The government decision announced on Monday could impact export growth and hurt profitability, particularly for cotton textiles, yarn and two-wheelers, said companies.
RoDTEP reimburses exporters for certain domestic taxes and levies embedded in goods, helping them stay competitive abroad.
About 58% of India’s $11.03 billion cotton textile exports-including raw cotton, cotton yarn and cotton fabric- are likely to be affected, according to industry data. “The reduction in RoDTEP rates has come as a surprise and shock to the trade,” said Vijay Agarwal, chairman of industry body TEXPROCIL.
Exporters said the timing is especially disruptive for shipments already at sea and for contracts signed with incentives factored into pricing. The rate cut comes as companies were preparing to leverage recently concluded free trade agreements with the European Union, the UK and EFTA nations. “We appeal to the government to restore the earlier rates so that exporters whose goods are on the high seas and contracts negotiated for shipments do not suffer financial losses,” Agarwal said.
Ashwin Chandran, chairman of the Confederation of Indian Textile Industries, called the move “a bolt from the blue” amid persistent global uncertainty.
The RoDTEP rate for textiles ranges from 0.5% to 3.6%. While apparel, bedsheets and towels are shielded under the Rebate of State and Central Levies and Taxes scheme, yarn and fabric exporters will be affected. The Southern India Mills Association has sought restoration of benefits, citing price commitments already made for the next three to six months.
The impact is also set to be felt by automobile and component exporters.
Companies such as Maruti Suzuki India, Bajaj Auto and TVS Motor could see export margins narrow, industry executives said. However, a weaker rupee and strong overseas demand may partly offset the blow, analysts said. Automobile exports, led by two-wheelers, rose 24.4% from a year earlier to 5.39 million units in the first 10 months of fiscal 2026, according to data from the Society of Indian Automobile Manufacturers. Two-wheelers, accounting for 5.3 million units, posted 24% growth.
Bajaj Auto, the country’s largest exporter of two- and three-wheelers, is expected to be among the most exposed, but executive director Rakesh Sharma said the issue is “not significant” and can be mitigated through multiple options. “For motorcycles, depending on class, they (reimbursements) are on average 1%, which will now be 0.5%,” Sharma told ET. He declined to quantify the impact on costs or margins.
An equity analyst at a brokerage said strong volumes and currency tailwinds have supported auto exporters’ profitability in recent years. “While a reduction in the export incentive is a negative, it will be mitigated by these two factors to a great extent,” the analyst said.
A spokesperson for Maruti Suzuki, India’s largest car exporter, was unavailable for comment.
An auto industry executive said the sudden reduction risks making overseas shipments less competitive at a time of tariff uncertainty and geopolitical tensions.
Auto component makers are also likely to feel the pinch. “Any reduction in RoDTEP support must be carefully calibrated to safeguard export competitiveness, especially in a challenging global trade environment,” said Vikrampati Singhania, president of the Auto Component Manufacturers Association.