The Export Promotion Capital Goods (EPCG) scheme is a government initiative that aims to facilitate the import of capital goods for producing quality goods and services and enhance India’s manufacturing competitiveness. Capital goods are machinery, equipment, tools, and other assets that are used in the production process of goods or services. The EPCG scheme allows import of capital goods for pre-production, production and post-production at zero or concessional customs duty, subject to an export obligation equivalent to a certain multiple of duty saved on capital goods imported under the scheme.
The EPCG scheme was launched in the 1990s to boost exports and benefit heavy exporters by providing them financial support by waiving off import duties. The scheme also helps in upgrading the technology and improving the productivity of Indian exporters. The EPCG scheme covers various sectors such as engineering, electronics, chemicals, textiles, plastics, handicrafts, agriculture, etc.
The EPCG scheme has two variants: zero duty EPCG scheme and concessional 3% duty EPCG scheme. The zero duty EPCG scheme is available to exporters of electronic products and allows import of capital goods at zero customs duty, subject to an export obligation equivalent to six times of duty saved on capital goods imported under the scheme, to be fulfilled in six years. The concessional 3% duty EPCG scheme allows import of capital goods at 3% customs duty, subject to an export obligation equivalent to eight times of duty saved on capital goods imported under the scheme, to be fulfilled in eight years.
To avail the benefits of the EPCG scheme, an exporter has to obtain an EPCG license from the Directorate General of Foreign Trade (DGFT) by submitting an application along with relevant documents such as proforma invoice or contract for import of capital goods, bank guarantee or legal undertaking for fulfilling export obligation, etc. The exporter has to register the license with customs authorities before importing capital goods under the scheme. The exporter has to submit proof of fulfillment of export obligation within prescribed time limit to DGFT and get a redemption letter after which the bank guarantee or legal undertaking is released.
The EPCG scheme is a beneficial scheme for Indian exporters as it reduces their cost of production and enhances their competitiveness in global markets. It also encourages technological upgradation and innovation in various sectors. However, some challenges faced by exporters under this scheme are high export obligation ratio, difficulty in meeting export targets due to market fluctuations or demand slowdowns, lack of awareness about procedural aspects or documentation requirements etc..