RoDTEP needs regular review

The parliamentary Standing Committee’s recommendation of examining the feasibility of a GST Council-like body for the scheme is significant.

RoDTEP needs regular review
This scheme was discontinued after a WTO dispute settlement panel had ruled that it had violated the provisions of the Agreement of Subsidies and Countervailing Measures (ASCM) (File/Pixabay)

In a recent report, the Rajya Sabha’s Standing Committee on Commerce has emphasised the need for a systematic review of the Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme, the government’s only export promotion scheme that is also compatible with the rules of the World Trade Organisation (WTO). This report could not have been better-timed as India’s merchandise exports have been facing serious headwinds since the middle of 2022. During July and November, merchandise exports witnessed a year-over-year decline, a striking contrast to the steep increase that was exports had registered during the FY22. The growth momentum in merchandise exports during the previous fiscal year was significant as the record high level of $422 billion was scaled, the first time that exports had exceeded the psychological barrier of $400 billion. However, given the slowdown in merchandise exports currently being witnessed, there are doubts whether the previous year’s record level can be exceeded by much during this fiscal year. With the WTO predicting that world merchandise trade volume is expected to increase by only 1% in 2023 as compared to 3.5% in 2022, India’s exporters face formidable challenges.

Continue reading this story with Financial Express premium subscription
Already a subscriber? Sign in

It is in this context that the Standing Committee’s recommendation of a thorough-going review of the RoDTEP Scheme becomes extremely relevant. Introduced in 2021, it aims to refund duties, taxes, and levies borne on the exported product at the central, state, and local level, including prior stage cumulative indirect taxes on goods and services. The rates of remission of duties under the RoDTEP Scheme is generally between 0.01-4.3% of the value of the eligible exports on a free on board (FOB) basis.

When it was introduced, the Scheme covered 8,555 tariff lines at 8-digit of Indian Trade Classification based on the Harmonised System. A second amendment was introduced on June 1, 2022 and an additional 186 tariff lines were included. But from both these lists, several export-oriented sectors like pharmaceuticals, iron and steel, organic and inorganic chemicals were excluded from the ambit of RoDTEP Scheme, which, according to the Standing Committee, was owing to budgetary constraints. The Committee observed that depriving exporters from the essentially desired incentives of the RoDTEP scheme would severely dent their sustainability and competitiveness in global markets, especially in the micro, small and medium enterprises (MSME) segment.

However, in the first week of December 2022, the Directorate General of Foreign Trade (DGFT) notified that effective from December 15, the RoDTEP Scheme was being extended to cover 10,436 tariff lines. In this latest expansion, most of the important sectors that were earlier excluded were brought under the Scheme. This is surely a step in the right direction for providing the much-needed support to India’s exports. Since the adoption of the scheme, several industries and export promotion councils have been making representations to the government arguing that the rates of remission of duties were much lower than was desirable as per data submitted by them. In order to address these industry claims, the government constituted a second RoDTEP Committee under the Chairmanship of GK Pillai in October 2021 with the mandate to review the rates to only remove the apparent errors or anomalies as pointed out by the industry associations and other administrative ministries. The Committee was not tasked with conducting a general review of the scheme.

However, from all accounts, including the observations of the Standing Committee, the RoDTEP Scheme does need to be comprehensively reviewed, and that too on a regular basis. In fact, the Committee has made a significant suggestion that the department of commerce should explore the feasibility of setting up a RoDTEP Council along the lines of the GST Council, which would define a roadmap for short- and medium-term changes in rate structure by ensuring periodic review of rates under the Scheme. This council could initiate examination of several important recommendations made by the Standing Committee in respect of the rates of remission. For instance, the Committee recommended that a post facto analysis of the notified rates under the scheme may be undertaken to compare them with those provided under the previous export scheme, the Merchandise Exports from India Scheme (MEIS). This scheme was discontinued after a WTO dispute settlement panel had ruled that it had violated the provisions of the Agreement of Subsidies and Countervailing Measures (ASCM). This ruling came after the US approached WTO’s Dispute Settlement Body complaining that India’s export promotion schemes were not in conformity with the ASCM rules.

The Standing Committee observed that while the MEIS provided higher incentive rates based on subjective importance of different sectors and in continuation of the prevalent rates in earlier export promotion schemes, the RoDTEP Scheme is designed to refund only such taxes, duties and levies which have been built in the price of the exported product during its manufacture and distribution but is not refunded by any other mechanism. The Committee, therefore, recommended that the review or revisiting of rates on a periodic basis should be conducted to rationalise the rates as per the export performance of the respective sectors. The government must consider this recommendation carefully for the ASCM rules clearly state that other than remission of duties and taxes no other incentives can be provided to the exporters.

The Standing Committee’s recommendation of a GST Council-like body for monitoring the RoDTEP Scheme is justified also because the items notified by the government have several anomalies. For instance, in the list of 10,436 tariff lines notified in December 2022, 984 tariff lines did not appear in India’s export data for April-October 2022. Such anomalies can expose the Scheme to possible misuse. Finally, when India’s exports are under stress, the government must ensure that the budgetary support provided under the RoDTEP Scheme is fully utilised. During its first year of implementation, `13,000 crores were allocated, but the revised estimates for the year showed that the disbursements were lower by more than `500 crores. Although the current year’s allocation has been increased to `14,245 crores, effective utilisation of the allocated funds holds the key to the success of the RoDTEP Scheme.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 05-01-2023 at 03:45 IST