CG import opened under DTA, EPCG windows

One of the major changes in the Exim Policy is the removal of actual user condition on the import of second-hand capital goods up to 10 years old under para 2.32 of the Handbook of Procedures (Vol I). Second-hand capital goods are the main vehicles of investment in the country. Indenting agents say that as much as 90% of capital goods import by users industries, including multinationals, is in used condition. The economics and viability factors in the Indian market do not support use of new capital goods. The restriction on sale for two years by the importing actual user has also been removed. However, capital goods which are older than 10 years require a negative list licence from the DGFT headquarters with the actual user condition. Coverage too is restricted to heavy equipment for infrastructure and core sector. The continuation of the restriction means that import must be backed by a chartered engineers age certificate. The removal of the actual user condition opens the door to trading activity which will bring in low-cost equipment into the market for onward sale to the final consumer and the repairs and recondition segment. The effect on machinery prices will be significant since the normal duty of 50.8% will apply on a low value base (Customs allow depreciation up to a maximum of 70% of the original value on a rough depreciation rate of 4% per quarter). Pressure points will emerge, especially in computers and IT equipment where the obsolescence rates are very high and three-year old equipment is available at rock bottom prices. Customs will stop imports initially on grounds of administrative instructions from ministry of information technology (MIT) to stop all imports of second-hand computers and parts. Importers will take Customs and MIT to court saying that these administrative instructions are invalid without the authority of law. EPCG: The commerce minister has gone a step further to reduce the cost of capital goods to the users. The EPCG scheme too has been amended to allow import of second-hand capital goods up to 10 years. In addition, the export obligation will be eight times that of the duty saved. The duty saved component will be 45.8% on a 50.8% total duty item after the 5% duty applicable on EPCG import. Eight times the duty saved means an export obligation of 366.4% of the CIF value of imports. The obligation is thus quite low when compared to the current historical obligation of eight times the import value originally designed to neutralise the forex outflow by way of additional export. The relatively low value of export obligation will be a boon to investment in the domestic economy. On the other hand, units stuck with export obligations at the rate of eight times on old licences will feel cheated at the apparent discrimination. The bonanza for new investment does not end here. Given the low valuation base on second-hand capital goods which cuts value by 70%, the 45.8% duty saved in the above example will be quite low. Even the most backward of factories should be able to find foreign buyers who will retire the obligation well within the stipulated period of eight years. A bank guarantee for the duty saved amount may not be necessary as the unit can fulfil the obligation on the very next day of licence issue! There may be a movement away from the EOUs and EPZs as virtual duty free import is available in the DTA itself. The only special benefit of an EOU and EZ now is the income-tax holiday till 2010. The scene is set for a big spurt in investment and employment in the repairs, services and reconditioning industry. In the second phase, Indian versions of the latest imported goods will be available with the exposure of the market to new varieties of machinery. Of course, the capital goods manufacturers in Bangalore area and elsewhere will have to adjust themselves to the change in scene and shift to locally designed equipment in niche segments or move to the lucrative repairs and services segment. Second-hand raw material: On the second-hand raw material front, the scene is similar to capital goods. Acceptable quality goods classified as seconds are available at low prices in the world market and can be used for making cost efficient products for the domestic and export markets. As of now, the emphasis in the raw material side is only on prime material. The policy for hazardous, toxic and radioactive material provides the handle to control imports. In fact, in this policy itself, waste paper has been shifted from the free list to the limited permissible list. The recent amendment to further restrict the import of plastic waste is an example of this thinking. (The department of environment too may release the new import policy on hazardous waste after the finalisation of the 2003 amendment to the Hazardous Wastes (Management and Handling) Rules, 1989). The industry hopes that the fresh thinking on capital goods will percolate down to the raw material and component sector to allow free play of globalisation forces which bring in efficiency and production of market related goods and services. (Academy of Business Studies)

CG import opened under DTA, EPCG windows

One of the major changes in the Exim Policy is the removal of actual user condition on the import of second-hand capital goods up to 10 years old under para 2.32 of the Handbook of Procedures (Vol I).

More from our Partners

Popular Categories

Hot on Web

In Case you missed it

Top Searched Companies

Latest News

Download ET APP

Follow us on

become a member