Cotton-based textiles benefit the most from RoDTEP

Cotton-based textiles benefit the most from RoDTEP

According to CARE Ratings, cotton-based textile products emerge as a clear winner with additional incentives of Rs 750-850 crore in the new rates of rebate under RoDTEP.

The rates of rebate under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme were notified by the Union Government of India on August 17, 2021. The rates of rebate under RoDTEP scheme are significantly lower compared with the earlier Merchandise Exports from India Scheme (MEIS) for majority of the products/ sectors. Further, many industries, viz., pharmaceutical, chemical, and steel, where India enjoys global competitiveness or there is a short supply in the domestic market have been excluded from the scheme.

 

Table 1: Major industries which contribute
significantly to Indian merchandise exports

Industry (Exports in USD Billion)

FY19

FY20

FY21

Rates under MEIS

Rates under RoDTEP

Food & Agro

28.1

25.9

32.6

2-5%

0.5-4.0%

Textile

37.5

34.2

30.9

2-5%

0.5-4.3%

Chemical products

31.3

30.9

30.8

2-5%

0.5-1.7%

Metal products

26.4

24.9

28.6

2-3%

0.3-2.3%

Automobile

26

23

19.5

2-3%

0.5-2.0%

Pharmaceutical

14.8

16.3

19.4

3%

0.00%

Source:
Directorate General of Foreign Trade (DGFT), Ministry of Commerce and Industry,
Government of India

As depicted in the Table 1, the focus of the government was to promote employment-generating sectors like textile, food and agro to improve their global competitiveness. Further, for sectors such as pharmaceutical and various chemical products among others where India enjoys global competitiveness, the rates of rebate have been revised downward or have been completely excluded under this incentive scheme.

Cotton based textiles clear winner

According to CARE Ratings, with additional incentives of Rs 750-850 crore in the new rates of rebate under RoDTEP scheme, cotton-based textile products have emerged as a clear winner. “Amongst the various sectors, cotton-based textile products have received favourable rates under RoDTEP in the range of 3.8%-4.3% as compared to around 2% rate under MEIS although there is a cap on the maximum benefit available under RoDTEP. As per the data available from Directorate General of Foreign Trade (DGFT), the average export of last 3 years period ending FY21 for cotton staple, cotton thread, cotton fabric and cotton yarn stood around $6.5 billion. Considering the average incremental rebate of around 1.5%-1.8% for these products, it translates into additional export incentive of Rs 750-850 crore per annum for the sector,” said CARE Ratings in a press release.

The Table 2 shows textile product categories that have received favourable rates of rebate under RoDTEP, as well as product categories which are likely to be adversely impacted as the rates of rebate for them are much lower than the earlier rates of rebate under MEIS. The cotton-based products get one of the most favourable rates of rebate under RoDTEP.

Another change is the likely impact of exclusion of the Advance Authorization scheme or Duty-Free Import Authorization on products manufactured and exported in discharge of export obligation. With lower rates of rebate, it is to be seen whether certain industry players avail benefits under the RoDTEP scheme or opt for duty-free import. Those industries which are heavily dependent on import and have relatively lower rebate rates are at a disadvantageous position compared to MEIS.

The export promotion coverage has been expanded under RoDTEP to include around 8,500 tariff items as against inclusion of only around 4,900 tariff items under MEIS. Around 68% of the products are entitled to receive less than or equal to 1% rebate and nearly 85% of the products are entitled to receive less than or equal to 2% rebate. “However, with the RoDTEP

scheme having remained in limbo for long, the present policy action at least gives clarity to the stakeholders to adequately price their products in the export markets,” added the rating agency.

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