RoDTEP can fix tax distortions: India’s manufacturing ambitions rest heavily on its ability to sell more to the world. That has kept export incentives high on the policy agenda, from duty refunds to tax remissions and production-linked support. RoDTEP was meant to address one specific problem: taxes and levies that remain embedded in the cost of goods even after they leave India. The renewed debate over the scheme is therefore also a debate about what export policy should pay for, and for how long.
The issue has acquired urgency with RoDTEP due to expire on September 30. The Commerce Ministry has sought a five-year extension and ₹23,000 crore for 2026-27, against the ₹10,000 crore provided in the Budget. The revised estimate for spending under the scheme in 2025-26 is ₹18,233 crore. Since RoDTEP began in January 2021, cumulative disbursements had crossed ₹57,976 crore by March 2025.
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RoDTEP is a tax-remission scheme
RoDTEP was introduced on January 1, 2021, to refund central, state and local duties and taxes borne by exported products but not otherwise recovered. It replaced the Merchandise Exports from India Scheme, or MEIS, whose design had run into trouble at the World Trade Organisation. The change was intended to put India’s export-support system on a footing compatible with WTO rules.
That distinction is important. MEIS provided duty-credit scrips linked to the value of exports. RoDTEP works on a different principle: it seeks to return taxes and levies that have actually been incurred and cannot otherwise be recovered. WTO rules permit remission of indirect taxes borne by exported products, provided the remission does not exceed the taxes actually incurred.
An exporter can face taxes and levies at different stages of production, transport and distribution that are not fully recovered through the GST credit chain. If those unrecovered costs remain embedded in an exported product, Indian exporters carry a domestic tax burden into international markets. RoDTEP is intended to remove that distortion.
The refund is calculated using notified rates and value caps for different products and is issued electronically. The scheme covers more than 10,000 product lines. The government has also extended RoDTEP benefits to exporters operating under Advance Authorisation, Export-Oriented Units and Special Economic Zones.
That makes the case for RoDTEP different from the case for an export subsidy. The objective should be to ensure that taxes that cannot otherwise be recovered do not become a cost of exporting.
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More spending does not mean more exports
There is a temptation to connect the rise in exports since 2021 with the introduction of RoDTEP. Merchandise exports increased from $291.81 billion in 2020-21 to $437.42 billion in 2024-25. But that increase cannot be attributed to RoDTEP. Export performance reflects global demand, commodity prices, exchange rates, domestic capacity, trade agreements and sector-specific conditions, among other factors.
The distinction is important when deciding how much public money should be committed. A larger RoDTEP allocation does not by itself demonstrate that the scheme has generated a corresponding increase in exports.
The same logic applies in reverse. A tax-remission scheme should not be judged solely by whether exports rise after it is introduced. Its narrower purpose is to prevent unrecovered domestic taxes from being embedded in the price of an exported product.
That is also why the eventual reform of the domestic tax system matters. If GST and other tax mechanisms allow exporters to recover a larger share of the taxes embedded in their costs, the need for separate remission could decline for some products.
RoDTEP, along with the related Rebate of State and Central Taxes and Levies scheme for apparel and made-ups, can therefore be seen as part of the process of making exports tax-neutral. The objective should be straightforward: an Indian exporter should neither gain nor lose competitiveness because of taxes that cannot otherwise be recovered.
Predictability matters as much as the rebate
There is, however, a problem that a tax-remission scheme cannot avoid: policy uncertainty.
RoDTEP was initially approved for 27 months, with an allocation of ₹27,018 crore, and was due to run until March 2023. Since then, it has been extended repeatedly, usually for periods of six months or a year. The latest extension runs only until September 30, 2026.
The instability was particularly visible this year. On February 23, the Directorate General of Foreign Trade cut RoDTEP rates and value caps to 50% of the earlier notified levels for most covered products outside HS Chapters 1 to 24. The government restored the earlier rates a month later, citing the changing trade environment.
For an exporter negotiating a long-term contract, such changes matter. Export prices are often fixed months before goods are shipped. If a component of the cost calculation depends on a government notification that may change within six months, pricing becomes harder and riskier.
Predictability therefore has value even when the fiscal support itself is modest. A manufacturer can adapt to a lower rebate if it knows the rule in advance. It is harder to price a product when the rule itself is uncertain.
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Export competitiveness needs deeper reforms
RoDTEP can remove a tax distortion. It cannot make an inherently expensive product competitive.
That requires improvements in logistics and port efficiency, reliable power, access to credit, faster movement of goods and greater economies of scale. It also requires firms to invest in technology, quality and production capacity. These are slower reforms, but they determine whether Indian manufacturing can compete once a tax distortion has been removed.
This is where export policy needs to distinguish between compensation and industrial policy. Genuine remission of unrecovered taxes has a clear rationale. Open-ended support to particular industries is a different policy choice and should be assessed against its fiscal cost, its effect on productivity and its consistency with India’s international commitments.
The government therefore has two separate tasks. It needs to make RoDTEP sufficiently predictable while continuing to reduce the domestic tax distortions that make such remission necessary. At the same time, it needs to address the costs that exporters cannot solve through a tax refund.
India’s export challenge is ultimately larger than RoDTEP. The scheme can ensure that exporters do not carry unrecovered domestic taxes into global markets. It cannot, by itself, make Indian goods cheaper, faster to deliver or easier to produce at scale. That harder work will determine whether export growth can become a durable feature of India’s manufacturing strategy.