Ministry Poised For Crackdown On Misuse Of Epcg Scheme

The finance ministry is getting ready to crack down on the export promotion capital goods (EPCG) scheme on grounds of large-scale misuse. Imports under the scheme attract a concessional (or zero) duty in return for the promise of exports that are equal to five (or seven) times the imports.

If the ministry has its way, the EPCG scheme will go the way of Vabal, the value-based advance licence scheme that became the subject of controversy following allegations of flagrant misuse.

Ministry officials estimate that imports under the scheme so far total as much as Rs 50,000 crore, and suspect that there is large-scale export fraud because the promised exports have not materialised.

 

Car manufacturers have been among the major users of the scheme. The ministry is currently dealing with an application from a car company, for duty-free import of capital goods to the tune of Rs 800 crore. Officials said they were asking hundreds of questions regarding the promised exports.

Pressure from domestic industry is also building up against the zero-duty option under the scheme. A delegation from the Confederation of Indian Industry (CII) met ministry officials yesterday, and argued that if exports could not compete after paying just 10 per cent import duty on capital goods, then such exports would have to be scrutinised with regard to their actual benefit to the economy. Finance ministry officials seem inclined to use the pressure from domestic industry as justification for either scrapping the scheme altogether, or at least to modify it.

The zero duty option was a later addition to the scheme, with the export commitment being equal to seven times the imports. In the original scheme, there was a concessional rate of duty applied, in return for promised exports equal to five times the value of the imported capital goods.