ACI’s latest research on India’s newest export tax rebate scheme, the Remission of Duties and Taxes on Exported Products (RoDTEP), shows that eligible firms increased their export intensity as applicable rebate rates rose. But the response was uneven, with export gains concentrated in specific rebate brackets and states, and particularly strong among exporters operating in weaker institutional environments. This matters in the current global trade environment, where rising tariffs and geopolitical frictions are reshaping export competitiveness and increasing the importance of domestic policy tools.

Export tax rebate policies, like India’s RoDTEP, level the playing field for domestic exporters in foreign markets by eliminating double taxation on exports. Exporters can claim refunds of taxes and duties levied at the central, state, and local levels during the production and export of goods. By enabling Indian goods to enter export markets at “tax-free” prices, RoDTEP, introduced in 2021, strengthens the export competitiveness of Indian firms.

While well-intentioned, the continuous adjustments to the scheme posed challenges for exporters by increasing uncertainty around applicable rebate rates. The first RoDTEP schedule covered 8,555 products, with rebate rates ranging from 0.5 to 4.3 percent. As a sector-agnostic policy, the government continually expanded its coverage by adding products and increasing rates, while in more limited cases removing products altogether. The schedule was amended three times in 2022, raising learning and transition costs that could deter exporters from adjusting export behaviour in line with the policy.

Additionally, implementation irregularities, such as delays in notifying updated schedules and export eligibility, further weakened firms’ ability to adjust exports to take advantage of expanding benefits. For instance, the first amendment was notified in May 2022 but applied retroactively to exports made since January, limiting the scope for an increase in export intensity.

Despite prevailing unpredictability, ACI’s research shows that higher RoDTEP rebate rates were associated with a rise in Indian firms’ export intensity between 2021 and 2022, but the gains were concentrated in specific rebate brackets and a handful of states. The impact was strongest for products with an intermediate rebate of 3–4 per cent, while other categories showed little to no effect. Given India’s federal structure and pronounced sub-national heterogeneity, RoDTEP’s impact varied sharply across states, with Gujarat, Rajasthan, Haryana, and Uttar Pradesh leading the export response.

More interestingly, firms appear to be using RoDTEP as a workaround for weaker export ecosystems. Firms in weaker export ecosystems show a stronger export response to the scheme. This runs counter to the usual intuition that tax incentives work best where institutions are already strong. Instead, the evidence suggests that RoDTEP helps compensate for missing export infrastructure, acting as a substitute rather than a complement to state-level export capabilities.

Overall, RoDTEP has elicited a positive export response despite frequent amendments; however, the response is concentrated in a narrow rebate bracket. While some exporters, concentrated in specific states, can adjust and expand exports as rebate rates rise, others face higher transition and compliance costs that limit their ability to respond. In this context, policy predictability becomes critical to ensure that export incentives support a wider set of firms and contribute meaningfully to the government’s export ambitions.

By GUPTA, Riddhimaa

Researchers: GEORGE, Ammu, GUPTA, Riddhimaa, KHANNA, Arpita