Export Oriented Units Scheme
Export Oriented Units (EOU) Scheme plays a significant role in boosting India’s export performance. Let’s delve into an overview of this scheme. The Export Oriented Units (EOU) Scheme is a government-initiated program designed to promote exports, enhance foreign exchange earnings, attract investment for export production, and generate employment. Introduced in 1980, the EOU Scheme has played a crucial role in India’s export growth and economic development.
Key Features of the EOU Scheme
The EOU Scheme offers a range of incentives to encourage export-oriented production. These benefits include:
- Exemption from customs and excise duties on imported capital goods, raw materials, and consumables
- Exemption from service tax on services used for export production
- Permission to sell up to 50% of their production in the Domestic Tariff Area (DTA) after fulfilling export obligations
- Access to various other incentives and benefits, such as income tax exemptions, land allotment priority, and infrastructure support
Types of EOUs
Here is an overview of the different types of Export Oriented Units (EOUs):
1. Greenfield EOU
A greenfield EOU is a new unit that is established specifically for export production. This means that the unit has not previously engaged in any commercial activity in the Domestic Tariff Area (DTA). Greenfield EOUs are typically granted more incentives than brownfield EOUs, as they are seen as being more committed to exports.
2. Brownfield EOU
A brownfield EOU is an existing unit that converts to an EOU. This means that the unit was previously engaged in commercial activity in the DTA but has now decided to focus on exports. Brownfield EOUs are typically granted fewer incentives than greenfield EOUs, as they are seen as being less committed to exports.
3. Service EOU
A service EOU is a unit that provides services for export. This includes services such as software development, engineering, and accounting. Service EOUs are exempt from service tax on their export earnings.
4. Information Technology EOU
An information technology (IT) EOU is a unit that develops or provides software for export. IT EOUs are exempt from income tax, excise duty, service tax, and VAT on their export earnings.
5. Biotechnology EOU
A biotechnology EOU is a unit engaged in biotechnology-related activities for export. This includes activities such as research and development, production, and testing of biotechnology products. Biotechnology EOUs are exempt from income tax, excise duty, service tax, and VAT on their export earnings.
Choosing the Right Type of EOU
A unit’s choice of EOU will depend on its specific circumstances. Greenfield EOUs are typically the best choice for units committed to exports from the outset. Brownfield EOUs are a good choice for units already established in the DTA and want to increase their export sales. Service EOUs, IT EOUs, and biotechnology EOUs are good choices for units that provide specialized services or products for export.
Eligibility Criteria for EOUs
To be eligible for the EOU Scheme, units must meet certain criteria, including:
- Commitment to export their entire production (except permissible DTA sales)
- Minimum investment requirement, which varies depending on the type of EOU and the location
- Fulfillment of technical specifications and quality standards
- Manufacturing or Service Unit: The unit must be engaged in manufacturing or providing services.
- Export Commitment: The unit must undertake to export its entire production of goods and services, except for permissible sales in the Domestic Tariff Area (DTA).
- Minimum Export Obligation (MEO): The unit must meet the MEO specified for its sector. The MEO is the minimum percentage of the unit’s total production that must be exported.
- Net Foreign Exchange Earnings: The unit must generate net foreign exchange earnings of at least 5% of its FOB turnover.
Application Process for EOUs
The application process for EOUs is relatively straightforward and can be initiated online through the DGFT portal. The process involves submitting an application form and supporting documents, such as a project report, investment plan, and technical specifications.
Application Process for EOU Status:
- File an Application: The unit submits an application form and the required documents to the relevant Development Commissioner.
- Obtain Letter of Intent (LOI): If the application is approved, the unit receives an LOI.
- Establish Unit and Apply for Certificate of Registration (COI): The unit sets up its operations and applies for a COI from the Development Commissioner.
- Comply with Regulations: The EOU adheres to the regulations and conditions of the scheme.
Benefits of the EOU Scheme
The EOU Scheme offers several benefits to exporters, including:
India’s Export Oriented Unit (EOU) Scheme catalyzes fostering economic growth and promoting international trade. EOUs, established entities primarily focusing on export-oriented activities, enjoy many benefits contributing to their competitiveness and sustainability in the global market. Here’s a comprehensive exploration of the key advantages offered by the EOU Scheme:
- Duty-Free Import and Domestic Procurement: EOUs are entitled to import goods and capital equipment duty-free, facilitating cost savings in the production process. Additionally, they can source raw materials, components, and finished goods domestically without paying any customs duty, further enhancing their cost-effectiveness.
- Exemption from Excise Duty: Under the EOU Scheme, EOUs are exempted from paying excise duty on procuring capital goods, raw materials, and consumables. This exemption significantly reduces the production costs for EOUs, making their products more competitive in the global market.
- Simplified Customs Procedures: EOUs benefit from simplified and streamlined customs procedures, leading to faster clearance of imported and exported goods. This efficiency in customs clearance reduces transaction times and enhances the overall operational agility of EOUs.
- Access to Export Processing Zones (EPZs) and Special Economic Zones (SEZs): EOUs often operate within designated EPZs or SEZs, providing them with a conducive business environment. These zones offer state-of-the-art infrastructure, logistical support, and a range of facilities that contribute to the efficient functioning of EOUs.
- Income Tax Benefits: EOUs enjoy income tax benefits, including a deduction of 100% of profits and gains derived from export activities for a specified period. This tax incentive is a significant financial advantage for EOUs, encouraging them to focus on expanding their export-oriented operations.
- Flexibility in Production and Export Obligation: EOUs can choose the products they wish to manufacture and export, providing them with adaptability based on market demands. The export obligation is typically set at a reasonable level, offering EOUs the freedom to plan their production strategies without undue constraints.
Impact of the EOU Scheme
The EOU Scheme has had a positive impact on India’s export performance. EOUs have contributed significantly to the country’s export growth and foreign exchange earnings. The scheme has also attracted foreign investment and promoted technology transfer, further strengthening India’s economic position.
Export Growth:
The EOU Scheme has been instrumental in boosting India’s export performance. Since its inception in 1980, EOUs have contributed significantly to India’s export growth, accounting for a substantial share of India’s total exports. In the early 1980s, EOUs accounted for around 10% of India’s exports. By the late 1990s, this figure had risen to over 20%.
Investment Attraction:
The EOU Scheme has been a key driver of investment in India’s export sector. The scheme’s attractive incentives, such as duty-free imports, tax exemptions, and simplified procedures, have attracted domestic and foreign investors to set up export-oriented units. This has led to the creation of new manufacturing and service facilities, stimulating economic activity and job creation.
Employment Generation:
The EOU Scheme has played a crucial role in generating employment opportunities in India. Establishing export-oriented units has created direct and indirect employment, with thousands of people gaining employment in production, logistics, and support services. The scheme has particularly benefited employment in textiles, electronics, pharmaceuticals, and software sectors.
Technology Upgradation and Innovation:
The EOU Scheme has fostered technological advancement and innovation in India’s export sector. The scheme’s incentives have encouraged EOUs to invest in modern machinery, equipment, and technologies, improving production efficiency and product quality. This has made EOUs more competitive in the global market and has contributed to the overall technological development of India’s manufacturing and service industries.
Skill Development and Entrepreneurship:
The EOU Scheme has contributed to skill development and entrepreneurship in India’s export sector. The establishment of EOUs has created demand for skilled workers in various fields, leading to the development of training programs and vocational institutions. Additionally, the scheme has provided opportunities for entrepreneurs to establish export-oriented businesses, fostering a culture of innovation and self-employment.
Conclusion
Overall, the EOU Scheme has significantly promoted India’s exports and enhanced its global trade position. The scheme’s various incentives and benefits have attracted domestic and foreign investments in export-oriented industries, increasing employment opportunities and foreign exchange earnings. As India continues to focus on export-led growth, the EOU Scheme will likely remain an important policy instrument for fostering export competitiveness and economic growth. The EOU Scheme has been a successful initiative in promoting exports and boosting India’s economic growth. The scheme continues to play an important role in the country’s export strategy. It will likely remain relevant in the future, driving India’s export competitiveness and economic progress.
