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    Import of Capital Goods

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    Pranav Kumar
    Capital goods are tangible assets like buildings, machinery, and equipment that businesses use to produce goods or services as inputs for other businesses. The import of capital goods is allowed in India through various schemes like the Export Promotion Capital Goods Scheme and duty exemption schemes. While rising capital goods imports contribute to India's current account deficit, they are also a positive sign as they indicate increasing investments and the expansion of productive capacity in the economy. If investments and growth pick up further after the elections, capital goods imports are expected to rise and may widen the current account deficit. However, economists view strong capital goods imports more favorably than consumer goods imports.

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    Import of Capital Goods

    Uploaded by

    Pranav Kumar
    183 views24 pages
    Capital goods are tangible assets like buildings, machinery, and equipment that businesses use to produce goods or services as inputs for other businesses. The import of capital goods is allowed in India through various schemes like the Export Promotion Capital Goods Scheme and duty exemption schemes. While rising capital goods imports contribute to India's current account deficit, they are also a positive sign as they indicate increasing investments and the expansion of productive capacity in the economy. If investments and growth pick up further after the elections, capital goods imports are expected to rise and may widen the current account deficit. However, economists view strong capital goods imports more favorably than consumer goods imports.

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    Import of Capital Goods

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    Capital goods are tangible assets like buildings, machinery, and equipment that businesses use to produce goods or services as inputs for other businesses. The import of capital goods is allowed in India through various schemes like the Export Promotion Capital Goods Scheme and duty exemption schemes. While rising capital goods imports contribute to India's current account deficit, they are also a positive sign as they indicate increasing investments and the expansion of productive capacity in the economy. If investments and growth pick up further after the elections, capital goods imports are expected to rise and may widen the current account deficit. However, economists view strong capital goods imports more favorably than consumer goods imports.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    183 views24 pages

    Import of Capital Goods

    Uploaded by

    Pranav Kumar
    Capital goods are tangible assets like buildings, machinery, and equipment that businesses use to produce goods or services as inputs for other businesses. The import of capital goods is allowed in India through various schemes like the Export Promotion Capital Goods Scheme and duty exemption schemes. While rising capital goods imports contribute to India's current account deficit, they are also a positive sign as they indicate increasing investments and the expansion of productive capacity in the economy. If investments and growth pick up further after the elections, capital goods imports are expected to rise and may widen the current account deficit. However, economists view strong capital goods imports more favorably than consumer goods imports.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    of 24

    IMPORT OF

    CAPITAL GOODS
    What are Capital Goods?
    Capital goods are tangible assets that a business uses to produce
    goods or services that are used as inputs for other businesses to
    produce consumer goods.

    Said another way, capital goods are tangible assets, such as


    buildings, machinery, equipment, vehicles and tools that one
    organization uses to produce goods or services as an input to
    produce consumer goods and goods for other businesses.
    Manufacturers of automobiles, aircraft, and machinery fall within
    the capital goods sector because their products are used by
    companies involved in manufacturing, shipping and providing other
    services.

    Capital goods qualify as tangible assets that an organization uses to


    produce goods or services such as office buildings, equipment and
    machinery. Consumer goods are the end result of this production
    process. The industrials sector of the economy includes capital-
    goods-producing businesses such as Boeing, Caterpillar and
    Lockheed Martin.
    Export Promotion Capital Goods (EPCG) Scheme
    • It allows import of capital goods for pre-production, production and post-
    production (including CKD/SKD thereof as well as computer software systems)
    at zero% customs duty, subject to an export obligation equivalent to 6 times of
    duty saved on capital goods imported under EPCG scheme, to be fulfilled in 6
    years reckoned from Authorization issue-date.
    • The concessional 3% duty EPCG Scheme allows import of capital goods for
    pre-production, production and post-production (including CKD/SKD thereof
    as well as computer software systems) at 3% customs duty, subject to an
    export obligation equivalent to 8 times of duty saved on capital goods
    imported under EPCG scheme, to be fulfilled in 8 years reckoned from
    Authorization issue date.
    • The capital goods shall include spares (including
    refurbished/reconditioned spares), tools, jigs, fixtures,
    dies and molds. Second hand capital goods, without
    any restriction on age, may also be imported under the
    EPCG Scheme. The export obligation can also be
    fulfilled by the supply of ITA-1 items to the DTA,
    provided the realization is in free foreign exchange.
    Duty Exemption and
    Remission Schemes
    Duty Exemption Schemes
    Duty exemption schemes enable duty free import of
    inputs required for export production. Duty exemption
    schemes consist of:
    • Advance Authorization scheme
    • Duty Free Import Authorization (DFIA) scheme
    1. Advance Authorization Scheme
    • An Advance Authorization is issued to allow duty free import of inputs,
    which are physically incorporated in export product (making normal
    allowance for wastage). In addition, fuel, oil, energy, catalysts which are
    consumed / utilized to obtain export product, may also be allowed. DGFT,
    by means of Public Notice, may exclude any product(s) from the purview of
    Advance Authorization.
    • Mandatory spares which are required to be exported / supplied with the
    resultant product can be allowed duty free but upto 10% of CIF value of
    Authorization
    • Advance Authorizations are issued for inputs and export items given under
    SION. These can also be issued on the basis of Adhoc norms or self
    declared norms.
    Advance Authorizations can be issued either to a manufacturer
    exporter or a merchant exporter tied to supporting
    manufacturer(s) for:
    • Physical exports (including exports to SEZ); and/or
    • Intermediate supplies; and/or
    • Such supply of goods that are allowed in Chapter 8 of the
    Foreign Trade Policy;
    • Supply of ‘stores’ on board of foreign going vessel / aircraft
    subject to condition that there is specific SION in respect of
    item(s) supplied
    2. Duty Free Import Authorization (DFIA) Scheme
    DFIA is issued to allow duty free import of inputs, fuel, oil, energy sources,
    catalyst which are required for production of export product. DGFT, by means
    of Public Notice, may exclude any product(s) from purview of DFIA.

    Entitlement:-
    A. Provisions of paragraph 4.1.3 shall be applicable in case of DFIA.
    However, these Authorizations shall be issued only for products for which
    Standard Input and Output Norms (SION) have been notified.

    B. DFIA shall be issued in accordance with Policy and procedure in force on


    date of issue of Authorization.
    C. In case of post export DFIA, a merchant exporter shall be required to
    mention only name (s) and address(s) of manufacturer(s) of the export
    product(s). Applicant is required to file application to concerned RA
    before effecting exports under DFIA.

    D. Pre-export Authorization shall be issued with actual user condition and


    shall be exempted from payment of basic customs duty, additional
    customs duty / excise duty, education cess, anti-dumping duty and
    safeguard duty, if any.

    E. In case of actual user DFIA and where CENVAT credit facility on inputs
    have been availed for the exported goods, even after completion of
    export obligation, the goods imported against such DFIA shall be utilized
    in the manufacture of dutiable goods whether within the same factory or
    outside (by a supporting manufacturer).
    Duty Remission Schemes
    A Duty Remission Scheme enables post export
    replenishment / remission of duty on inputs used in export
    product. Duty Remission Schemes consist of :
    • Duty Entitlement Passbook (DEPB) Scheme
    • Duty Drawback (DBK) Scheme
    1. Duty Entitlement Passbook (DEPB) Scheme

    The objective of Duty Entitlement Pass Book (DEPB) is to


    neutralize the incidence of Customs duty on the import
    content of the export product. The neutralization shall be
    provided by way of grant of duty credit against the export
    product. Under the DEPB, an exporter may apply for credit,
    as a specified percentage of FOB (Free on Board or Freight
    on Board) value of exports made in freely convertible
    currency.
    2. Duty Drawback Scheme
     General Meaning
    Provides exporters a refund of customs duty paid on unused imported
    goods, or goods that will be treated, processed or incorporated into other
    goods for export.

     Overview
    The Duty Drawback Scheme allows exporters to get a refund on customs
    duty paid on imported goods, where those goods are:
    • to be treated, processed, or incorporated in other goods for export, or
    • are exported unused since importation.
    • The minimum claim per application for duty drawback is $100
     Who can apply(Eligibility criteria)
    At a minimum, you must:
    • Be the legal owner of the goods at the time the goods are
    exported
    • Duty drawback is available on most goods on which customs duty
    was paid on importation and which has been exported.

     Deadline to apply:
    Claims must be lodged within four years from the date the goods
    were exported.
    Capital Goods Imports in
    India’s Context
    Overview
    • Growth in the Indian economy has strengthened. A modest pick-up in the
    investment cycle is underway. That’s the good news. The bad news is that a
    continued pick-up in investments could widen India’s current account deficit
    further.
    • India’s current account deficit widened to 2.4 percent of GDP in the April-June
    quarter, showed RBI data released on Friday. While oil remains the biggest
    pressure on India’s import bill, a surge in imports of consumer items like
    smartphones has also weighed on the export-import balance.
    • Capital goods imports are also contributing to the imbalance and this could
    continue.
    • There exists a near perfect correlation coefficient between investments and
    capital goods imports, shows analysis by BloombergQuint. This implies that if
    investments rise over the coming quarters, capital goods imports will also rise.
    The correlation coefficient was calculated taking the absolute level of capital
    goods imports and the nominal gross fixed capital formation.
    Capital Goods Imports Mirror Investments

    Growth will start rising and private investments will rebound after
    elections, pushing up capital goods imports further, said Pranjul
    Bhandari, the chief India economist at HSBC in a conversation with
    BloombergQuint. Capital goods are assets that businesses use to
    produce consumer goods.

    He also added that even if export growth strengthens, imports of


    crude oil, capital and consumer goods will likely outpace exports.
    “As India’s growth differential with the rest of the world is rising, imports are
    expected to remain very strong and the current account deficit will continue
    to widen.”
    -Pranjul Bhandari, Chief India Economist, HSBC

     The bank forecasts India’s current account deficit to widen to 2.7 percent of
    the GDP for the fiscal year ended March 2019 from 1.9 percent of the GDP
    the previous fiscal year.
    What is a 'Current Account Deficit'?
    The current account deficit is a measurement of a country’s trade
    where the value of the goods and services it imports exceeds the value
    of the goods and services it exports. The current account includes net
    income, such as interest and dividends, and transfers, such as foreign
    aid, although these components make up only a small percentage of
    the total current account. The current account represents a country’s
    foreign transactions and, like the capital account, is a component of a
    country’s balance of payments.
    India’s Capital Goods Imports
    • A deficit in the current account is created when the value of
    goods and services imported, is higher than the value of goods
    and services exported by a country.
    • But the quality of that deficit also matters. Economists feel that
    strong capital goods imports are a positive indicator as they
    increase the productive capacity of the economy.
    • Capital goods and consumer goods imports cannot be treated
    alike, said Shubhada Rao, chief economist at Yes Bank. “Capital
    goods imports are a positive indicator as they create further
    capacity expansion,” she said. Yes Bank expects a current account
    deficit of 2.8 percent of GDP this year.
    • In contrast, consumer goods imports simply reflect increased consumption
    spending, which may not always be healthy.
    • In volume terms, core imports (non-oil, non-gold) rose 10.9 percent year-
    on-year in July from 3 percent in June, noted Nomura Global Market
    Research in a note last month. A break-up of the imports showed a 9.3
    percent year-on-year increase in consumer goods imports, Nomura
    pointed out. “Investment and industrial imports growth continued to show
    strong performance, in sync with the domestic cyclical capex recovery,” it
    added.
    • Together, capital and consumer goods account for nearly a fifth of all
    imports, slightly less than what crude oil accounts for.

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