India’s refund rollback lands exporters with a bigger bill

What Happened

• The Directorate General of Foreign Trade (DGFT), Ministry of Commerce and Industry, issued Notification No. 60/2025-26 dated February 23, 2026, cutting RoDTEP (Remission of Duties and Taxes on Exported Products) rebate rates by 50% with immediate effect.
• Under the DGFT notification, RoDTEP benefits for all products in Appendix 4R and 4RE of the Foreign Trade Policy (other than agricultural products under ITC HS Chapters 1-24) are capped at 50% of existing rates and, where applicable, 50% of the notified value caps.
• The existing RoDTEP rates ranged from 0.3% to 4.3% of FOB (Free On Board) value of exports; the halving means effective rebates will now range from approximately 0.15% to 2.15% of FOB value.
• The cut raises the effective cost of exporting from India — since RoDTEP refunds embedded taxes that cannot otherwise be recovered by exporters — directly affecting industries like textiles, leather, engineering goods, and chemicals.
• The government's rationale is fiscal rationalisation: RoDTEP is a significant budgetary expenditure, and the cut is framed as part of broader expenditure management in a period of global trade uncertainty.

Static Topic Bridges

RoDTEP Scheme — Origin, Mechanism, and WTO Compliance

The Remission of Duties and Taxes on Exported Products (RoDTEP) scheme was launched on January 1, 2021, as a WTO-compliant replacement for the earlier Merchandise Exports from India Scheme (MEIS). The MEIS was challenged successfully by the US at the WTO (DS541, ruled against India in 2019), as it was found to be a direct export subsidy — prohibited under the WTO Agreement on Subsidies and Countervailing Measures (ASCM). The RoDTEP, in contrast, only refunds taxes and duties that are embedded in export costs but not refunded through other mechanisms (GST refunds, duty drawback) — such as state-level taxes, electricity duties, mandi taxes, and transportation fuel levies. Because it remits only actual taxes paid (not a subsidy above cost), it is WTO-compliant under the "no more than full remission" principle.

Duty Drawback and Export Tax Refund Mechanisms in India

India offers several tax refund mechanisms for exporters to ensure goods are "zero-rated" for export (i.e., Indian taxes do not travel with exported goods). The primary mechanisms are: (1) GST refund — GST paid on inputs for exported goods is refunded; (2) Duty Drawback — refunds customs duty, central excise, and service tax embedded in exported products; rates are set by CBIC (Central Board of Indirect Taxes and Customs); and (3) RoDTEP — refunds state-level taxes and other levies not covered by GST refund or Duty Drawback. These mechanisms are meant to collectively ensure full tax neutralisation for exports. The 50% RoDTEP cut means the third layer of refund is now only partial — exporters must absorb the remaining embedded state levies from their margins.

India's Export Performance and Competitiveness Concerns

India's merchandise exports have stagnated in the $400-440 billion range over the past three years (FY23: $447 billion; FY24: $437 billion; FY25: ~$435 billion). India has an ambitious target of reaching $2 trillion in total exports (goods + services) by 2030 — but merchandise exports remain far below this trajectory. Key structural competitiveness issues include: high logistics costs (India ranks 38th in World Bank's LPI 2023), energy costs (electricity tariffs higher than China and Vietnam), infrastructure gaps, and export financing costs. Against this backdrop, reducing RoDTEP rebates — which directly increase the cost of exporting — runs counter to the export competitiveness objective, creating a tension between fiscal prudence and export promotion.

Foreign Trade Policy (FTP) 2023 — Framework for Export Promotion

India's Foreign Trade Policy 2023, released on April 1, 2023 (for 2023-28), provides the overarching framework for India's trade promotion efforts. Key features include: a dynamic FTP (no fixed 5-year revision cycle; updated continuously); focus on export facilitation through digital platforms (DGFT online portal); incentives for Merchant and Status Holder exporters; Districts as Export Hubs (DEH) initiative; and integration of Indian rupee in trade settlements. The FTP 2023 extended and revised RoDTEP coverage, positioned it as the core of India's WTO-compliant export support architecture. The 50% rate cut by DGFT notification amends the rates notified under FTP 2023, using DGFT's delegated authority to modify Appendix 4R rates.

Key Facts & Data

• DGFT Notification No. 60/2025-26: February 23, 2026; 50% cut in RoDTEP rates
• Affected products: All Appendix 4R and 4RE items (excluding HS Chapters 1-24/agriculture)
• Pre-cut RoDTEP range: 0.3% to 4.3% of FOB value
• Post-cut RoDTEP range: 0.15% to 2.15% of FOB value
• Disbursement: Electronic scrips (e-scrips); usable for basic customs duty payment; transferable
• RoDTEP launch: January 1, 2021; replaced MEIS
• MEIS WTO ruling: DS541 (2019); ruled illegal as export subsidy
• India's merchandise export target: $1 trillion by 2030
• India's actual merchandise exports (FY25): ~$435 billion
• GST refund: Separate mechanism; not affected by this cut
• Duty Drawback: Separate mechanism (CBIC); not affected by this cut
• ECGC: Export credit insurance arm; under Ministry of Commerce