For that spurt in export: RoDTEP, the scheme that couldn’t have come at a better time

Details of the long-awaited scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) approved by the Cabinet Committee on Economic Affairs in March 2020, were finally notified on Tuesday. The scheme has the stated objective of ‘refunding, currently un-refunded duties/taxes/levies, at the central, state and local level, borne on exported products including prior stage cumulative indirect taxes on goods and services used in the production of the exported product and such indirect duties/taxes/levies in respect of distribution of exported products’. Its underlying principle being to ensure that no duties and taxes are exported.

The scheme could not have come at more appropriate time. India’s overall (merchandise and services) exports for April-July 2021 are estimated to be $204.97 billion, up by 47.87% over the same period last year, and by 15.35% over April-July 2019. The trade balance for this period, at –9.74%, is also an improvement from the –36.32% in 2019. Merchandise exports alone stand at a whopping $130.82 billion during April-July 2021, and have grown substantially from $107.15 billion for the same period last year. The scheme should ease the liquidity position of exporters and give them much-needed relief.

It covers more than 8,500 tariff lines, and has rates ranging from 0.01% (for high-value fountain and ballpoint pens) to 4.3% (for a whole range of woven fabrics containing 85% or more cotton and weighing not more than 200 g per sq m). RoDTEP would generally not extend to products that fall under GST where exports are zero-rated. However, it would extend to products that have an element of unrebated embedded taxes, like in cases of utilisation of fuel, payment of mandi tax, stamp duty and electricity charges, all of which are outside GST.

While trade, especially in the textile sector, will be happy with the rates, sectors that have been omitted, like pharma, steel and chemicals, have reason to be upset. These are sectors that are doing well and the additional support would have boosted their performance. It should, however, be appreciated that the RoDTEP rates cannot compare with the rates as they were existing under the Merchandise Exports Incentive Scheme (MEIS), which was an export promotion scheme and fell foul of WTO.

The rates are as a percentage of the free/freight on board (FOB) value with a value cap per unit in many cases, value cap being prescribed as a measure to check overvaluation of exports, resorted to sometimes by unscrupulous exporters. The rebate would be given immediately, but would be subject to receipt of export proceeds with the timelines prescribed under the Foreign Exchange Management Act (Fema).

The rebate will be given in the form of a transferable duty credit scrip. The scrips can be used for payment of basic customs duty. To this extent, the customs revenue would get impacted. What this would mean is that the revenue impact on account of export promotion schemes (the duty foregone), which as per the last budget was estimated to be around Rs 62,757 crore for 2020-21, would increase.

GoI’s budgetary provision for RoDTEP is Rs 12,454 crore.
As pointed out by Indira Rajaraman recently, given the ambitious merchandise export target of $400 billion, the budgetary provision is ‘pitiably small’. The scheme is applicable from January 1, 2021, and exports having done well, a huge backload would have already been built up. GoI would need to increase the budgetary allocation sooner rather than later.

Further, it is incumbent that there is close coordination between the Directorate General of Foreign Trade’s (DGFT) IT portal and the ICEGATE (Indian Customs and central excise Electronic commerce Gateway), the customs ecommerce portal, to ensure smooth transfer of scrips from the DGFT portal and its hassle-free utilisation by importers. The rates having been notified, the finer contours of the implementation of the scheme should be finalised urgently.

Exporters would need to ensure that they avail of the various rebate and remission schemes extended by the government and make their goods competitive in the global market. The emphasis should be on cutting down costs without compromising on quality. It should also be capitalising on the market access provided by the various free trade agreements (FTAs).

India expects a lot from its exporters. They have a pivotal role to play in the revival and growth of the economy.