Duty-free capital goods imports banned for power projects

In a move that will benefit companies like BHEL, Alstom India and KEC International, the government has called a halt to duty-free import of capital goods for power generation and transmission projects under the Export Promotion Capital Goods (EPCG) scheme.

The EPCG scheme allows import of capital goods for preproduction, production and post-production at zero customs duty provided as incentive to spur investments and exports.

The government on Monday amended this clause to withdraw the benefit and provide some leeway to domestic manufacturers that had been facing stiff competition from cheap imports.

"Authorisation under EPCG scheme shall not be issued for import of any capital goods for generation/transmission of power (including captive plants and power generator sets)," the Directorate General of Foreign Trade said in a notification. "Import of capital goods is not permitted under EPCG Scheme for generation/transmission of power."

India imported electrical machinery and equipment worth $4.7 billion in April-December 2015, a 4.4 per cent growth over the previous year.

The EPCG scheme allowed import of capital goods, including spares for pre-production, production and post-production at zero duty subject to an export obligation of six times the duty saved on capital goods imported under the scheme, to be fulfilled in six years.

The scheme had also been much abused by unscrupulous traders. The Directorate of Revenue Intelligence has found cases of second-hand goods being imported and benefit claimed under EPCG.

BP Rao, former chairman and managing director of BHEL highlighted that although imports of cheap Chinese gear have gradually reduced, the government's move to ban capital goods imports under the EPCG scheme for power generation will be a big positive for domestic companies.

In an interview to CNBC-TV18 on Monday, Rao said while order inflows for the industry are relatively reduced, this move will help channel that demand to domestic manufacturers.

On the extent of competition from Chinese equipment suppliers, Rao highlighted that although Chinese imports were high 3-4 years back, they have gradually reduced since. ''Indian power generators have come back to domestic manufacturers because of better services,'' Rao said, adding that the EPCG ban will make it even more difficult for Chinese players to participate in the domestic market.