Ministry Mulls Scrapping Epcg Scheme

The commerce ministry is considering a proposal to do away with the 10 per cent Export Promotion Capital Goods (EPCG) scheme.

In the last Exim policy (1997-2002), the government had cut the concessional customs duty on capital goods imports under the scheme from 15 to 10 per cent. However, exporters are for either reducing the duty to 5 per cent or doing away with the scheme and lowering the threshold limit for the zero duty scheme.

According to ministry sources, the EPCG scheme has (compared with the zero duty scheme) been losing its attractiveness since overall customs duties have come down in some cases to 10 per cent. In such cases, it does not make sense for the exporters to avail of this scheme. The sources said that the garments and textiles sector was being denied the benefit of the scheme since the duty on textile machinery is 10 per cent and imports do not exceed Rs 20 crore and therefore the exporters cannot avail of the zero duty scheme.

 

At present, two schemes exist the 10 per cent scheme and the zero duty scheme for imports over Rs 20 crore. The new policy (1997-2002) lowered the threshold limit on the zero duty scheme to Rs 5 crore for the agriculture and allied sectors and has eased the export obligation norms for the agri exporters. It is being argued that this should be lowered for textiles and garments to Rs 1 crore in the coming policy.

Several sections of industry including exporters of leather, granite and garments are lobbying for lowering the threshold in the zero duty scheme for their products on the grounds that agriculture sector is being given a step-motherly treatment.

The domestic capital goods industry is opposed to the zero duty scheme and is seeking the removal of the zero duty project imports introduced in certain sectors. It is also strongly opposed to the removal of the Rs 20 crore limit in the zero duty scheme on the plea that this will kill the domestic industry.

However, the official view has been that keeping in view the large value of EPCG licenses issued in 1995 and 1996 and the fact that the zero duty window was meant for facilitating capital intensive projects with longer gestation periods, it is not possible to grant this demand.

The final decision will be taken by the finance ministry, sources said but the commerce ministry is expected to push for lowering the threshold for some sectors.