In today’s competitive global market, Indian exporters constantly face pressure to deliver high-quality goods at globally competitive prices. However, many manufacturers struggle with one major hurdle: the high cost of machinery and equipment. That’s where the Export Promotion Capital Goods (EPCG) Scheme steps in as a powerful tool to bridge this gap.
Formulated as part of India’s Foreign Trade Policy, the EPCG License helps industries and exporters upgrade their technology without shouldering the entire load of import duties. Let us see how the scheme operates and how it contributes to increasing India’s industrial export capacity.
What is the EPCG Scheme?
The EPCG License, given by the Directorate General of Foreign Trade (DGFT), permits exporters to import capital goods (such as machinery, equipment, tools, etc.) at zero or concessional customs duty on the basis that they would meet a specified export obligation within a stipulated time frame.
In simple words, if you are going to import sophisticated machinery for manufacturing export-grade products, this scheme enables you to do so without having to pay exorbitant import duties in advance, on the condition that you agree to export an equivalent amount of goods or services in return.
How the EPCG Scheme Works
- Application: A prospective exporter or manufacturer seeks an EPCG license from the DGFT, giving details of the machinery to be imported and export obligations contemplated.
- Import Without Full Duty: On sanction, the license facilitates the import of capital goods at 0% customs duty (or at a concessionary rate, depending upon the version of the scheme).
- Export Obligation (EO): The applicant has to discharge an export obligation of 6 times the duty saved, typically within 6 years from the date of issue of the license.
- Installation & Use: The machinery imported should be installed and utilised for the manufacture of export-oriented products or services.
- Compliance & Documentation: Post-discharge of export obligation, documents are filed with the DGFT for license closure.
Who Can Apply for the EPCG Scheme?
The EPCG Scheme is available to:
- Goods or services exporters
- Manufacturer exporters
- Merchant exporters are bound to support manufacturers
- Service providers (such as hotels, logistics companies, healthcare units, etc.)
- It’s largely applied in industries such as engineering, textiles, food processing, plastics, packaging, chemicals, and electronics.
How EPCG Scheme Enhances Industrial Export Capability
Let us focus on how this scheme helps build stronger, export-capable industrial units throughout India:
1. Supports Technology Upgradation
The most significant benefit of the EPCG Scheme is that it allows Indian industries to modernise their manufacturing facilities at a low cost by enabling it to be cost-effective to import state-of-the-art equipment from overseas. This results in enhanced product quality, increased efficiency, and lower costs of production — all critical factors for competing with foreign markets.
2. Lessens Capital Expenditure Burden
High import tariffs usually deter MSMES and mid-tier producers from investing in good equipment. The EPCG license reduces or waives this tariff, unlocking capital that can be applied to other business functions such as advertising, R&D, or employing specialised staff.
3. Encourages Export Expansion
With advanced machinery and enhanced processes, manufacturers find it easier to achieve international standards, thereby boosting their prospects for entering new markets and expanding export volumes. This benefits India’s vision of emerging as a global manufacturing hub in a direct manner.
4. Facilitates Make in India & Atmanirbhar Bharat
By enabling Indian industries to acquire superior equipment and achieve their export quotas, the EPCG Scheme is fully in line with national programs such as Make in India and Atmanirbhar Bharat, promoting both self-reliance and export push.
5. Promotes Long-Term Thinking
As the EPCG scheme has a 6-year export obligation, it induces firms to plan long-term for their export strategy, product range, and market building, resulting in more stable and sustainable export operations.
Compliance Issues: Consider the Following
While the advantages are high, the EPCG Scheme also carries significant responsibilities:
- There should be timely compliance with export obligations. Delays can attract penalties such as repayment of duty saved along with interest.
- Careful tracking and documentation of exports is imperative for license closure.
- The imported equipment should be utilized solely to manufacture exportable goods/services.
- Taking advice from a DGFT consultant or legal export advisor can prevent expensive compliance mistakes.
Conclusion
With a fast-changing global trade scenario, Indian producers must have every edge they can. The EPCG License provides a clever and pragmatic means of investing in superior technology, increasing production capacity, and complying with international standards, without the weight of heavy initial investments.
From a small textile unit to a giant engineering company, using the EPCG Scheme may just be the injection your business needs to expand exports and compete globally.
