Union Finance Minister Nirmala Sitharaman would be presenting the Union Budget on 01 February 2021, one of the most critical Budgets in recent times as it would define India’s path to economic recovery. The Indian economy has been severely impacted by the COVID-19 outbreak which has resulted in growing unemployment, led to a sharp fall in the GDP and also lowered industrial output and profits, jeopardising growth prospects, crimping new foreign investment in manufacturing and affecting the economic wellbeing of a large cross section of people.

One of the worst impacted sectors due to the pandemic has been the manufacturing sector. The industry expects that the government, through the Budget, would bring in incentives or new schemes to infuse fresh life and to also, promote foreign investment in this sector which will assist in generating employment.

In the past few years, the thrust of the government to promote manufacturing and exports, has been on Special Economic Zones (SEZs), Export Oriented Units (EOUs), Export Promotion Capital Goods (EPCG) etc. However, the aforesaid schemes had been challenged by the US before the World Trade Organization (WTO) and therefore the focus of the government has now shifted to the scheme of duty deferment and manufacturing in Customs Bonded Warehouses (CBWs), a WTO- complied scheme.

Under the said scheme, a manufacturer is allowed to import duty-free inputs/capital goods for undertaking manufacturing in CBWs. Though this concept was prevalent earlier too, but industry had always faced challenges while implementing. One of the main reasons that the earlier process of ‘Manufacturing under bond’ had to be relooked at was the need to obtain dual licenses coupled with a statutory requirement of maintaining records under both sections separately. The in-bond manufacturing process was practically effective only when undertaken under a scheme of Foreign Trade Policy (FTP) such as EOU.

Therefore, heeding to the demand of industry, the Central Board of Indirect Taxes & Customs (CBIC) decided to free up ‘manufacturing under bond’ from the regulatory framework of FTP in 2018. Consequently, manufacturing under Customs bond has now become a standalone scheme, different from schemes under FTP, such as Advance Authorisation, EPCG, EOU, etc.