Capital goods have it good

The domestic capital goods industry has been put on notice in Tuesday’s national foreign trade policy. The policy has further liberalised norms under the Export Promotion Capital Goods (EPCG) scheme, which allows import of capital goods at concessional duty.

Major gainers are the farm and agro processing sector — as the government has allowed capital goods to be imported duty-free for export of agri products and their value-added variants. In effect, there will be two windows again for the EPCG scheme — 5% and 0%.

The most significant change in the EPCG scheme is the decision to remove the age restriction of 10 years on import of second-hand capital goods. Beneficiaries would be companies in the power, steel and cement, which are currently on an expansion drive.

Industry analysts said this would help domestic companies to be more cost-competitive, as many steel and cement plants — which are still in good shape, but were shut down because of environmental issues — are available in various parts of the world. “These can be picked up at fraction of a cost of a new plant by Indian companies. This will help them to get a significant cost advantage,� said J Mehra, director, Essar.

The cost advantage apart, second-hand imports will also help cut down the gestation time for setting up a new plant by more than half. Since second-hand plant is a ready built one, companies just need to import it and fix it, whereas in the case of a new plant, the minimum waiting period could be about one and a half years.

The power sector, which is also expected to see massive expansion, will benefit in a big way by importing boilers or turbines at cheap prices and then undertaking their upgradation at low costs.

Industry sources said the logic behind earlier restriction on second-hand imports was to close the loophole of companies picking up junks and fudging invoices to transferring forex abroad.

“Today, the government has relaxed foreign exchange rules so much that nobody needs to resort to routes like import of second-hand machinery for these purposes,� an industry source said.

The government has also relaxed export obligations on EPCG licenses from 8 years to 12 years, with a duty saving of Rs 100 crore or more. Other changes include incentivising and facilitating technological upgradation. Group companies stand to gain as the policy allows transfer of capital goods from such companies and managed hotels under the EPCG scheme.

Procedural relaxations include increasing the validity of the EPCG license from 24 months to 48 months.

The requirement of an installation certificate from central excise for movable capital goods in the service sector has also been waived.