Government considering continuation of export promotion scheme in new trade policy

The Centre is considering the option of continuing the Export Promotion Capital Goods (EPCG) scheme, which allows exporters to import certain capital goods used in manufacturing without paying duties, for some more time, despite a World Trade Organisation (WTO) panel ruling that the scheme is not consistent with multilateral rules.

In ongoing consultations for the new Foreign Trade Policy (FTP), the Directorate-General of Foreign Trade (DGFT) has received a number of representations from export bodies for continuation of the EPCG scheme, an official close to the development told BusinessLine .

"Our exporters need continued support in acquiring machinery, for production of high quality goods. At this time of global uncertainty, removing the import duty exemption benefits could hit them hard. There is big demand from the industry for continuation of the EPCG scheme and the government is seriously considering it,” an official said.

The Finance Ministry, too, has to be on board if a decision for extending the scheme beyond 2020-21 is taken. Last year, the FTP for 2015-20 was extended by a year due to Covid-19 disruptions, and most schemes, including the EPCG, was extended. The new five-year FTP policy will be implemented from April 1, 2021.

Under the EPCG schemes, import of capital goods for pre-production, production and post-production is allowed at zero customs duty, subject to fulfilment of specific Export Obligations equivalent to six times of duties, taxes and cess saved on capital goods, to be fulfilled in six years.

The capital goods allowed under the EPCG scheme includes spares (including reconditioned/ refurbished), fixtures, jigs, tool, moulds and dyes. Capital goods attract an average customs duty of around 7.5 per cent, so an exemption results in significant benefits for exporters.

The problem facing the government, however, is a WTO dispute panel report issued in October 2019 that backed several claims filed by the US against export promotion measures adopted by India such as the EPCG scheme and the popular Merchandise Export from India Scheme (MEIS). It ruled that India had to roll back these incentives.

“India has already rolled back the MEIS scheme from the beginning of 2021, as it was a more direct export subsidy because of the way the incentives were fixed and given out to exporters in various sectors. However, one may argue that the EPCG scheme is unlikely to lead to market distortions as it is only an import duty relief given to exporters to upgrade their technology. Continuing the EPCG scheme would certainly ruffle fewer feathers globally than continuing the MEIS would have done,” a Delhi-based trade expert said.

Moreover, since India also appealed against the decision of the WTO panel against its exports schemes, the panel’s report can’t be binding till the Appellate Body holds a hearing and gives its verdict. “As the Appellate Body of the WTO is currently dysfunctional due to the US preventing appointment of judges and the appeal is pending, India is not under pressure to replace all its disputed schemes immediately,” the expert added.

Other export incentives that the WTO panel has ruled against include those extended to Export Oriented Units, Electronics Hardware Technology Parks and Special Economic Zones.

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