RoDTEP Benefits Cut by Half: What It Means for Indian Exporters

The government has reduced benefits under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme by 50 % with immediate effect. For many exporters, especially micro, small and medium enterprises, this decision is significant and could directly affect their profit margins and pricing strategies in global markets.

So, what exactly is RoDTEP? 

To understand the impact, it is important to first understand what RoDTEP is. RoDTEP is a government scheme that refunds certain taxes and duties that exporters pay during the manufacturing and distribution process but cannot otherwise recover. These are often indirect or embedded taxes such as electricity duty, fuel taxes, mandi fees, and certain local levies. When goods are exported, these domestic taxes remain built into the cost. RoDTEP was introduced to ensure that exported products are not burdened with such hidden taxes, making them more competitive internationally.

With the rates now cut by half, exporters will receive only 50 per cent of the earlier refund amount. This effectively increases the cost of exporting. While the reduction may appear technical on paper, its practical impact can be substantial, particularly in sectors that operate on thin margins.

Understanding the Impact

Export markets are extremely price sensitive. Even a small increase of 1 to 2 per cent in overall costs can determine whether an exporter wins or loses an order. Competitor countries such as Vietnam and Bangladesh often enjoy lower production costs and, in some cases, preferential market access. In such a competitive environment, any reduction in government support can affect pricing flexibility for Indian exporters.

The timing of the decision adds to the concern. Global demand remains uncertain in several key markets. Freight and logistics expenses continue to be elevated compared to pre-pandemic levels. At the same time, exporters are facing rising compliance requirements, especially in markets like the European Union where new sustainability and carbon-related regulations are coming into force. With RoDTEP benefits reduced, many MSMEs may feel additional financial pressure.

At the policy level, the move is being seen as part of a rationalisation exercise aimed at managing fiscal resources and streamlining export incentives. Budget allocations for certain export promotion schemes have also been reduced this year, indicating a shift from broad-based incentives to more targeted interventions.

For exporters, the message is clear. Greater focus on cost efficiency, productivity improvement, and value addition will be essential. Businesses may need to optimise supply chains, adopt better technology, and explore opportunities in Free Trade Agreement markets where tariff advantages can offset some cost pressures.

In simple terms, RoDTEP acted as a cushion that helped exporters neutralise hidden domestic taxes. With that cushion now thinner, Indian exporters, particularly small businesses, will need to adapt quickly to maintain their competitiveness in the global marketplace.