The Export Promotion Capital Goods (EPCG) Scheme is a flagship initiative launched by the Government of India under the Foreign Trade Policy (FTP) to promote and facilitate the import of capital goods for export production. The scheme allows Indian manufacturers and service providers to import capital goods at zero customs duty with an obligation to export goods or services equivalent to six times the value of the duty saved on the capital goods imported over a specified period.
The scheme is designed to enhance India’s manufacturing capabilities, improve productivity, and encourage the production of goods and services for export markets. By providing concessional duty rates for the import of advanced machinery and technology, the EPCG Scheme aims to improve the competitiveness of Indian products in the global market.
Objectives of the EPCG Scheme
- Promote Export Competitiveness:
- The EPCG Scheme is aimed at enhancing the quality and scale of India’s exports by allowing businesses to access advanced capital goods at reduced costs, thereby boosting export-oriented production.
- Encourage Technological Upgradation:
- The scheme encourages Indian manufacturers to upgrade their technology and production processes by providing access to modern machinery and equipment at a lower cost.
- Increase Export Earnings:
- By supporting the import of machinery that can boost productivity and quality, the scheme indirectly aims to increase India’s export earnings and balance trade deficits.
- Facilitate Investment in Manufacturing:
- The EPCG Scheme facilitates investment in India’s manufacturing sector by reducing the capital costs associated with setting up new plants or upgrading existing production lines.
Key Features of the EPCG Scheme
- Zero Duty on Capital Goods Imports:
- Under the EPCG Scheme, eligible businesses can import capital goods for pre-production, production, and post-production at zero customs duty. This includes machinery, equipment, and other capital goods required for manufacturing or service delivery.
- Export Obligation:
- The scheme imposes an export obligation (EO), where businesses are required to export goods or services worth six times the duty saved on the imported capital goods over a period of six years from the date of issuance of the EPCG authorization.
- Relaxed Export Obligation for Certain Sectors:
- For units in the agro-processing sector, the export obligation is reduced to 4.5 times the duty saved over a period of six years.
- Export obligations for industries in green technology or rural development projects may also be relaxed under specific conditions.
- Indigenous Sourcing of Capital Goods:
- The EPCG Scheme encourages domestic procurement of capital goods by providing incentives for sourcing machinery and equipment from indigenous manufacturers. This supports local manufacturing while still allowing businesses to avail themselves of duty benefits.
- Eligibility:
- Manufacturers, service providers, merchant exporters, and service exporters are eligible to apply under the EPCG Scheme.
- The scheme covers a broad range of sectors, including agriculture, engineering, textiles, chemicals, IT services, hospitality, and more.
- Third-Party Exports:
- The scheme allows third-party exports, which means that the manufacturer does not necessarily have to export the final product themselves. Another company can export the goods on their behalf, fulfilling the export obligation.
- Capital Goods Covered:
- The scheme applies to various types of capital goods, including:
- Machinery and equipment for manufacturing and production.
- Packaging machinery.
- Computer systems and software.
- Tools, dies, and molds.
- Testing and quality control equipment.
- Telecommunication equipment.
- Any other capital goods used in manufacturing or service provision.
Conditions and Compliance under the EPCG Scheme
- Export Obligation (EO):
- Businesses availing of the EPCG Scheme must meet the export obligation as stipulated by the Directorate General of Foreign Trade (DGFT). The obligation is calculated based on the duty saved on imported capital goods.
- The export obligation must be fulfilled within six years from the date of issue of the EPCG license. The obligation is linked to the specific products or services that the capital goods were imported to produce.
- Average Export Performance:
- In addition to fulfilling the export obligation, businesses must maintain their average export performance over the last three financial years preceding the issuance of the EPCG license. This requirement ensures that businesses not only increase exports but also maintain their baseline performance.
- Technological Upgradation:
- The scheme emphasizes technological advancement and upgradation. Businesses importing capital goods must ensure that the goods are used to enhance their production capacity, quality, or efficiency.
- Domestic Procurement:
- As part of the government’s Make in India initiative, businesses are encouraged to procure capital goods from domestic manufacturers. Indigenous procurement allows for concessional rates under the EPCG Scheme.
- Extension of Export Obligation Period:
- In certain cases, businesses may request an extension of the export obligation period beyond six years. Extensions are subject to the discretion of DGFT, and penalties may apply if the obligation is not met within the extended time frame.
- Penalty for Non-Compliance:
- In case of non-fulfillment of the export obligation within the specified period, businesses are liable to pay the saved customs duty along with interest at the rate of 15% per annum from the date of import.
Procedure to Apply for the EPCG Scheme
- Application Submission:
- Applicants must submit an online application through the DGFT website (https://www.dgft.gov.in) to obtain the EPCG authorization.
- The application requires details about the type of capital goods to be imported, the intended end use, the expected export obligation, and the past export performance of the company.
- Documentation Required:
- Import Export Code (IEC): A valid IEC number is mandatory.
- Digital Signature: Applicants must have a valid digital signature to submit applications on the DGFT portal.
- Product and Process Details: Information about the manufacturing or service processes and the products or services that will be exported.
- Project Report: For large investments, a detailed project report may be required outlining the production capacity and export potential.
- Previous Export Details: Details of previous exports, if any, to demonstrate average export performance.
- Issuance of EPCG License:
- Once approved, the DGFT issues an EPCG License or Authorization, which allows the business to import capital goods at concessional or zero duty rates. This authorization includes the export obligation that the business must fulfill over the next six years.
- Compliance and Reporting:
- Throughout the export obligation period, businesses must submit periodic reports to the DGFT, outlining their export performance and the usage of the imported capital goods.
- On completion of the export obligation, a final report must be submitted to close the EPCG license.
Benefits of the EPCG Scheme
- Reduction in Capital Costs:
- By allowing the import of capital goods at zero customs duty, the EPCG Scheme significantly reduces the cost of machinery and equipment required for export-oriented production.
- Encouragement of Exports:
- The scheme incentivizes businesses to export more goods and services by reducing their input costs and improving their production capabilities.
- Technological Advancement:
- By facilitating access to state-of-the-art technology and machinery, the EPCG Scheme supports the modernization of India’s manufacturing sector, leading to improved efficiency and quality.
- Global Competitiveness:
- Access to modern capital goods helps Indian businesses produce higher-quality products at competitive prices, making them more attractive in the global market.
- Support for Multiple Sectors:
- The EPCG Scheme is available to a wide variety of sectors, including manufacturing, services, agriculture, and engineering, making it a versatile tool for promoting exports.
Recent Updates and Changes to the EPCG Scheme
- Green Technology and Environmental Concerns:
- In alignment with global sustainability goals, the EPCG Scheme now includes provisions for the import of green technology equipment, such as renewable energy machinery and pollution control systems. Businesses investing in environmentally friendly technologies may receive special consideration under the scheme.
- Promoting Indigenous Manufacturing:
- As part of the Atmanirbhar Bharat initiative, the government is increasingly promoting the procurement of capital goods from domestic manufacturers. This aligns with the larger goal of promoting Make in India and reducing dependence on imports.
- Easier Compliance:
- The DGFT has implemented various digital initiatives to simplify the application process and improve transparency. Online submission, real-time status tracking, and digital reporting have made it easier for businesses to comply with the scheme’s requirements.
Challenges and Recommendations
Challenges:
- Export Obligation Fulfillment: Meeting the export obligation, especially in volatile global markets, can be challenging for some businesses, particularly in sectors impacted by demand fluctuations.
- Awareness: Many small businesses, particularly in rural areas, are unaware of the scheme and its benefits, limiting its reach.
Recommendations:
- Wider Awareness Campaigns: The government should enhance outreach programs to educate smaller and rural businesses about the benefits of the EPCG Scheme.
- Flexible Compliance Measures: Given the global uncertainties, introducing more flexibility in the export obligation requirements could make the scheme more attractive, particularly for small and medium-sized enterprises (SMEs).
Conclusion
The Export Promotion Capital Goods (EPCG) Scheme plays a pivotal role in promoting the growth and competitiveness of India’s export-oriented industries by allowing them to access advanced capital goods at zero or reduced customs duty. Through this scheme, businesses are encouraged to invest in modern technology, improve productivity, and scale up their exports, thus contributing to India’s economic growth and global competitiveness. For businesses looking to expand into international markets, the EPCG Scheme offers a powerful incentive to reduce capital costs and maximize export opportunities.
For more information and to apply for the scheme, businesses can visit the Directorate General of Foreign Trade (DGFT) portal: https://www.dgft.gov.in.
Here’s the Export Promotion Capital Goods (EPCG) Scheme information presented in a tabular format:
| Aspect | Details |
|---|---|
| Scheme Name | Export Promotion Capital Goods (EPCG) Scheme |
| Launched By | Government of India under the Foreign Trade Policy |
| Launch Year | First introduced in the 1990s, with updates under the Foreign Trade Policy (2015-2020) and later policies |
| Objective | – Promote export competitiveness |
| – Facilitate technological upgradation | |
| – Encourage investment in manufacturing and export-oriented production | |
| – Enhance India’s export earnings | |
| Key Features | – Zero customs duty on import of capital goods |
| – Imposes an export obligation of 6 times the duty saved on capital goods | |
| – Export obligation to be fulfilled over a period of 6 years | |
| – Reduced export obligation for agro-processing (4.5 times duty saved) | |
| – Encourages indigenous procurement of capital goods | |
| Eligible Sectors | – Manufacturing |
| – Service providers | |
| – Merchant exporters | |
| – Agro-processing industries | |
| Capital Goods Covered | – Machinery and equipment for production |
| – Packaging machinery | |
| – Computer systems and software | |
| – Tools, dies, and molds | |
| – Testing and quality control equipment | |
| – Telecommunication equipment | |
| Eligibility | – Manufacturers, service providers, merchant exporters, and service exporters |
| – Applies to a wide range of industries such as agriculture, textiles, chemicals, hospitality, IT, and engineering | |
| Export Obligation | – Export goods/services worth 6 times the duty saved on imported capital goods over 6 years |
| – Agro-processing sector: Export obligation is 4.5 times the duty saved | |
| – Obligation applies to goods/services produced using the imported capital goods | |
| Export Obligation Extension | – Possible extension of export obligation period subject to DGFT approval |
| Average Export Performance | – Companies must maintain their average export performance over the last 3 financial years, ensuring consistent growth |
| Third-Party Exports | – Allows third-party exports: Another company can export on behalf of the EPCG license holder |
| Domestic Procurement | – Encourages procurement of capital goods from indigenous manufacturers |
| Penalty for Non-Compliance | – Penalty includes repayment of duty saved plus interest at 15% per annum if export obligations are not met |
| Application Process | – Apply online through the DGFT portal (https://www.dgft.gov.in) |
| – Submit project details, intended use of capital goods, and past export performance | |
| – Requires Import Export Code (IEC) and Digital Signature | |
| – Once approved, EPCG License is issued allowing duty-free import | |
| Export Obligation Fulfillment | – Report exports periodically to DGFT, documenting how the obligation is being met |
| Recent Updates | – Encouragement of green technology and environmentally friendly equipment |
| – Promoting indigenous procurement in line with the Make in India initiative | |
| Benefits | – Zero or reduced customs duty on capital goods imports |
| – Technological advancement through access to modern machinery | |
| – Improved global competitiveness through reduced input costs | |
| – Promotes investment in export-oriented production | |
| Challenges | – Export obligation compliance may be difficult in fluctuating global markets |
| – Limited awareness among small businesses | |
| Recommendations | – Wider awareness campaigns to educate small businesses |
| – Introduction of more flexible compliance measures | |
| Website | DGFT Portal for online applications and more information |
This table provides a clear and comprehensive overview of the EPCG Scheme, highlighting its key features, benefits, and application process.
