Export Remission Scheme to Continue Beyond Sept

India extends export remission scheme (RoDTEP); impact on exporters, industries, and investor opportunities examined.

Source and citation: “Export Remission Scheme to Continue Beyond Sept,” by Kirtika Suneja, ET Bureau.

TLDR For This Article:

India will continue its Remission of Duties and Taxes on Exported Products (RoDTEP) scheme to support exporters amid slowing global demand. The scheme refunds certain taxes and duties to exporters, and its future will be reviewed in December.

Export Remission Scheme to Continue Beyond Sept

Analysis of this news for a layman:

The RoDTEP scheme is designed to help Indian exporters by reimbursing taxes and duties not covered under other schemes like GST or duty drawback. These taxes can include central, state, and local levies that accumulate during manufacturing and distribution. By offering a rebate ranging from 0.3% to 4.3% of the export value, the scheme aims to make Indian goods more competitive globally.

The government has allocated ₹16,575 crore for the scheme this year, and its continuation is crucial as Indian exports face a decline, contracting 9.3% in August. In case exports grow beyond the current budget’s capacity, the government might use funds from another program, Rebate of State and Central Taxes and Levies (RoSCTL), primarily for textiles.

Additionally, there’s an ongoing discussion around extending the Interest Equalisation Scheme on export credit, which supports small and medium exporters with lower interest rates. The scheme is key to providing access to affordable financing for exporters in identified sectors. With the global economic slowdown, extending this support could help businesses manage liquidity and credit costs.

Impact on Retail Investors:

  • Boost in Export-Linked Stocks: Retail investors holding shares in companies that benefit from export incentives may see potential growth. Continuing the scheme helps export-oriented industries maintain profitability and price competitiveness.
  • Mitigating Global Slowdown: With global demand uncertain, retail investors can see RoDTEP as a buffer against potential losses in export sectors, helping to stabilise revenues and potentially support stock prices.
  • Opportunities in Small and Midcaps: Since small and medium-sized enterprises benefit significantly from export rebates and credit schemes, investors in these market caps might see better performance compared to other sectors facing economic headwinds.

Impact on Industries:

  • Textile & Apparel Industry: Companies like Vardhman Textiles, Arvind Limited, and Raymond Ltd., heavily reliant on exports, could benefit from the continuity of RoDTEP and possible fund transfer from RoSCTL. This support could bolster stock prices by ensuring steady margins.
  • Pharmaceutical & Chemical Industry: Major players like Aurobindo Pharma, Dr. Reddy’s, and UPL that have a strong export base might find relief through the extension of remission benefits, helping sustain growth in international markets.
  • Engineering Goods & Auto Components: Manufacturers like Bharat Forge, Tata Motors, and Motherson Sumi Systems will benefit from sustained incentives to maintain competitiveness abroad, especially when global supply chains face challenges.
  • Micro, Small, and Medium Enterprises (MSMEs): Various MSMEs that engage in export trade may see positive impacts, as continued remission and export credit schemes lower their cost of doing business, potentially leading to a boost in stock prices.

Long Term Benefits & Negatives:

Benefits:

  • Enhanced Global Competitiveness: Long-term continuation of export benefits can help Indian exporters stay competitive, especially in price-sensitive markets.
  • Economic Stability: Supporting exporters with tax rebates and credit at lower interest rates ensures that the export sector remains resilient against global economic challenges.
  • Encouraging Export Diversification: Providing incentives to various sectors encourages diversification in India’s export basket, reducing dependency on limited commodities and sectors.

Negatives:

  • Budgetary Constraints: A higher-than-expected export growth could exceed the allocated budget, leading to potential scaling down of benefits or reallocation of funds, which may impact sectors differently.
  • Dependence on Incentives: Long-term reliance on government schemes could make exporters complacent, reducing their drive for innovation and efficiency without such support.

Short Term Benefits & Negatives:

Benefits:

  • Immediate Relief for Exporters: The extension of RoDTEP beyond September offers immediate financial relief to exporters facing rising costs and shrinking margins due to reduced demand.
  • Positive Market Sentiment: Stocks of export-oriented companies could see short-term price gains as market confidence improves with continued government support.

Negatives:

  • Uncertainty Around Scheme Review: Since the scheme is set for a review in December, short-term uncertainty could create market volatility, especially for companies heavily dependent on these incentives.
  • Short-Term Liquidity Concerns: Any delay or lack of clarity around the interest equalisation scheme could cause liquidity concerns among small and mid-cap exporters, potentially impacting their cash flows and short-term growth.

Analysis of Export Remission Scheme Extension Impact on Indian Companies

Indian Companies That Could Gain from the Extension of the Export Remission Scheme

  • Textile and Apparel Companies: Companies operating in the textile and apparel sectors are likely to benefit significantly from the extension of the RoDTEP scheme. This scheme provides crucial refunds for taxes and duties incurred during the manufacturing and distribution of exported products, thereby improving their competitiveness in the global market.
  • Gems and Jewellery Companies: The gems and jewellery industry is another major beneficiary of the RoDTEP scheme. The extension of this scheme will provide much-needed relief to exporters in this sector, helping them to maintain their competitiveness.
  • Pharmaceutical Companies: Pharmaceutical companies that export their products could also benefit from the extension of the RoDTEP scheme. This scheme can help to reduce the cost burden on exporters, making Indian pharmaceutical products more competitive in international markets.
  • Engineering Goods Companies: Engineering goods companies that export their products could also benefit from the extension of the RoDTEP scheme. This scheme can help to reduce the cost burden on exporters, making Indian engineering goods more competitive in international markets.
  • Food Processing Companies: Food processing companies that export their products could also benefit from the extension of the RoDTEP scheme. This scheme can help to reduce the cost burden on exporters, making Indian food products more competitive in international markets.

Indian Companies That Could Lose from the Extension of the Export Remission Scheme

  • Domestic Manufacturers: While the extension of the RoDTEP scheme benefits exporters, it could potentially disadvantage domestic manufacturers who compete with imported goods. The scheme provides a competitive advantage to exporters, which could make it more difficult for domestic manufacturers to compete in the Indian market.
  • Consumers: The extension of the RoDTEP scheme could lead to higher prices for consumers on certain products. This is because the scheme reduces the cost burden on exporters, which could allow them to charge higher prices for their products.
  • Government: The extension of the RoDTEP scheme could increase the government’s expenditure. While the scheme provides benefits to exporters, it also costs the government money. The extension of the scheme could lead to higher government spending.

Global Companies That Could Gain from the Extension of the Export Remission Scheme

  • Foreign Buyers of Indian Goods: Foreign buyers of Indian goods could benefit from the extension of the RoDTEP scheme. The scheme makes Indian products more competitive in the global market, which could lead to increased demand for these products.
  • Global Supply Chain Partners: Global supply chain partners that rely on Indian suppliers could benefit from the extension of the RoDTEP scheme. The scheme makes Indian products more competitive, which could lead to increased business for these supply chain partners.

Global Companies That Could Lose from the Extension of the Export Remission Scheme

  • Competitors of Indian Exporters: Global competitors of Indian exporters could lose from the extension of the RoDTEP scheme. The scheme makes Indian products more competitive, which could reduce the demand for competing products.
  • Foreign Investors in Competing Markets: Foreign investors in competing markets could lose from the extension of the RoDTEP scheme. The scheme makes Indian products more competitive, which could reduce the attractiveness of investing in competing markets.

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