From 2026, EU importers of steel, aluminium, cement, fertilisers, and electricity must purchase CBAM certificates equivalent to the carbon price that would have been paid under EU rules. For Indian exporters, this means their products become more expensive unless they reduce carbon intensity.
India has raised CBAM at the WTO and COP meetings, arguing it violates the principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) . The EU's position: CBAM is a trade measure, not a climate measure, and WTO non-discrimination principles apply, not CBDR.
The NMM Phase II is India's domestic answer: compete on green terms rather than fight the rules.
Prelims facts
- Ministry: Commerce and Industry
- CBAM covers: steel, aluminium, cement, fertilisers, electricity
- Green PLI: additional 2-3% for 20% carbon intensity reduction
- Circular Economy Fund: ₹5,000 crore
Part of: Government Schemes: April to June 2026
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Source: Ministry of Commerce and Industry, May 18, 2026; EU CBAM regulation.