06 September 2007
Export Promotion Capital Goods (EPCG) Scheme
Introduced in 1990 to allow import of capital goods at low custom duty
Allows import of capital goods at concessional customs duty of 5% subject to Export Obligation of 5 times the value of capital goods to be fulfilled in 8 years
This scheme has primarily helped exporters to become more competitive as it reduces the initial capital investment
This scheme has helped in boosting exports in the initial years of introduction when the customs duty on capital goods were very high
The relevance of the scheme decreasing with reduction in tariffs
Although not considered export subsidy when notified, this scheme has been questioned during the review of India’s legislation in the Special Meeting of the Committee on Subsidies and Countervailing Measures held at Geneva in July 1996 The main contention from USA as well as EU being that there is no provision in the EPCG scheme that imported capital goods should be used only for export production However, under the Agreement on Subsidies and Countervailing Measures (ASCM), India may not have to phase out EPCG scheme so long as India is a developing country and achieves export competitiveness in a particular product as detailed in ASCM
Duty Entitlement Pass Book (DEPB) Scheme
Most popular scheme since introduction in 1997 because of flexibility and ease of operation gives option to use the credit for either payment of customs duty or sell it to any other importer allows import of any item against the duty credit also gives benefit of duty credit even if indigenous material has been used in the export products
Primarily grants duty credit to neutralise the incidence of customs duty on the import content of export product
The scheme at present covers about 2000 items for which DEPB rates have been notified based on standard input-output norms.
In the year 2000-01 alone, as many as 1,07,914 licences for duty credit of Rs.6,257 crores were issued against export of Rs.58354 crores
This scheme was due for phase-out on 31st March 2002
The scheme has been under a cloud ever since some of the Indian export products have been subject to countervailing duty on the plea that the scheme is WTO incompatible
The main objections by other countries are on account of:
transferability of DEPB credit and therefore the inability to establish nexus between credit and imports. non transparency in fixation of DEPB rates.
Verification not being done by an independent agency duty neutralisation is calculated on deemed import content instead of the actual imports made
The danger at present is that more products are likely to be countervailable by some countries particularly in the EU as when cases are filed by local manufacturers in those countries
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