India’s foremost export incentive scheme went live eight months ago but remains inactive. We take a deep dive into how RoDTEP will impact India’s foreign trade in the near term and why the rates haven’t been announced yet.

The RoDTEP scheme will be India’s biggest, and realistically, only export promotion scheme and is expected to significantly impact India’s competitiveness, trade flows and export numbers over the next 5-10 years. (Representative Image: Shutterstock)

Exactly two years after it was announced, and after missing several deadlines, the Remission of Duties and Taxes on Exported Products (RoDTEP) export promotion scheme is set to be launched today.

On August 11, Commerce Secretary BVR Subrahmanyam had announced the new export refund rates under RoDTEP would likely be brought out on August 13.

India’s foremost export incentive scheme since the WTO ordered the shutdown of the erstwhile Merchandise Exports from India Scheme (MEIS), RoDTEP has been live since January 1 but remains inactive. We take a deep dive into how it will impact India’s foreign trade and why the rates haven’t been announced yet.

What is RoDTEP?

The RoDTEP scheme will be India’s biggest, and realistically, only export promotion scheme. According to the government’s own estimates, it is expected to significantly impact India’s competitiveness, trade flows and export numbers over the next 5-10 years.

At a time when products from smaller nations such as Vietnam, Bangladesh, Thailand and Nigeria are competing with Indian ones in an increasingly tight global market, RoDTEP will dictate how much government support Indian businesses and manufacturers can receive from the government for exports.

How will it work?

It aims to refund exporters duties and taxes such as VAT on fuel used in transportation, Mandi tax and duty on electricity used during manufacturing, that were so far not being refunded. While the government has clarified that the rebate would be claimed as a percentage of the Freight on Board value of exports, it is yet to bring out the specific refund rates.

The refund would be credited to an exporter’s ledger account with Customs and used to pay Basic Customs duty on imported goods. The credits can also be transferred to other importers. Any exporter who wants to avail of its benefit will have to declare his intention for each export item in the shipping bill or bill of export.

What is the RoDTEP replacing?

The government had decided to discontinue MEIS–its largest export promotion scheme–after the WTO said it distorted trade by providing direct subsidies. The organization, in November 2019, ruled against India in its trade dispute with the US and asked it to stop all export promotion schemes within four months.

Introduced in 2015, MEIS merged five large government-run reward schemes for exporters. Initially, exporters earned duty credits at fixed rates of 2 percent, 3 percent, and 5 percent, depending on the export of certain products to three sets of countries. While it originally covered 4,914 tariff lines, it currently covers 8,059, which constitute 75 per cent of all traded products.

The revenue department argued against continuing the MEIS, calling it inefficient and wasteful. It pointed to the runaway cost of maintaining the scheme, despite exports not growing at all.

Public tax liability under the MEIS ballooned from Rs 20,232 crore in 2015-16 to Rs 43,500 crore in 2019-20, becoming unsustainable. However, exports remained stuck at $313 billion in 2019-20 against $310 billion in 2014-15.

What has been the story so far?

Finance Minister Nirmala Sitharaman announced in September, 2019 that RoDTEP would replace MEIS for all goods exports. Government officials had said RoDTEP would also be based on MEIS and is estimated to cost Rs 50,000 crore in tax rebates. Soon, clashes began between the commerce and finance ministries over the outlay.

The benefits were reduced drastically after the finance department asked what the rationale was for bringing in a scheme which costs as much as the one being closed down for being too expensive.

What is holding back the announcement of tax refund rates?

Commerce Department officials as well as Commerce and Industry Minister Piyush Goyal had earlier attributed the delay to the sheer number of products for which rates need to be studied and created. According to the Director General of Foreign Trade, India trades in lakhs of separately classified merchandise goods. The rates will have a massive impact on the export and import of these items as the incentives provided may nudge exporters to buy and sell different products more.

However, sources say the rates are taking longer to be finalised given that the Commerce Department is working with a smaller-than-expected budget for the scheme. In the last national budget, Finance Minister Nirmala Sitharaman announced an initial allocation of Rs 13,000 crore for the RoDTEP.

What are exporters saying?

Exporters are upset that the government has not announced the rate of tax benefits for even a single product under RoDTEP more than eight months after it went live. Remaining in the dark about the amount of government support they may receive, exporters are unable to estimate their cost of production and therefore are currently facing difficulty in taking up foreign orders.

According to the industry, this has hurt their chances of reviving business in the wake of the pandemic, as international orders are booming currently. The lack of clarity on the tax refund rates have held back many exporters from signing large contracts from foreign buyers.

Moreover, exporters are yet to receive at least Rs 25,000-30,000 crore worth of tax refund under the erstwhile MEIS, according to apex exporters body the Federation of Indian Export Organisations (FIEO).

Source : moneycontrol