Environmental regulations aim to mitigate pollution. However, many governments are concerned with the economic costs of environmental improvement. Focusing on developing economies, this paper identifies the causal effect of environmental regulations on productivity of Indian manufacturing firms. I find that correcting for all sources of bias, specially output price bias, is crucial to identify the real effects. My results demonstrate that environmental regulations adversely affected total factor productivity of Indian firms. Moreover, I find that about two percent of exporters exited international markets due to losing their competitiveness.