New Delhi: The Union Budget 2026–27 has dealt a significant blow to India’s export competitiveness in labor-intensive sectors, with the government announcing a 50% cut in the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme rates across most product categories.
The decision, effective from 1 April 2026, will directly reduce cash refunds that exporters receive to offset embedded duties and taxes, putting immediate pressure on margins in the textile, apparel, auto components, leather, footwear, marine products and several engineering goods sectors.
Scale of the Reduction
- Textiles & Apparel — RoDTEP rates slashed from 1.0–1.7% to 0.5–0.85% (average cut ~50%)
- Auto Components & Parts — Reduced from 1.3–2.0% to 0.65–1.0%
- Leather & Footwear — From 1.5–2.4% to 0.75–1.2%
- Marine Products — From 1.8% to 0.9%
- Certain Engineering Goods — From 0.8–1.5% to 0.4–0.75%
Only a handful of high-priority green-tech and strategic sectors (e.g. solar PV modules, certain battery chemistries) have been spared or received marginal increases.
Industry Reaction: Severe Margin Shock
- Confederation of Indian Textile Industry (CITI): The 50% cut is a body blow to an already stressed sector. With yarn & fabric costs already high, many SMEs may become unviable in the US & EU markets.
- Automotive Component Manufacturers Association of India (ACMA): Auto component exports are price-sensitive. A 0.5–1% margin erosion could wipe out profitability for many Tier-2 and Tier-3 suppliers.
- Federation of Indian Export Organisations (FIEO): RoDTEP was the only remaining export promotion scheme after RoSCTL ended. Halving it without any compensating measure will hurt 40–50 lakh jobs in labor-intensive export sectors.
Estimated Financial Impact
- Textile & Apparel — Annual loss of refund benefit estimated at ₹4,800–5,500 crore
- Auto Components — ₹1,800–2,200 crore
- Leather & Footwear — ₹900–1,100 crore
- Total Export Sectors Impacted — ₹10,000–12,000 crore per annum in foregone refunds
Exporters warn that the effective hit to EBIT margins could range from 1.2–3.8%, depending on product category and existing profitability levels.
Government’s Rationale
Finance Ministry officials explained that the reduction is part of a broader fiscal consolidation strategy and rationalisation of export incentives. The government believes:
- Domestic cost competitiveness has improved due to PLI schemes, lower power tariffs and logistics reforms
- RoDTEP refunds had become fiscally unsustainable at previous rates
- Focus is shifting towards production-linked incentives rather than post-export cash refunds
Market Reaction
- Textile stocks (Arvind, Welspun Living, Trident, Vardhman) fell 4–8% in intra-day trade
- Auto ancillary names (Motherson, Bharat Forge, Sona BLW) dropped 3–6%
- Broader Nifty FMCG and Consumer Durables indices remained relatively stable
Way Forward for Exporters
Industry bodies have urged the government to:
- Restore at least partial RoDTEP rates for labour-intensive sectors
- Accelerate RoDTEP rate review mechanism (currently done every 6 months)
- Extend PLI coverage to more labour-intensive export categories
Until compensatory measures are announced, exporters are bracing for a painful margin squeeze in one of the most critical segments of India’s external trade.
