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Provisions of EPCG Scheme eased

  • Category
    Economy
  • Published
    25th Apr, 2022

Context

The Commerce Ministry has relaxed various procedures under the Export Promotion Capital Goods (EPCG) scheme in order to reduce compliance requirements and facilitate ease of doing business.

Background

  • The capital goods industry is considered the core of the manufacturing sector, and provides critical inputs like machinery and equipment to a broad set of user-industries.
  • India's capital goods sector has grown in size since liberalisation in the 1990s.
  • And now with the opening up of the economy, the capital goods sector is witnessing strong traction due to healthy order inflows across companies, rising execution levels in key projects, the improving liquidity situation, and spending by the central government.
  • The capital expenditure for 2022-23 has been pegged at Rs 7.5 lakh crore. 
    • The major import sources of top 10 capital goods imports include China, South Korea, developed nations like the US, Germany, Japan, and Southeast Asian countries like Malaysia, Singapore, and Vietnam. India has existing trade agreements with Japan, South Korea, and the Southeast Asian nations.

Analysis

What is Export Promotion Capital Goods (EPCG) Scheme?

  • Launched in: 1990s
  • Export Promotion Capital Goods (EPCG) Scheme helps in facilitating the import of capital goods for manufacturing quality goods and to augment the competitiveness of India’s export.

Capital Goods

  • Export Promotion Capital Goods are capital goods used in the production of goods that are exported to other countries.
    • It includes machinery as well as spares.
    • Hence, to qualify as Export Promotion Capital Goods, the commodity manufactured in India must be exported outside India.
  • Factors of production: Capital goods are one of the four factors of production. This means that businesses cannot run without them. The other three are:
    • Natural resources (such as land, oil, and water)
    • Labor  (such as workers)
    • Entrepreneurship, which is the drive to create new companies
  • A part of India’s Foreign Trade Policy, the scheme enables the import of capital goods that are used in the pre-production, production, and post-production without the payment of customs duty.

Customs duty is a variant of Indirect Tax and is applicable on all goods imported and a few goods exported out of the country. 

  • EPCG License: In order to obtain a License under the EPCG scheme, it is a primary requirement to file an application with the licensing authority of the Director General of Foreign Trade.
    • The issuing authority is the licensing authority – Director General of Foreign Trade (DGFT). 

Doing the numbers

  • EPCG allows the import of capital goods at a customs duty of 0% or 3%.
  • 0% Duty
  • The 0% customs duty requires the authorisation holder to undertake export obligation amounting to 6 times of the amount saved on duty on the capital goods. 
  • Also, the capital goods should be imported within a 6-year period from the authorisation issue date.
  • 3% Duty
  • For 3% duty, the authorisation holder needs to undertake export obligation of 8 times the duty saved on the import of capital goods over a period of 8 years.
  • The imported goods cannot be sold or transferred.
  • The installation of capital goods and its usage in production should be done within 6 months. 
  • Second-hand goods of any nature will not be permitted under the EPCG scheme.

What changes have been brought to the EPCG scheme?

  • The annual reporting of EO (export obligation) can now be done by June 30 of each year instead of April 30, but any delay will be subject to a late fee of Rs 5,000.
  • Requests for export obligation extension can now be made within six months of expiry instead of the earlier prescribed period of 90 days. 
  • Abovementioned request could also be made after six months of expiry till six years, subject to late fees of Rs. 10,000 per application.
  • Requests for block-wise export obligation extension could now be made within six months of expiry.
  • This application can also be made after six months of expiry of authorisation and up to six years but with a late fee of Rs 10,000 per authorisation.
  • For the purpose of above application, earlier, no specified time limit was prescribed, leading to discretionary interpretations.
  • The facility to pay customs duty through scrips (MEIS /RoDTEP /RoSCTL) for default under EPCG has been withdrawn.

Important Scheme putting focus on the sector

  • PM Gati Shakti Master Plan: The government has recently introduced the 'PM Gati Shakti Master Plan' to create comprehensive infrastructure development plan including roads, railways, power, telecom, etc.
    •  This is likely to revive the capex cycle and drive further growth in the sector.
  • National Infrastructure Pipeline: Launched to cover the fiscal years between 2019 and 2025, the National Infrastructure Pipeline is a 'first-of-its-kind, whole-of-government exercise to provide world-class infrastructure to citizens and improve their quality of life'.

Conclusion

The abovementioned changes would bring down compliance requirement for the exporters who use imported capital goods as inputs and hence enhance the Ease of Doing Business in India.

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