Govt may hike outlay under two key tax refund schemes for exporters to ₹2 trillion over five years

India plans to increase tax refunds to exporters to nearly ₹2 trillion over five years through RoDTEP and RoSCTL programmes, aimed at easing liquidity amidst global challenges and boosting competitiveness as export demands rise post-conflict.

New Delhi: With exporters facing global headwinds, India is considering substantially raising the tax refund outlay to almost ₹2 trillion over the next five years under its two main programmes—the Remission of Duties and Taxes on Exported Products (RoDTEP) and the Rebate of State and Central Taxes and Levies (RoSCTL).

The plan is to ease exporters’ liquidity woes and partly cushion them from geopolitical conflicts, three people aware of the deliberations told Mint.

As part of the proposals, the commerce and industry ministry is seeking a RoDTEP corpus of more than ₹1.3 trillion, up over 70% from the previous five years through FY26, and the textiles ministry is asking for a near 50% increase in RoSCTL to ₹65,000 crore, the people said.

The finance ministry has examined the proposals of the commerce and textiles ministries, which will likely be placed before the Cabinet for approval within a month, they said.

Key Takeaways

• India plans a ₹2-trillion, five-year export tax rebate budget expansion.
• The Cabinet is expected to review and approve proposals within one month.
• Multi-year allocations prevent mid-term refund rate cuts, ensuring policy stability.
• Tax refunds aim to keep Indian exports price-competitive with regional rivals.
• Omitted sectors like iron and steel may regain access under larger budgets.

The move assumes significance given that exporters, especially small and medium-sized units from labour-intensive sectors, are grappling with higher logistics costs and supply chain disruptions in the wake of a flare-up in the war in West Asia.

The demand for higher allocation comes as the ministries also expect exporters to ramp up dispatches in the coming years, taking advantage of recent free trade agreements (FTAs) with economies including the UAE, the UK and the EU once the West Asia conflict abates, said the people cited above.

Why predictability matters

The objective is to keep exports zero-rated, in sync with global best practices, where exports are not supposed to carry domestic taxes. Eligible exporters receive refunds ranging from 0.3% to about 4.5% of the freight-on-board value of consignments under RoDTEP, and from 1.7% to 8.2% under RoSCTL, depending on the products, according to industry executives.

Questions on the schemes' extension and allocation, emailed to the ministries of commerce, textiles and finance on Monday, remained unanswered until press time on Tuesday.

Through these two schemes, the government refunds hidden central and local taxes, such as fuel, electricity, stamp duty, and agricultural fees, spent on producing exported goods.

While RoDTEP covers a wide swathe of sectors, including exporters operating out of special economic zones and bonded warehouses, the RoSCTL programme is meant for only the textiles and garments sector. Mint on Monday reported that the Centre is preparing to seek the Cabinet’s approval to extend about a dozen flagship welfare and development schemes, including RoSCTL.

Export bodies have been asking for more predictable and enhanced rates under the two schemes to help them price contracts more effectively.

As remission rates are often revised downwards when budget allocations fall short, this creates uncertainty, senior industry executives said. A larger, committed outlay for five years would give visibility and predictability of refunds while preventing interim cuts.

“The continuation of both the schemes with adequate allocation for another five years would be extremely important, as it signals policy stability at a very challenging time for exporters,” said Ajay Sahai, director-general and chief executive of the Federation of Indian Export Organisations (FIEO).

While refunds will not increase exporters’ profitability, they will enhance their competitiveness in global markets by reimbursing taxes they are not required to pay, Sahai added.

Levelling the field

Fully refunding embedded taxes is essential to keep Indian products competitive against rivals such as Vietnam and Bangladesh, where export costs, especially in the labour-intensive textiles and garments sectors, are lower.

Pankaj Chadha, chairman of the engineering goods exporters’ body EEPC India, said the government should approve adequate RoDTEP funds to reimburse all exporters for the relevant taxes they have paid, as the principle of keeping exports ‘zero rated’ is important.

“Chapter 72 (mainly iron and steel products) is still kept out of the RoDTEP ambit due to fund constraints, even though they should be eligible for it,” Chadha said. An annual allocation of ₹25,000-30,000 crore should be enough for the next five years, he reckoned.

“The RoSCTL scheme is completely compatible with the World Trade Organization (WTO), and it reimburses only those taxes and duties not otherwise refunded to exporters. There is also a case for upwardly revising the RoSCTL refund rates, given the current jump in fuel and input prices," said Mithileshwar Thakur, secretary-general at the Apparel Export Promotion Council.

India’s merchandise exports rose almost 18% on-year through August this fiscal to $216 billion, as global demand remains strong. However, textile and garment exports dropped 0.24% during this period, as apparel despatches fell even as textile supplies rose, according to data from the Confederation of Indian Textile Industry. However, a fresh flare-up in the West Asia conflict and a new US law proposing tariffs of up to 100% on Russian oil importers stoke further uncertainties.

RoDTEP was introduced in 2021, in keeping with World Trade Organization (WTO) principles, after India’s earlier Merchandise Exports from India Scheme was found inconsistent with WTO rules. RoSCTL was adopted in 2019, replacing an earlier scheme that rebated only state levies.