Relief in Average Export Obligation: Key Provisions in Handbook of Procedures of Foreign Trade Policy

Introduction

The Export Promotion Capital Goods (EPCG) scheme is a cornerstone of India’s Foreign Trade Policy (FTP), designed to facilitate the import of technologically advanced capital goods for enabling production of world class finished goods. However, the dynamic nature of global markets and regulatory environments can pose challenges for exporters in meeting their Export Obligations (EO). Recognising these challenges, the Handbook of Procedures (HBP) 2023 introduces significant provisions like the "Relief in Average Export Obligation" (Para 5.17) and "Automatic EO Extension in the Event of Ban on Export Product" (Para 5.19). These provisions aim to offer flexibility and relief to exporters, ensuring they can navigate market fluctuations and regulatory changes without compromising their commitments.

Relief in Average Export Obligation - Para 5.17 of HBP 2023

Overview of the Provision

Para 5.17 of the HBP 2023 is a critical relief measure for exporters. It addresses situations where the total exports of a sector or product group have declined by more than 5% compared to the previous year. In such cases, the average export obligation for the year may be proportionately reduced to match the decline in exports for that particular sector or product group. This provision is particularly beneficial in times of global economic downturns or sector-specific challenges, where maintaining the original export obligation might be unrealistic.

Key Features

• Sector-Specific Relief: The relief applies only to those sectors or product groups where there has been a decline in total exports by more than 5% compared to the previous year.

• Proportional Reduction: The reduction in average export obligation is directly proportional to the decline in exports. This ensures that the relief is fair and reflective of actual market conditions.

• Continuous Decline Consideration: If the decline in exports is continuous over consecutive years, the base year for calculating eligibility and reduction in average export obligation will be the year after which the exports began to decline.

• DGFT Policy Circulars: The sectors or product groups eligible for this relaxation are conveyed by the Directorate General of Foreign Trade (DGFT) to the Regional Authorities (RAs) within seven months of the end of the previous financial year. The RAs then re-fix the annual average EO accordingly in line with the relevant Policy Circulars.

  
  
  
  

This provision serves as a cushion for exporters during tough market conditions, ensuring that their obligations are realistic and achievable, thereby preventing financial stress and potential penalties.

Automatic EO Extension in the Event of Ban on Export Product - Para 5.19 of HBP 2023

Overview of the Provision

Para 5.19 provides a safeguard for exporters who might be adversely affected by sudden bans or restrictions on the export of specific products. In such events, the export obligation period for EPCG authorisations, issued before the imposition of the ban, is automatically extended for a duration equivalent to the ban period. This automatic extension is granted without the imposition of any composition fee, providing immediate relief to affected exporters.

Key Features

• Automatic Extension: The EO period is extended automatically for a period equal to the duration of the export ban, without requiring the exporter to apply for an extension.

• No Composition Fee: Exporters benefit from this extension without having to pay any composition fee, which is typically required for extending the EO period.

• Average EO Suspension: During the ban period, the exporter is not required to maintain the average export obligation. This further reduces the pressure on exporters during the ban.

This provision is crucial in ensuring that exporters are not unfairly penalised for circumstances beyond their control, such as government-imposed export bans.

Conclusion

The provisions of Handbook of Procedures of the Foreign Trade Policy for "Relief in Average Export Obligation" and "Automatic EO Extension in the Event of Ban on Export Product" are strategic measures that reflect the government’s commitment to supporting exporters in an unpredictable global trade environment. By offering these flexibilities, the EPCG scheme continues to be a robust tool for promoting exports while also safeguarding the interests of exporters during challenging times. These provisions not only provide immediate relief but also ensure the long-term sustainability of export businesses.