On January 15, 2024, the Government of India, through the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry, notified the extension of the Remission of State Levies on Export of Apparel and Made-ups (RoSCTL) scheme until March 31, 2024. This scheme, integral to the Foreign Trade Policy 2015-20, aims to reimburse embedded state taxes and levies that are not refunded under the Goods and Services Tax (GST) regime, thereby reducing the effective cost of exports in the textile sector. The extension includes a budgetary allocation of INR 3,000 crore for the fiscal year 2023-24, reflecting the government’s commitment to sustaining export competitiveness and employment generation in the apparel and made-ups segment.

Legal Framework and Constitutional Context of RoSCTL

The RoSCTL scheme is notified under the Foreign Trade (Development and Regulation) Act, 1992, specifically under Section 5 empowering the DGFT to regulate export incentives. It operates within the Foreign Trade Policy 2015-20 framework, which was extended and modified to accommodate evolving trade dynamics. The scheme is designed to address the non-refundability of embedded state levies such as VAT, entry tax, and electricity duty, which are excluded from refunds under Sections 54 and 55 of the Central Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act, 2017. While there are no direct Supreme Court rulings on RoSCTL, its design aligns with India’s commitments under the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), which permits remission of taxes on exported products provided they do not distort trade unfairly.

• Foreign Trade (Development and Regulation) Act, 1992: Legal basis for export incentive schemes.
• GST Acts, 2017: Prohibit refund of embedded state levies, necessitating RoSCTL.
• WTO SCM Agreement: Guides permissible export subsidies and remission of taxes.

Economic Significance of RoSCTL in Apparel and Made-ups Exports

The apparel and made-ups sector accounted for approximately USD 18 billion in exports during FY 2023-24, contributing around 13% to India’s total merchandise exports (Ministry of Commerce, 2024). The RoSCTL scheme reimburses exporters with remission rates ranging from 3% to 5.5% of the Free on Board (FOB) value, depending on product categories, effectively lowering export costs and enhancing price competitiveness in global markets. The textile sector employs over 45 million people directly and indirectly, making the scheme critical for sustaining livelihoods and supporting economic growth (Ministry of Textiles Annual Report, 2023). Apparel exports grew by 12% year-on-year in 2023, a growth partially attributed to incentives like RoSCTL, which offset embedded state levies that remain non-refundable under GST.

• Apparel and made-ups exports: USD 18 billion in FY 2023-24.
• Remission rates: 3% to 5.5% of FOB value depending on product category.
• Budgetary allocation: INR 3,000 crore for scheme extension.
• Employment: Over 45 million people in textile and apparel sector.
• Export growth: 12% YoY in 2023 linked to export incentives.
• Embedded state levies offset: VAT, entry tax, electricity duty.

Institutional Roles and Interactions in RoSCTL Implementation

The DGFT is the nodal agency responsible for implementing and notifying the RoSCTL scheme under the Ministry of Commerce and Industry, which formulates policy and oversees export promotion strategies. The Ministry of Textiles supports sectoral development and employment generation, coordinating with DGFT to align export incentives with industry needs. The Agricultural and Processed Food Products Export Development Authority (APEDA) provides data and market intelligence, facilitating evidence-based policy adjustments. The GST Council governs indirect tax structures, influencing the embedded state levies that RoSCTL aims to reimburse.

• DGFT: Scheme notification and administration.
• Ministry of Commerce and Industry: Policy formulation and oversight.
• Ministry of Textiles: Sector development and employment focus.
• APEDA: Export data and market intelligence.
• GST Council: Tax structure affecting embedded state levies.

Comparative Analysis: India’s RoSCTL vs Bangladesh’s Export Rebate Scheme

Bangladesh’s apparel export sector has experienced a 15% annual growth rate between 2018 and 2023, outperforming India’s 12% growth during the same period. This growth is partly due to Bangladesh’s comprehensive export rebate scheme, which offers duty drawbacks and cash incentives that fully cover embedded taxes and levies, providing uniform benefits across regions. In contrast, India’s RoSCTL scheme, though effective, does not uniformly compensate for all embedded state levies due to varying tax structures across states, creating regional disparities in export competitiveness. Additionally, RoSCTL’s temporary nature introduces uncertainty for exporters, unlike Bangladesh’s more permanent drawback mechanisms.

Challenges and Gaps in RoSCTL Implementation

The RoSCTL scheme’s inability to uniformly compensate embedded state levies across all states results in uneven export competitiveness, disadvantaging exporters in states with higher tax burdens. The scheme’s temporary status creates planning uncertainty for exporters, limiting long-term investment decisions. Moreover, the remission rates, while beneficial, may not fully match the incentives offered by competitor countries, potentially eroding India’s market share in the global apparel export market. The complex compliance and documentation requirements under RoSCTL also pose operational challenges for small and medium exporters.

• Regional disparities due to varying state tax structures.
• Temporary scheme status causing uncertainty.
• Remission rates may lag behind competitor incentives.
• Compliance complexity impacting smaller exporters.

Significance and Way Forward

The extension of RoSCTL underscores the government’s strategic focus on sustaining export competitiveness and employment in the textile sector. To enhance effectiveness, policymakers should consider harmonizing remission rates to offset state-level disparities and explore transitioning RoSCTL into a more permanent mechanism. Simplifying compliance procedures will facilitate greater participation from MSMEs. Aligning the scheme with international best practices, especially learning from Bangladesh’s export rebate model, can help India regain its competitive edge in apparel exports and expand foreign exchange earnings.

• Harmonize remission rates across states to reduce regional disparities.
• Consider making RoSCTL a permanent export incentive mechanism.
• Simplify documentation and compliance for MSMEs.
• Benchmark against competitor countries’ schemes for enhanced competitiveness.