The Indian government offers several schemes to incentivize the import of capital goods into the country. These schemes are designed to promote domestic production, increase exports, and encourage the adoption of new technology.
Advance Authorization Scheme
The Advance Authorization Scheme allows importers to import capital goods without payment of basic customs duty, additional duty, and education cess. This scheme is available to manufacturers who need to import raw materials or capital goods for the production of export goods. The authorization is issued based on the value of the export products, and the duty exemption is available for a period of 12 months from the date of issue of authorization.
Export Promotion Capital Goods (EPCG) Scheme
The EPCG Scheme allows importers to import capital goods at a concessional rate of customs duty, subject to the condition that the importer exports goods equivalent to six times the CIF value of the imported capital goods within a period of six years from the date of issuance of the authorization. The EPCG scheme is available to manufacturers who need to import capital goods for their production process. The duty exemption is available for a period of five years.
Duty-Free Import Authorization (DFIA) Scheme
The DFIA Scheme allows importers to import capital goods without payment of basic customs duty, additional duty, and education cess. This scheme is available to manufacturers who need to import inputs or capital goods for the production of goods that are meant for export. The authorization is issued based on the value of the export products, and the duty exemption is available for a period of 12 months from the date of issue of authorization.
Capital Goods (CG) Scheme
The CG Scheme provides duty concessions for import of capital goods for the manufacture of electronic components, renewable energy devices, and various other specified items. The duty concession is available at a concessional rate of customs duty. The CG Scheme is available for a period of 3 years.
Special Valuation Branch (SVB)
The Special Valuation Branch is a scheme that is designed to prevent under-invoicing of imported goods. The SVB examines the valuation of imported goods, and ensures that the correct value is assessed for customs purposes. The SVB is responsible for determining the value of imported goods where there is reason to believe that the declared value is incorrect.
Duty Remission Scheme
The Duty Remission Scheme provides a duty drawback on capital goods imported for the manufacture of export products. The duty drawback is available to manufacturers who export their products. The amount of duty drawback is calculated based on the value of the export products.
Import of Second-Hand Capital Goods
The import of second-hand capital goods is allowed subject to certain conditions. Importers are required to obtain a certificate from the Chartered Engineer certifying that the imported machinery is in working condition and meets the technical specifications required for its use in India. Importers are also required to pay a fee for certification of the machinery. Additionally, the import of second-hand machinery is subject to environmental regulations and import licensing requirements.
Benefits of the Schemes for Import of Capital Goods
Encourages domestic production and export
The schemes for import of capital goods are designed to encourage domestic production and increase exports. By providing duty exemptions and concessional rates, these schemes reduce the cost of production, making domestic manufacturers more competitive in the global market.
Promotes technology adoption
The schemes for import of capital goods also promote technology adoption by encouraging the import of new and advanced machinery. This helps Indian manufacturers to adopt the latest technology and remain competitive in the global market.
Improves economic growth
The schemes for import of capital goods also help to improve economic growth by increasing exports and promoting domestic production. By providing incentives for the import of capital goods, the government is encouraging the growth of industries that can contribute to the economy.
Provides cost savings for manufacturers
The schemes for import of capital goods also provide cost savings for manufacturers by reducing the duty payable on the imported goods. This allows manufacturers to allocate resources towards other areas of the production process.
Limitations of the Schemes for Import of Capital Goods
Restrictive eligibility criteria
The eligibility criteria for the schemes for import of capital goods can be restrictive, which may prevent some manufacturers from taking advantage of the incentives.
Long-term commitments
Many of the schemes for import of capital goods require long-term commitments from manufacturers, such as the EPCG Scheme, which requires exporters to export goods equivalent to six times the CIF value of the imported capital goods within a period of six years. This may be a deterrent for some manufacturers who do not want to commit to such long-term plans.
Limited scope
The schemes for import of capital goods have a limited scope, as they only cover certain types of capital goods or industries. This may leave some manufacturers without access to the incentives.
Example of the Schemes for Import of Capital Goods
Let us take the example of a manufacturer who wants to import capital goods for the production of export goods. The manufacturer can apply for an Advance Authorization under the Advance Authorization Scheme, which will allow them to import the capital goods without payment of basic customs duty, additional duty, and education cess. The authorization will be issued based on the value of the export products.
Alternatively, the manufacturer can apply for an EPCG authorization under the EPCG Scheme, which will allow them to import capital goods at a concessional rate of customs duty, subject to the condition that the exporter exports goods equivalent to six times the CIF value of the imported capital goods within a period of six years from the date of issuance of the authorization.