With the EC's clearance, a formal notification is expected to be issued by the revenue department to give effect to the revised scheme during this week. The new scheme will thus come into operation after a lapse of four months.

Earlier, the commerce ministry had consulted the commission on the feasibility of widening the ambit of the scheme as envisaged in the policy to ensure that it did not go against the moral code of conduct for political parties notified by the Commission.

The reference to the commission at the revenue department's instance was notwithstanding the fact that the proposal formed part and parcel of the policy announced much before the poll.

Incidentally, the extension of the EPCG scheme administered by the commerce ministry was the first case to be referredto the commission after the announcement of the poll dates.

The proposal seeks to reduce the Rs 20 crore threshold limit (cif value) for import of new machinery under the scheme to Rs 1 crore and to extend the benefit to the chemicals, plastics and textile sectors against a heavy export obligation.

Following changes notified in the policy on April 13, 1998, the Rs 20-crore limit under the zero-duty EPCG scheme was lowered to Rs 1 crore and the benefit extended to seven key sectors -- garments, electronics, gems and jewellery, sports goods, leather, toys, and food processing.

Subsequently, the benefit of the reduction was also made applicable to certain sectors of the engineering industry.

The export obligation under the scheme can be fulfilled on an fob or a net foreign exchange (NFE) basis. In the case of the former, the obligation will be equal to six times the cif value of capital goods to be completed in eight years.

The NFE norms prescribe four times the cif value of capital goods as the exportobligation to be achieved in eight years.

The EPCG scheme has another window which allows import of new machinery at 10 per cent customs duty. The export obligation will be equal to six times the cif value of these goods to be fulfilled in five years.

Textile sector to benefit

The textile sector will greatly benefit from the reduction in the limit to Rs 1 crore, enabling mills to import around 40 to 50 critical state-of-the-art machinery for technology update. These machinery items have already been cleared from the domestic angle. This facility will be in addition to the five percentage points reduction in the interest on loans made available by the public financial institutions under the technology upgradation scheme for the textile sector, including jute, launched on April 1.