EPCG sops to spur investment

The proposal to allow zero-duty imports of capital goods under the Export Promotion Credit Guarantee (EPCG) Scheme for some sectors has cheered exporters. This will encourage them to invest and modernise their plants, feels Sunil Khandelwal, chief financial officer for Alok Industries, a textile major.

The government has allowed zero-duty import of capital goods for engineering and electronic products, basic chemicals & pharmaceuticals, apparels & textiles, plastics, handicrafts, and leather in its five-year foreign trade policy unveiled on Thursday. Companies can avail of this scheme till March 31, 2011.

Given the downturn and strain on cash flows, would companies be in a position to invest and reap the benefit? ‘‘This is not an ad hoc policy, but is for two years and may continue for the entire stretch till 2014. The downturn is temporary. The extra benefit will encourage people to invest,’’ said Manab Majumdar, senior director, Federation of Indian Chambers of Commerce and Industry.

Akhil Jindal, director, Welspun Ltd, feels the policy will at least encourage companies to go for balancing equipment to better utilise their capacity. A textile company may have excess capacity in weaving (looms) and lower capacity for cutting and sewing. It would definitely like to take advantage of the benefit and invest in balancing equipment.

But there’s a catch for textile companies. Companies that have imported or had plans to import equipment under the Technological Upgradation Fund Schemes of the ministry of textiles and beneficiaries of the Status Holder Incentive Scheme in that particular year won’t be able to avail of the EPCG scheme.

To increase the life of existing plant and machinery, the export obligation on import of spares and moulds under the EPCG Scheme has been reduced by 50 per cent of the normal one. Exporters have also welcomed continuation of the Duty Entitlement and Passbook Scheme (DEPB) for another year. The scheme was to end this December. The minister further said that 100 per cent Export Oriented Units (EOUs) and STPI (Software Technology Park) units would be entitled to various tax benefits in the next financial year.