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What is the EPCG SCHEME and why is the government reviewing it?

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The Export Promotion Capital Goods (EPCG) Scheme was launched in the 1990s to facilitate import of capital goods with the aim to enhance the production quality of goods and services, thereby, increasing India’s international manufacturing competitiveness. Under the scheme, manufacturers can import capital goods for pre-production, production and post-production goods without attracting any customs duty on them. However, the Government is now reviewing whether to continue with or scrape the Scheme as it has been found to be inconsistent with the WTO rules.

“There is a thought in certain sections of the government that the EPCG scheme is not supporting the growth of the domestic capital goods industry and should be discontinued,” mentioned a authorities official, who didn’t want to be recognized.

The exemption from paying the obligation of customs duty on the import of capital goods is topic to fulfillment of an export value equivalent to 6 times of duty saved on the importation of such capital goods within 6 years from the date of issuance of the authorization. This would mean that the importer (being export-oriented) needs to attract earnings in foreign currency which equals 600 % of the customs duty saved in domestic currency, within 6 years of availing benefits of the Scheme.

The capital goods allowed under Export Promotion Capital Goods Scheme shall include spares (including reconditioned/ refurbished), fixtures, jigs, tool, moulds and dies. Further, second-hand capital goods may also be imported without any restriction on age under the EPCG Scheme.

According to sources, the IT Dept. as well as exporters are in the favour of withdrawing the scheme in a phases, which will help in maintaining exports even during difficult situations.

However, as per one another commerce consultant, the finance ministry’s Manufacturing and Other Operations in Warehouse Regulations Scheme permits duty-free import of capital items even for home manufacturing in contrast to EPCG, which generates dedicated exports, and therefore, the scheme shouldn’t be withdrawn.

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