ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Why Have Export-oriented Units in India Failed to Deliver?

The Export Oriented Unit scheme was launched in 1980 in India to boost exports and increase production. Though a number of provisions and exemptions including fiscal and non-fiscal incentives have been extended to the scheme, the performance of EOUs has been far from satisfactory, particularly in the last few years. If India is to achieve its target of $900 billion exports by 2020, the scheme needs a relook. This is pertinent given India's declining exports.

In 1965, India became the first country in Asia to set up an export processing zone (EPZ) at Kandla. Exactly after 15 years, in 1980, the Export Oriented Unit (EOU) scheme was introduced to boost exports and increase production. To facilitate better delivery on exports and foreign exchange, the scheme had a number of provisions1 relating to customs, foreign trade, foreign exchange, service tax, etc. The scheme had many fiscal and non-fiscal incentives to ensure manufacturing quality and cost efficiency and, thereby, increase exports of value-added products. To encourage entrepreneur participation, the EOU scheme included various incentives, including duty-free imports or domestic acquisition of capital goods/raw material/packaging materials and exemption of anti-dumping duties for inputs used in physical export and eligibility for domestic tariff area (DTA) sales within a specific limit.2

However, the EOU scheme has not been successful, because of limited size, lack of interest among local stakeholders, lack of promotion of the scheme, and limited share in the manufacturing sector. In 2007, the Comptroller and Auditor General (CAG) conducted a performance audit of EOUs; it revealed that many EOUs were not fulfilling the net foreign exchange (NFE) obligations, or not paying the central sales tax (CST), or were exceeding DTA sales.

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