Not a subsidy, but a cost neutraliser
As per the Global Trade Research Initiative (GTRI), RoDTEP is designed to refund embedded domestic taxes — such as electricity duties, fuel levies and mandi charges — that exporters incur but cannot otherwise recover.
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This distinction matters. Under World Trade Organization rules, such refunds are allowed because they simply neutralise domestic taxes on exports rather than subsidising them. In other words, RoDTEP helps ensure Indian exports are not artificially more expensive in global markets.
Cutting these rates, therefore, does not remove a “benefit” in the traditional sense — it raises the effective cost of exporting.
What exactly has changed
The DGFT notification (No. 60, dated February 23, 2026) halves both the rebate rates and the value caps across all tariff lines.
A concrete example illustrates the shift: the rebate on unginned raw cotton (staple length not exceeding 20 mm) has been reduced from 3.1% (capped at ₹1.60 per kg) to 1.55% (capped at ₹0.80 per kg), as per the global think tank.
The timing problem: weak demand, rising friction
According to GTRI, the bigger issue is timing.
Indian exporters are already navigating a difficult external environment marked by weak global demand, supply chain disruptions and rising compliance burdens.
Federation of Indian Export Organisations (FIEO) President S C Ralhan told ET:
“The reduction in RoDTEP rates and the 50% reduction in value caps come at a particularly difficult juncture, when Indian exports are already navigating significant global headwinds, including slowing demand, heightened uncertainty, and rising protectionist tendencies. We urge the government to review and reconsider this decision.”
Recent trade data underscores the pressure. India’s exports rose just 0.61% year-on-year in January to $36.56 billion, while the trade deficit widened to $34.68 billion.
Cost competitiveness takes a direct hit
GTRI’s core argument is straightforward: halving RoDTEP increases exporters’ costs by reducing refunds of taxes that cannot be recovered elsewhere.
“Halving RoDTEP rates will raise the cost of exporting from India by reducing refunds of domestic taxes that exporters cannot otherwise recover. In price-sensitive sectors, even a 1–2% increase in costs can decide whether orders are won or lost,” said GTRI founder Ajay Srivastava.
That seemingly small cost increase can be decisive in sectors where margins are already thin and global buyers are highly price-sensitive.
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India vs competitors: a widening gap
The impact is sharper when viewed against competing export economies.
As per GTRI, countries like Vietnam and Bangladesh continue to benefit from lower cost structures and preferential market access in key destinations. In that context, even a marginal increase in Indian export costs can erode competitiveness further.
Lower remission means exporters may struggle to price goods competitively, particularly in segments like textiles, where small price differences influence large-volume orders.
The policy uncertainty problem
Beyond the immediate cost impact, GTRI flags a structural concern: unpredictability.
RoDTEP rates are revised frequently, making it difficult for exporters to factor them into long-term contracts and pricing strategies. Since export deals are often negotiated months in advance, unstable rebate structures introduce risk and reduce confidence.
GTRI suggests that a multi-year framework — ideally five years — would allow firms to build these refunds into their costing and bids more reliably.
The bigger picture
Taken together, the rate cut does three things at once: it raises costs, compresses margins and adds uncertainty.
At a time when export growth is already modest and global conditions remain fragile, GTRI warns that such a move could discourage smaller firms from scaling up exports and slow overall momentum.
In trade policy, the smallest percentage changes often carry outsized consequences. A 1–2% shift in costs can quietly determine whether a shipment leaves port — or never gets ordered in the first place.