<h4>Encouraging Exports</h4><p>One primary strategy to reduce the <strong>Current Account Deficit (CAD)</strong> is to significantly boost a nation's exports. Increased exports bring in foreign exchange, helping to offset the outflow caused by imports.</p><div class="info-box"><p>The <strong>Foreign Trade Policy (FTP) 2023</strong> is a key initiative. Its ambitious goal is to elevate <strong>India’s exports to USD 2 trillion by 2030</strong>. This policy framework is designed to make Indian goods more competitive globally.</p></div><p>By making exports more competitive and streamlined, India aims to create a positive trade balance. This directly contributes to narrowing the overall current account deficit.</p><h4>Promoting Import Substitution</h4><p>Another crucial approach involves reducing reliance on imports by fostering domestic production. This strategy is known as <strong>import substitution</strong>.</p><div class="key-point-box"><p>The <strong>Atmanirbhar Bharat Abhiyaan</strong> (Self-Reliant India Campaign) is a flagship government initiative vigorously pursuing this objective. It aims to strengthen domestic manufacturing capabilities.</p></div><p>The campaign provides various <strong>incentives to domestic manufacturers</strong>. These incentives encourage the local production of goods that were previously imported, thereby saving foreign exchange.</p><div class="info-box"><p>An excellent example of such an incentive is the <strong>Production Linked Incentive (PLI) Scheme</strong>. This scheme offers financial rewards on incremental sales for products manufactured in India across various sectors.</p></div><h4>Increasing Productivity and Competitiveness</h4><p>Enhancing the overall <strong>productivity</strong> and <strong>competitiveness</strong> of the domestic economy is fundamental. This creates a strong foundation for both increased exports and efficient import substitution.</p><p>Improved productivity means goods can be produced more efficiently and at lower costs. This makes them more attractive in international markets, boosting exports.</p><p>Initiatives like building <strong>'future friendly' skills</strong> and fostering <strong>innovation</strong> are vital. These efforts ensure that India's workforce and industries remain at the cutting edge, contributing to economic growth and trade balance.</p><h4>Carbon Border Adjustment Mechanism (CBAM) and its Implications</h4><p>The <strong>Carbon Border Adjustment Mechanism (CBAM)</strong> is an EU regulation with significant implications for global trade, including India's exports. It aims to prevent <strong>carbon leakage</strong>.</p><div class="info-box"><p><strong>Carbon leakage</strong> occurs when companies move carbon-intensive production to countries with less stringent climate policies to avoid carbon costs.</p></div><p>CBAM ensures that the <strong>carbon price for imports</strong> entering the EU matches the carbon price applied to EU-produced goods. This maintains fair competition and incentivizes cleaner production globally.</p><h5>CBAM’s Functioning Framework</h5><ol><li><strong>Registration and Certification:</strong> <strong>EU importers</strong> of goods covered by CBAM must register with national authorities. They then purchase <strong>CBAM certificates</strong>, which reflect the carbon emissions embedded in their imports.</li><li><strong>Annual Declaration:</strong> Importers are required to declare the <strong>emissions embedded</strong> in their imported goods annually. They must then surrender the corresponding number of purchased certificates.</li><li><strong>Payment of Carbon Price:</strong> Importers can prove that a <strong>carbon price has already been paid</strong> during production in a non-EU country. This amount will be deducted from their overall CBAM payment, avoiding double taxation.</li></ol><h5>Goods Covered by CBAM</h5><p>Initially, CBAM applies to specific sectors identified as having a high risk of <strong>carbon leakage</strong>. These include energy-intensive industries.</p><div class="info-box"><p>The initial list of goods covered includes <strong>cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen</strong>.</p></div><p>Over time, the scope of CBAM is expected to expand. It will eventually capture more than <strong>50% of emissions</strong> from sectors already covered by the <strong>EU Emissions Trading System (ETS)</strong>, such as oil refineries and shipping.</p><div class="exam-tip-box"><p><strong>UPSC Insight:</strong> Understanding <strong>CBAM</strong> is crucial as it impacts India's export strategy, particularly for carbon-intensive industries. Questions may arise on its economic implications and India's response (e.g., carbon taxation, green manufacturing).</p></div>