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RoDTEP favourable to cotton-based textile: CARE Ratings

Aug 20, 2021
RoDTEP favourable to cotton-based textile: CARE Ratings

Mumbai

 

With additional incentives of Rs 750-850 crore in the new rates of rebate the Remission of Duties and Taxes on Exported Products (RoDTEP), cotton-based textile products emerge as a clear winner, according to CARE Ratings.

 

The rates of rebate under RoDTEP scheme, which were notified on August 17, 2021, 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.

 

“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 above 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.

 

Background

After the World Trade Organisation’s (WTO) ruling that found the MEIS and some other export incentive schemes in violation of WTO’s agreement on Subsidies and Countervailing Measures (SCM), the Union Cabinet on March 13, 2020, approved the RoDTEP scheme to replace MEIS with effect from January 1, 2021. RoDTEP aims to reimburse local taxes, coal cess, mandi tax, electricity duties and tax on fuel used for transportation incurred by exporters, which are not exempted or refunded under any other existing scheme. The primary objective behind the scheme is to improve competitiveness and create a level- playing field for Indian manufacturers in the global market. After a long wait, the Government of India announced the rates of rebate under RoDTEP on August 17, 2021, which would be effective from January 1, 2021.

 

The budget allocation for RoDTEP scheme has been significantly reduced compared with the scrapped MEIS. “For FY22, the budgetary allocation for RoDTEP stands at Rs 13,000 crore vis-à-vis that of Rs 39,000 crore and Rs 15,500 crore for MEIS during FY20 and 9MFY21, respectively. Various export-promotion bodies had demanded higher budgetary allocation of close to Rs 50,000 crore. However, the government did not budge, and considering the lower budgetary allocation, the industry was expecting decline in the rebate rates which has remained lower than their expectation,” said CARE Ratings.

 

Latest announcement

The RoDTEP scheme has declared remission rates on 8,555 tariff lines. The new remission rates range from 0.3% to 4.3% of the Free-on-Board (FOB) value of exports. As per the media release issued by the Ministry of Commerce and Industry, the government has largely tried to cover employment-oriented sectors such as textile, marine, agriculture, leather, gems & jewellery, automobile, plastics, electrical/electronics, machinery, etc, with which the entire value chain of textile sector gets covered through RoDTEP and the previously announced Rebate on State and Central Levies and Taxes (RoSCTL) scheme.