The Export Promotion Capital Goods (EPCG) scheme is a program by the Indian government to facilitate the import of capital goods used in the production of quality goods and services, thereby enhancing India's manufacturing competitiveness.
Objectives of the EPCG Scheme
The primary goals of the EPCG scheme include:
- Promoting Exports: By allowing manufacturers to upgrade their technology and production capabilities, the scheme aims to boost the export of goods and services from India.
- Facilitating Import of Capital Goods: The scheme provides incentives for importing capital goods required for production, which may not be readily available or cost-effective domestically.
- Enhancing Manufacturing Competitiveness: By enabling access to advanced machinery and equipment, the EPCG scheme aims to improve the quality, efficiency, and competitiveness of Indian manufacturers in the global market.
- Generating Employment: A more robust manufacturing sector, supported by the EPCG scheme, can lead to increased employment opportunities.
Key Features of the EPCG Scheme
Here are some of the defining characteristics of the EPCG scheme:
- Duty Savings: The scheme allows for the import of capital goods at zero or concessional customs duty rates.
- Export Obligation: In return for the duty savings, beneficiaries are required to fulfill an export obligation, which is typically a multiple of the duty saved. This ensures that the scheme directly contributes to export revenue.
- Types of Export Obligation:
- Normal Export Obligation: Requires the exporter to export six times the duty saved in six years from the date of issuance of the authorization.
- Reduced Export Obligation: In certain cases, the export obligation can be reduced. For example, units located in specific areas or manufacturing specific products may benefit from a reduced obligation.
- Capital Goods Definition: Capital goods are defined as plant, machinery, equipment, or accessories required for the production of goods or provision of services.
- Authorization: Companies intending to avail of benefits under the EPCG scheme need to obtain an authorization from the Directorate General of Foreign Trade (DGFT).
- Monitoring: The DGFT monitors the fulfillment of the export obligation. Failure to meet the obligation can result in penalties.
Who Can Benefit from the EPCG Scheme?
The EPCG scheme is open to manufacturers and service providers who are engaged in the export of goods and services. This includes:
- Manufacturers: Companies producing goods for export.
- Service Providers: Businesses providing services that are exported, such as software development, engineering services, or healthcare.
Example
A garment manufacturer wants to upgrade its sewing machines to improve efficiency and quality, thereby boosting exports. The manufacturer imports state-of-the-art sewing machines under the EPCG scheme, paying a reduced import duty. In return, the manufacturer commits to exporting six times the amount of duty saved within six years. This allows the manufacturer to modernize its operations and increase its export volume.
Recent Changes
Keep up to date with the latest notifications and amendments to the Foreign Trade Policy, as rules governing the EPCG scheme may change periodically. These changes could include alterations to export obligation requirements, eligible capital goods, or procedural aspects of the scheme. Review official notifications from the DGFT for current policies.
