Textile, auto exporters see profit squeeze

Textile and automobile exporters in India are facing a significant challenge following the government's recent decision to halve tax refunds under the Remission of Duties and Taxes on Exported Products (RoDTEP) program. This move is expected to squeeze profit margins and working capital, particularly impacting the cotton textiles, yarn, and two-wheeler sectors. Approximately 58% of India's $11.03 billion cotton textile exports are likely to be affected, as the reduced RoDTEP rates, which range from 0.5% to 3.6%, come at a critical time when companies are poised to benefit from new free trade agreements with the EU, the UK, and EFTA nations. Industry leaders have expressed their dismay, with calls for the government to restore previous rates to mitigate financial losses for exporters with shipments already in transit and contracts that were negotiated based on higher reimbursements. While automobile exports have shown robust growth, especially in two-wheelers, the reduced incentives may still pose challenges. Analysts suggest that the impact could be softened by a weaker rupee and strong international demand, although the long-term effects on profitability remain to be seen as companies adapt to the new landscape.